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WIRELESS LOCAL LOOP FORUM TRANSCRIPT



Wednesday, December 17, 1997


National Press Club
529 14th Street, N.W.
Washington, D.C.





 1                     WIRELESS LOCAL LOOP FORUM
 2                                                   (9:10 a.m.)
 3              MS. BROWN:  I'm Kathy Brown.  I head the Office
 4    of Policy Development at NTIA.  Traditionally, our office
 5    has been sort of a think tank part of Government, of
 6    telcom, and over the last number of years I've done a lot
 7    of thinking and a lot of work on procompetitive policies,
 8    the implementation of the act and beyond, to ensure that
 9    new technologies find their way to the market, that we're
10    not erecting any Government barriers that will keep the
11    deployment of what we think are pretty exciting
12    possibilities from getting to the market.
13              So this is a second in a series of forums that
14    we are sponsoring.  We have named it New Frontiers on the
15    Information Superhighway, and we mean that.  We think
16    there are new frontiers.  The first forum was on Internet
17    telephony and the second on wireless technology,
18    specifically this notion, this idea of wireless local
19    loop.
20              In the room today are some of the best minds in
21    the industry and in Government and in decisionmaking,
22    policymaking in Washington, in the country on this issue,
23    and we hope today will be an opportunity for us to talk
24    together about this.  It is a forum, and we have tried and
25    asked our speakers to keep their  presentations relatively

                                                               3
 1    brief and to the point so that we can share ideas.
 2              The point is that we come out of this experience
 3    with perhaps some new learning, some new ideas, and maybe
 4    some answers to some problems we see out there, and so I
 5    hope you will all participate.  I hope you will stay as
 6    long as you can during the day, and that you will feel
 7    very comfortable in joining in the discussion.
 8              I wanted to bring to your attention that CTIA
 9    has very graciously provided some refreshments down in the
10    corner, some coffee and muffins.  The Government
11    unfortunately is too poor to even give you coffee, but the
12    industry, thank goodness, knows that one needs a cup of
13    coffee in the morning.
14              CTIA has also arranged for a demo room where a
15    number of companies are demonstrating some of the
16    technologies we'll be talking about today.  Lucent is
17    there, Motorola, Nortel, Teligent, and World Access, so I
18    hope during the day you will take a trip down around the
19    corner to the demo room and have a look at what the
20    companies have set up.
21              With that, I would like to start the program by
22    introducing Larry Irving, who is the Assistant Secretary
23    for Telecommunications and Information.  He has been on
24    this super information highway right now for 5 years here
25    at NTIA.  He's seen a lot of things happening, has  been a

                                                               4
 1    real proponent of a competitive open marketplace, I think
 2    understands a little bit about the potential for these new
 3    technologies, and I'm very pleased that he is here to open
 4    the program.
 5              (Applause.)

                    WELCOME AND OPENING REMARKS
               LARRY IRVING, ASSISTANT SECRETARY FOR
                  COMMUNICATIONS AND INFORMATION
                    U.S. DEPARTMENT OF COMMERCE

10              MR. IRVING:  Good morning, and let me thank
11    Kathy.  These fora are really her idea, and her brain
12    child, and I get the honor of participating, but I really
13    want to express my appreciation publicly to all of you for
14    inspiration, because I think these really helped us.  We
15    hope that these fora will help us to learn some things,
16    will give us an opportunity to discuss these issues, but
17    also will give us an opportunity to educate people a
18    little bit about some technologies.  We don't know much
19    about, and I want to thank Kathy for that.
20              I want to apologize to you. We're a little late
21    getting started this morning.  I'm worried that I'm going
22    to become the late Larry Irving before my time, and I'm
23    late this morning because of Christmas.  My wife and I
24    went out last night and we bought a new Christmas tree,
25    and I  did the guy thing and I'm  putting the tree up, and

                                                               5
 1    about 7:00 this morning I was in the bathroom and I heard
 2    a crash, and I can assure you, there's an old story -- you
 3    know, there's an old joke, if a tree falls in the forest
 4    does it make a noise?  If it falls in the living room it
 5    most decidedly does.
 6              (Laughter.)
 7              MR. IRVING:  So I have been in tinsel and
 8    glitter and lights for about 40 minutes this morning
 9    trying to put together a tree that my wife says I told you
10    it was crooked.
11              (Laughter.)
12              MR. IRVING:  A great way to start your day.  So
13    Merry Christmas.
14              But I also want to welcome all of you to NTIA's
15    advanced technology forum on wireless local loop.  As
16    Kathy noted, today's forum is the second in a series.  The
17    first was on internet telephony in September.  They're
18    supposed to be every other month.  It would have happened
19    in November, but again my schedule wouldn't accommodate
20    it, so I'm glad your schedule could accommodate your being
21    here today.
22              All of the forums will focus on innovative
23    developments in telecom and information technologies in
24    industries that are bringing increased competition to
25    industries and we hope redefining  our daily lives and the

                                                               6
 1    lives of our brothers and sisters on this planet.
 2              I want to thank all the distinguished panelists.
 3
 4    I know  a lot of people have rejiggered their schedule,
 5    have come a long way, have tried to do what they could to
 6    accommodate us, and we think we have a really outstanding
 7    group of people who will be addressing you today.
 8              Because of the many ways to define wireless
 9    local loop we have tapped a broad group of talent, and
10    there really is a broad group of talent in this industry,
11    and I know that there are members in the audience who
12    won't be presenting but also bring great expertise to the
13    topic, and I really hope that this will be interactive,
14    that people in the audience will also engage in the
15    debate.
16              This should be a dialogue.  It shouldn't just be
17    us yakking from the front at you.  We want to have a real
18    exchange of ideas and information.
19              Let me begin by extending some thanks, first to
20    CTIA for coordinating a demonstration of wireless local
21    loop technology in conjunction with this forum so we can
22    see the physical manifestation of what we will be
23    discussing today, and I want to thank my old friend Randy
24    Coleman and also Karen Bruno for their efforts on behalf
25    of Tom  Wheeler and CTIA, and I guess  some of you have to

                                                               7
 1    thank CTIA for the coffee.
 2              I stay away from coffee, and I think you should
 3    thank me from staying from coffee. I talk faster when I do
 4    coffee, so I try never to do -- Kathy said all of us need
 5    a little coffee.  Not all of us.  It's a scary thing when
 6    I do coffee.  I've had people that threatened to quit and
 7    a wife threaten to leave if they ever see me on coffee
 8    again.
 9              So, in addition there are a lot of other people
10    who have helped and advised us and are making this forum
11    possible and we hope a success, and I particularly want to
12    thank Mark Golden of PCIA who provided a tremendous amount
13    of guidance and helped us frame the issues and made some
14    suggestions of speakers and panelists for this forum.
15              And finally, let me again commend Kathy Brown
16    and her staff, but particularly Joe Gattuso and Anne
17    Stauffer.  They put in a lot of hours to pull this off,
18    and I want to publicly acknowledge their efforts.
19              When we talk about wireless technologies I think
20    it's amazing when you think about how fast this has become
21    commonplace.  I've been doing telecommunications for 15
22    years, 5 years at NTIA, and I've had a front row seat at
23    maybe the emergence of telecommunications and wireless
24    telecommunications in this country, and it really does
25    offer conduits  for  the delivery  of  communications  and

                                                               8
 1    content both domestically and worldwide in ways none of us
 2    I think could have contemplated 5 years ago.
 3              I often remember the story that AT&T back in
 4    1982 thought the worldwide market for wireless
 5    communication devices would peak at 1 million, because
 6    what they were thinking about was the analogue things that
 7    were big and bulky and scratchy and didn't work too well,
 8    and they basically sold off their rights because of their
 9    concerns then that there really wasn't going to be a
10    market, but mobile communications have an increasing
11    percentage of the value of the global telecommunications
12    market.
13              In 1990, mobile communications were under 5
14    percent of the global telecom market.  They're now just
15    under 20 percent of that market.
16              The newsletter, FT Mobile Telecommunications,
17    calculates that the world cellular subscriber total will
18    pass 200 million by the end of this year.  In Scandinavian
19    countries mobile phone penetration rates are heading
20    toward 50 percent.  In China there will be 15 million
21    mobile telecommunications subscribers by the end of this
22    month.  In Italy at certain times of the day it's already
23    cheaper to use a mobile phone rather than a fixed phone,
24    and if you want to have fun in Rome, just watch the
25    scramble when the  phone, the mobile phone  starts ringing

                                                               9
 1    at a dinner table.
 2              Everybody in Italy, in Rome, has a mobile phone,
 3    basically because their fixed phone doesn't work very
 4    well, but mobile telephony is an amazing thing.  If you
 5    want to really be scary, watch somebody riding down the
 6    street on a Vespa with a mobile phone to their ear.  that
 7    will get you off the streets.
 8              Wireless local loop technologies and services
 9    are being deployed successfully around the world as first
10    service in many countries and as a competitive service to
11    wired network in places such as the United Kingdom.
12              You know, the United States has experienced
13    growth in mobile communications goods and services, too. 
14    I was ready Com Daily last night on the Net, and Tom
15    Wheeler announced that there are 50 markets with five or
16    more wireless competitors right now.
17              In this country there are 50 markets with five
18    or more wireless competitors, and I think many of us
19    remember, I certainly remember when we first got our first
20    cellular licenses in Washington, D.C., and we thought this
21    was a miraculous day.  There are five or six.  Any of us
22    here in Washington have a choice of five or six different
23    mobile competitors right now, and prices, the important
24    thing about competition is that prices fell an average of
25    6 percent  across this Nation between June of '96 and June

                                                              10
 1    of '97.
 2              When you bring in more competitors, you bring
 3    the prices down.  When you bring the prices down, more
 4    people have access.  The more people who have access, more
 5    people have access to telephony, and I know that I
 6    personally -- if you gave me the choice right now, if
 7    you're going to snatch the wires out of your home and take
 8    away that telephone, or take away one of your two mobile
 9    phones, take the wires out of my house.  Not even a close
10    question.  There's no way I would rather have a wired
11    phone with static.
12              I know I use my mobile phone more than I use my
13    phone at home, and I think that's true for many people who
14    are mobile, who are running around the country and running
15    around the city.  I'm never at home, but I'm always
16    somewhere I can be reached with a mobile phone.  If I'm on
17    the Hill I need my Ricochet so I can show Members what's
18    happening with regard to the Internet.  I can't always
19    find a phone line in a Member's office.  I can't always
20    find a plug with a laptop.  In Ricochet I can surf the net
21    right there.
22              Using wireless technology is becoming more and
23    more important in what we do every day, and I think all of
24    us have to realize it.  It is only going to become more
25    robust.

                                                              11
 1              And I was thinking as I was walking over here,
 2    if somebody never had a wired phone and their first
 3    experience was with a mobile phone, would they  understand
 4    why they would want to have a phone that's plugged in if
 5    they don't have access, if they couldn't move around with
 6    it?
 7              And I think for those of us who grew up one way,
 8    it makes sense, but for people who grew up another way,
 9    their first experience with a telephone is a wireless
10    phone, a mobile phone, that makes -- it changes the
11    dichotomy.  It changes the equation.
12              And as you bring the prices down by having to
13    have wires going to remote areas we're going to change the
14    economics and bring telephony to some areas.  that's going
15    to change some paradigms as well.
16              We're just beginning to explore the potential of
17    wireless technologies, including wireless local loops, and
18    I want to urge the wireless industry to meet the challenge
19    to becoming true competitors to traditional wire line
20    providers in the United States, not just for those of us
21    who don't have a life because we're too busy working, but
22    for all Americans.
23              Since the passage of the Telecom Act in '96
24    wireless has increasingly shown its potential to bring us
25    real   competition  and  to   bring  it  to  traditionally

                                                              12
 1    underserved areas of our country, to inner cities and to
 2    remote rural communities, and I believe that wireless
 3    local loop can be the competitive alternative we've been
 4    looking for in this country.
 5              We are looking for ways to give people more and
 6    more choices in terms of who provides them telephone
 7    service at home, and we hope and believe that wireless
 8    local loops may give us part of the solution.
 9              I've heard about this technology, but I've also
10    seen this technology in other nations.  I've seen how
11    wireless local loops works in India, I've seen how it
12    works in South Africa, I've seen how it works in China as
13    I've traveled around this globe on behalf of you, and as
14    I've traveled around this world I know that it does
15    provide an alternative to some people, but in many
16    instances it provides the first real telephone connection
17    to people around the world.
18              Now, you've got to remember, if you live on this
19    planet, if you're alive today, the odds are 4 to 1 that
20    you don't have a phone at home.  In the United States, we
21    don't -- I mean, I carry two cellular  phones, one from
22    work, one from home.  My wife carries two cell phones.  We
23    have phones at home, all kinds of phones in the office,
24    but around this world, if you live on this planet, it's 4
25    to 1 odds you don't  have a phone at home.   80 percent of

                                                              13
 1    the households in this world don't have a phone.
 2              Now, we're going to provide telephone service,
 3    and in a lot of places the first phone coming in is coming
 4    in because of wireless local loop.  Wireless technology is
 5    going to change that equation.  That number won't be 80
 6    percent by the year 2000, and it won't be 80 percent in
 7    large measure because of the deployment of wireless
 8    technologies in remote areas and other underserved areas
 9    around this country.
10              I believe that the same technology can be
11    deployed in this country, and wireless local loop can
12    allow the policy debate to focus not on subsidies, but on
13    affordable access.  How do we bring the price down, not
14    how do we subsidize these technologies and access, and I
15    challenge today's panelists to tell us how and when this
16    can be achieved.
17              Today's discussion should identify barriers,
18    technical, economic, and regulatory, and we hope you will
19    also propose solutions, what we in policymaking can do to
20    assist you, and what we can do in this commercial trade
21    field in exploiting some of these new market
22    opportunities.
23              What exactly do we mean by wireless local loop,
24    and many of you know more than I do.  The local loop is a
25    connection between the telephone system and  the customer.

                                                              14
 1    Wireless local loop allows the final mile between the
 2    switch network and the customer become the final airway.
 3              There's really no single definition of wireless
 4    local loop.  It means a bunch of things.  But in general,
 5    wireless local loop refers to any system in which the
 6    connection to the consumer or the consumer's home or
 7    business is being made using a radio connection.
 8              In many discussions, wireless local loop has
 9    become synonymous with fixed wireless access technology. 
10    In a typical configuration, you install an antenna on a
11    consumer's home or on a nearby structure, and then you
12    have a fixed wireless connection made between that point
13    and the first point of switching, such as the telephone
14    company's central office.  This fixed technology may in
15    many applications be less expensive to instal and maintain
16    than traditional wire line connections.
17              In many countries around the world, again,
18    Colombia, Sri Lanka, Poland, these fixed technologies are
19    being deployed.  In many case, this technology brings
20    service to people in remote or rural areas for the first
21    time, and that's something we're very focused on, trying
22    to get these technologies for the first time, but also
23    where people already have technology, bringing that
24    technology in as a competitive alternative to the existing
25    systems.

                                                              15
 1              Wireless local loop can be defined broadly as
 2    well to include other wireless technologies that have the
 3    potential of supplanting wireless service, but wireless
 4    local loop is an attractive service because of three
 5    attributes.  One, cost.  It could be more cost-effective
 6    than wire line service.  Two, rapid deployment, and three,
 7    spectrum flexibility.
 8              The spectrum flexibility comes about because the
 9    wireless local loop has the flexibility because of
10    technology, provider service, and spectrum use.  An
11    amazing number of people are providing wireless local
12    loop.  Many different technologies are capable of
13    providing it.  PCS, LMDS (local multipoint distribution
14    service), DEMS (digital electronic messaging service), a
15    subject I'm becoming more and more familiar with, it
16    seems, every day, DBS (digital broadcast service).
17              There are also many different providers gearing
18    up to provide these services including PCS license
19    holders, CRMS license holders, LMDS license holders, WCS
20    license holders, satellite companies, LEX, and other wire
21    line telcos.
22              Services include fixed wireless, replacing the
23    home phone, mobile cellular that acts like a home phone,
24    and a fixed mobile hybrid in which the wireless phone
25    provides  local service to  be taken  out of the  house to

                                                              16
 1    roam within a predetermined area.
 2              The FCC is making spectrum available in many
 3    bands and is granting flexibility to many licenses.  There
 4    are several proposals for wireless local loop services on
 5    different spectrum bands.  Some parties propose using
 6    spectrum already allocated and largely assigned to
 7    different licenses in 2 GHz PCS bands.  Other parties are
 8    exploring new spectrum allocations, and we're working with
 9    Nortel at NTIA in our spectrum management office to
10    determine the feasibility of wireless local loop on bands
11    that the Federal Government currently uses.
12              And finally, several high frequency broad band
13    services, such as DEMS, LMDS and others, are considering
14    plans to offer wireless local loop services.
15              Wireless local loop can potentially help us meet
16    two of the most important goals in the Clinton
17    administration with regard to telecommunications.  One is
18    competition.  You will probably never hear anybody from
19    the Clinton administration talk about telecom without
20    talking about the importance of competition, and realizing
21    the promise of the '96 act, which is to bring competition,
22    not because competition by itself is great, but because
23    the benefits of competition are so important to our
24    economy and to consumers, and to workers.
25              The other  part of it,  which is something  I am

                                                              17
 1    equally passionate about, is universal service.  We are at
 2    94 percent in this Nation.  We can do better.  We believe
 3    we can bring prices down.  We believe we can change some
 4    of the subsidy systems.  We believe new technology is our
 5    best hope of doing that.
 6              Wireless local loop is a capability to provide
 7    competitively priced, feature-rich telecommunications
 8    services to people across this country.  In the United
 9    Kingdom, wireless local loop service provided by Ionica is
10    competing with British Telecom.  Nortel is involved in
11    that initiative, and I hope and expect we will learn more
12    about that venture from David Trinkwon of Nortel, who's
13    going to be on the first panel this morning.
14              But wireless local loop also offers tremendous
15    possibility for people living in underserved areas.  NTIA
16    has seen its potential in some of our TIIAP projects.  For
17    example, the Ogalala Sioux Tribe is using a TIIAP grant
18    that NTIA gave them to create a digital wireless home
19    health care service network, which is based on hand-held
20    radios and the Internet. 
21              Like many Native American communities, fewer
22    than 50 percent -- in this country, fewer than 50 percent
23    of the households in the Ogalala Sioux Tribe in Pine
24    Ridge, South Dakota, have a telephone.  Imagine, there's a
25    community in this  country where 50 percent  of the people

                                                              18
 1    don't have a phone, and I think a lot of you may have seen
 2    the story, it was a front page story just this week on
 3    Pine Ridge Reservation, what's happening in that
 4    community.  We're trying to use wireless technology to
 5    improve the economic situation and the health care
 6    situation, the communication situation, for the members of
 7    that tribe, and we'll talk about those kinds of things.
 8              We'll talk on our second panel about how to
 9    reach out to underserved areas, especially inner cities
10    and rural communities, with wireless local loop.
11              I mean, we talk about the Ogalala Sioux Tribe
12    and Pine Ridge, and it sounds kind of exotic.  I was born
13    in Brooklyn.  In Bushford, Brooklyn, 72 percent of the
14    people in the community just next door to the town I was
15    born in have access to telephones.  28 percent of the
16    people in Bushford, Brooklyn, 28 percent of the households
17    in Bushford, Brooklyn, don't have a telephone.
18              In this country, the greatest country in the
19    history of the world, the biggest economic power, we have
20    a community, in the richest city in the richest Nation in
21    the history of the world, 28 percent of the people don't
22    have a telephone at home.
23              Are there ways you can bring down the cost?  You
24    can use the technologies to provide competition, to
25    provide services to underserved areas.

                                                              19
 1              I look forward to robust discussion on this
 2    issue, which is extremely important to NTIA.  It should be
 3    extremely important to every one of us.
 4              One of our central missions for the last 5 years
 5    has been the attempt to improve Americans' access to basic
 6    telephony as well as advance telecommunications
 7    information services.  We have worked to put into effect
 8    public policies promoting this goal.  We've funded
 9    innovative projects and we have worked with industry, and
10    the things we've learned here we can export around the
11    world.
12              There is a hunger and need, a desire to learn
13    what we know in this country, and we can't forget the
14    things we learn here have great economic and practical
15    value to the American citizens.  They also have great
16    economic and trade value, and it will create jobs in this
17    country when we learn how to exploit them well.
18              We hope this forum will push us to ask the hard
19    questions, explore the economic, technical, and policy
20    questions, and clarify the appropriate roles for
21    Government and industry in this area.
22              It was interesting, we have to continually look
23    to the end game.   You know, I look at where we're at
24    right now, and I look at the passage of the Telecom Act
25    not quite  2 years ago, the  passage of the  WTO agreement

                                                              20
 1    earlier this year, I think of all that's happened with new
 2    technologies.
 3              Everybody in this room either has or uses at
 4    some point in the day a wireless technology.  You use a
 5    pager, you use a cell phone, you use a Ricochet or similar
 6    type machine at some point in our daily lives, our
 7    personal lives.  10 years ago, none of us were doing that,
 8    or virtually none of us were doing that 10 years ago, and
 9    now it's commonplace.
10              We're looking at the convergence of the Internet
11    with telephony, we're looking at all kinds of new and
12    exotic things.  This is a unique moment in our lifetimes,
13    and one of the things I said a week ago that I really
14    didn't know how true it is, there's never been a time in
15    history where a new age has begun globally simultaneously.
16              If you think of the agricultural age, and the
17    agricultural era, they started in different places at
18    different times.  It started in the Nile Basin a different
19    time than it started in the United States, which started
20    at a different time than it started in Europe.  Different
21    continents started at different times.
22              Even with the industrial age, it certainly
23    started in Europe and America long before it started in
24    Latin America and some other nations.
25              With  the  information  age, everybody  on  this

                                                              21
 1    planet is simultaneously engaged in trying to capture the
 2    value, the magic of this information age.  That doesn't
 3    come around that often.  We have a unique moment, a unique
 4    opportunity in these wireless technologies.  Use of the
 5    spectrum is going to be a key player in how we go forward
 6    together as a globe.
 7              And I think of the value of these fora.  Last
 8    night I was reading USA Today, and I noted the last forum
 9    we had was on Internet telephony.  I noticed a company
10    yesterday announced 7-1/2 cents per minute long distance
11    calls across the United States using Internet telephony,
12    and in announcing that, in announcing that new venture,
13    Joe Nachow of Quest said, and I want to quote, this is
14    exactly what the Telecommunications Act was about,
15    creating opportunities for capital investment so that new
16    technologies would be deployed and consumers and
17    businesses would benefit.
18              I couldn't put it better, so I won't.  That's
19    exactly what we're trying to do with the Communications
20    Act, trying to make sure that new technologies are
21    deployed, capital is invested, and consumers and workers
22    will benefit.
23              I look forward to hearing from our panelists on
24    how we can make wireless local loop a competitive
25    alternative.  I look forward to hearing how we're going to

                                                              22
 1    go forward together in this new era, and I thank you for
 2    your time and attendance this morning.
 3              Thank you very much.
 4              (Applause.)
 5              MS. BROWN:  If I can call up our first
 6    panelists, let me introduce the moderator of our first
 7    panel, then just turn it over to him.
 8              Ken Allen is with NTIA, and has been since 1974.
 9
10    He's the chief of our Spectrum Division for ITS.  He leads
11    the research and spectrum management issues.  He has done 
12    a lot of work on emerging technologies, such as PCS and
13    wireless LAN, and advanced broadcasting, and intelligent
14    vehicle highway systems.
15              Ken is from Colorado.  We flew him in because he
16    knows a lot about this stuff, and actually we want to show
17    off some of our expertise, too, so with that I'm going to
18    turn it over to Ken, and he will introduce the panel, and
19    hopefully we will have a good discussion on the technology
20    side.

                  UNTANGLING WIRELESS LOCAL LOOP:
                    TECHNOLOGY AND APPLICATIONS
        MODERATOR:  KENNETH ALLEN, CHIEF, SPECTRUM DIVISION
         INSTITUTION OF TELECOMMUNICATIONS SCIENCES, NTIA

25              MR. ALLEN:  Well, welcome  again to the wireless

                                                              23
 1    local loop forum.  We're going to have several panels
 2    today.  The first one, which I'm chairing, is the one on
 3    technology.
 4              All the speakers will be given only 10 minutes
 5    to speak, which is going to be timed, and we would like
 6    everyone to save their questions until all the speakers
 7    have had a chance to give their presentations, then we
 8    will have time for questions and discussions afterwards.
 9              Well, what is wireless local loop?  Assistant
10    Secretary Irving gave us a little bit of information about
11    that, but the term comes from the term wireless, or local
12    loop, comes from the term that is used to describe the
13    wire that comes from the telephone system to your home, so
14    we're talking about wireless local loop.
15              I think the core concept is telephone service to
16    the home wirelessly, but the concept is actually much
17    broader than that.  As we know, there are other services
18    now in the home besides telephone, such as cable TV, and
19    wireless local loop can incorporate a much broader concept
20    such as video on demand, interactive video, data services,
21    as well as telephony.
22              One of the most important aspects of wireless
23    local loop will be competition.  Right now, though, there
24    are a number of services available in the home that really
25    don't compete with each other, or only marginally.

                                                              24
 1              I think that one of the things that we will see
 2    wireless local loop do is introduce competition to the
 3    home telecommunication services for the first time.
 4              What then the consumer will see from their
 5    perspective is competition reducing prices but also a
 6    myriad of choices, and possibly confusing choices, because
 7    there's a number of different ways that wireless local
 8    loop can be provided, so there will be a number of
 9    different services.  Broadband services, as I mentioned,
10    video services perhaps, narrow band services, and also the
11    potential for a mix, where the same service provides you
12    mobile communications when you're away from home, but also
13    provides you with fixed communications when you're at
14    home.
15              So I'd like to get started by introducing our
16    first speaker today.  It's Dr. Arunas Slekys.  He's the
17    vice president, Wireless Networks Division, Hughes Network
18    Systems.  He is responsible for the worldwide marketing,
19    sales, and business development of HNS wireless network
20    products, including the company's family of GMH 2000 amps,
21    TDMA, ETDMA, CDPD, and Air Reach personal cordless
22    systems.
23              His long affiliation with the wireless industry
24    began at Novatel Communications.  There he served as
25    senior  vice  president   responsible  for  the  company's

                                                              25
 1    inception, for establishing product research and
 2    development, and spearheading the company's efforts in the
 3    small cellular systems marketplace.
 4              Dr. Slekys began his telecommunications career
 5    more than 20 years ago at Cal Tech's jet propulsion
 6    laboratory, where he worked as a digital communications
 7    research engineer developing deep space network and pulsar
 8    tracking systems.  He later joined Bell Canada and
 9    subsequently Bell Northern Software Research, managing
10    switched network-related systems development and advanced
11    technology programs.
12              He owns a bachelor of applied science degree in
13    electrical engineering from the University of Toronto, a
14    master's degree from the University of Illinois, and a
15    doctorate in computer systems engineering from UCLA.
16              He is a coauthor of a founding patent for CDPD,
17    cellular digital packet data systems, and is a frequently
18    published author on wireless communications.
19              Dr. Slekys.
20              (Applause.)
21             DR. ARUNAS SLEKYS, HUGHES NETWORK SYSTEMS
22              DR. SLEKYS:  Well, Larry set the stage, but I
23    just wanted to comment a little on his image of the person
24    in Rome driving the Vespa scooter with one hand on the
25    cellular  phone.   I think  there's nothing  worse than  a

                                                              26
 1    Russian driving a Volga down the middle of the road, and
 2    with no hands on the wheel and holding two phones, and I
 3    was in the back seat, and we did get there, but it was a
 4    hair-raising ride.
 5              Anyway, dial tone is what this meeting is all
 6    about, and it's dial tone by wireless that we're all
 7    personally involved with, so setting the stage I thought
 8    in the 10 minutes of rigorous timekeeping that I'm faced
 9    with I'll at least spend a little bit of time talking
10    about the opportunity, and a little bit on the technology
11    and where it's going.
12              The opportunity, as I said, is basic dial tone,
13    and the future generations of it that we've evolved
14    through using cable and fiber in some cases, although not
15    as much as originally promised, and now wireless, and
16    expanding from wireless dial tone and simple fax into
17    broadband wireless, so we'll be talking a little bit here
18    about basic telephony and then the new universe of
19    broadband wireless, or voice data and video, interactive
20    video, et cetera.
21              On the wire line side, as Larry pointed out, 80
22    percent of the world is disadvantaged.  20 percent of us
23    in the so-called developed countries own all of these 800-
24    odd thousand phones, and the growth rate has been
25    painfully  slow, even though  everybody knows the economic

                                                              27
 1    growth is tied inexorably to telephone density per capita.
 2              The reason is that most of the structures in
 3    delivering the service, the companies out there have been
 4    monopolies.  Monopolies are not usually very attractive
 5    places to put money in if you're an investor, so in fact
 6    the competitive element is as important as the technology 
 7    here in developing wireless worldwide.
 8              Every country Hughes is involved in -- I have
 9    been involved in all of them more than once -- generally
10    speaking are fundamental.  The first step is to establish
11    there will be ability to invest in a privatized entity. 
12    Nobody's interested in putting money into a monopoly. 
13    Plowing more into the ground isn't where it's at, so this
14    has been a slow growth rate because of that.
15              It's changing -- cellular taught us how -- and
16    now we're choking on its success.  The C block is an
17    example, choking, because we thought the opportunity was
18    unlimited.  Well, it isn't unlimited.  There are bounds to
19    any business, and we've learned a lot about the value of
20    spectrum, 10 years ago when we gave it away to now, when
21    we auctioned it at exorbitant prices because of the format
22    of the C blocks, but that's history, and we're learning.
23              But the net result in the marketplace is a very
24    substantial business, 20 percent as a conservative
25    estimate annually, and pushing at 200 million subscribers,

                                                              28
 1    so a quarter of all dial tone worldwide now is on air
 2    waves.
 3              And projected over the next 5 years to get to
 4    about 1/2 billion, or put it another way, at $500 per
 5    subscriber network you can do the calculation.  The
 6    numbers are enormous in terms of the infrastructure and
 7    delivery opportunity, 200 billion today and 2-1/2 times
 8    factor increase over the next 5 years.
 9              Fixed wireless is a special case, sometimes
10    viewed as nonmobile, but as we know, if you've got a
11    wireless ability the opportunity is also there to create a
12    hybrid, so even though fixed is now viewed as a separate
13    market we see that the two merging mobile and fixed
14    together over time will be one opportunity, but there are
15    differences in different countries in terms of regulatory
16    constraints.
17              Some operators aren't allowed to deliver mobile
18    services, they can only deliver fixed, and vice versa, and
19    often technology sold by different countries and different
20    companies becomes the hammer.
21              (Applause.)
22              MR. ALLEN:  Could we ask you to speak into the
23    microphone, please?
24              DR. SLEKYS:  Well, I can walk around, because it
25    will be hard for me to keep pointing.

                                                              29
 1              So the bottom line is fixed wireless and
 2    cellular are merging together, and even though this is a
 3    smaller number today, about 4 million estimated fixed
 4    wireless, I looked at the numbers put together by NTIA and
 5    it was somewhere around 1-1/2 of actually in commercial
 6    service.
 7              This is meant to say about 4 million contracted
 8    commercially to be put in service, because they're not all
 9    in service today, but they will be over the course of the
10    next year or two, and growing at a faster rate -- again
11    conservatively I've estimated a 40 percent rate.  Some
12    people are putting the 5-year number closer to 25 to 30 
13    million.
14              This business in and of itself is already about
15    $5 to $6 billion enterprise and growing, as shown, about
16    four to five times over the next 5 years, so the
17    opportunity is immense, and it's of enormous impact,
18    positive impact in a country's economic development.
19              Why wireless?  As engineers, we go to first
20    principles and try to solve the problem of basic telephony
21    .  It's faster than cable or any other physical means.  It
22    now is in fact lower capital cost.  People still question
23    whether it is in all cases.  Often it's viewed that in
24    high density urban  environments wireless is not  as cost-
25    effective as  wired.   Well, if  you've got  the cable  in

                                                              30
 1    there already, sure, you're right, but if you don't have
 2    the cable, it's no longer the case.
 3              So the paradigm that we started this country
 4    with when AT&T was formed is no longer valid, that
 5    paradigm being that the local loop can't sustain itself as
 6    a business, it needs to be subsidized with long distance,
 7    that's not true any more.
 8              And the other important element is the lower
 9    cost of unused capital compared to cable.  When you plow
10    cable or fiber in the ground it takes you about 8 to 10
11    years to recover the investment because those cables  have
12    to be filled with traffic before you start getting the
13    payback.  With wireless, you can match the demand in
14    smaller incremental steps and not lay out a lot of money
15    before you start to see the return.
16              So you can start with small, incremental growth,
17    and in fact in operating cost advantage, because a
18    customer could be, in the case of a large cell, as far as
19    20 or 30 kilometers from the center, and the cost to
20    service that person is no different than if they're right
21    in the center, because radio waves will travel equally
22    well for that distance as they will for a short distance.
23              So unlike fiber or cable, again, where the cost
24    is a function of distance, and labor is growing every year
25    in cost,  radio tends to  be distance insensitive,  and so

                                                              31
 1    there is a lower operating cost.
 2              The switching and the backhaul and all that
 3    infrastructure is the same, and so it's in the fundamental
 4    access mechanism that the advantage is gained.
 5              Finally, the flexibility, because we can move
 6    cells around.  If we guess where the traffic is and we
 7    find that it's not quite the same as it ends up actually
 8    occurring, and we have to move some cells or add cells or
 9    add channels in one cell and reduce them in another, this
10    can be done readily.  Once the cables are in the ground,
11    they're there, and you just have to live with it.  You'd
12    better have guessed right in your market forecast.
13              And finally, the services.  Fundamentally we can
14    deliver on wireless anything that can be delivered on
15    wire, and now with the broadband wireless, including video
16    and high bandwidth demand systems, with the advantage of
17    mobility. 
18              So a simple chart here of the economics.  I've
19    left some handouts there.  I don't know if any of you saw
20    them, but feel free to grab one.  If you didn't get one,
21    just come to me after and I'll be glad to send you one. 
22    This is a simple snapshot of what I just commented on, the
23    cost of unused capital plowed in the ground and waiting
24    for a return, or try to match the demand and do so in a
25    very incrementally granular fashion with wireless and then

                                                              32
 1    if you have to move it, you can move it.
 2              My charts include a summary of technologies and
 3    numbers of phones, so you can  have a look at those.  In
 4    10 minutes I obviously can't dwell on this subject. 
 5    Suffice it to say that about half of the opportunity today
 6    is still analogue, but it's shrinking, and the growth
 7    rates will be negative because people are no longer
 8    putting in analogue networks, but the installed base of
 9    200-odd million is about half analogue still, and that
10    change again occurring as digital occurs in a big way.
11              In digital the largest force is the European
12    force.  GSM is still the major technology, one reason
13    being that we were busy debating CDMA/TDMA here in the
14    States and we forgot about the market.  Well, we're coming
15    back into it, and CDMA and TDMA will be about equal in our
16    estimates.
17              There's also a new category evolving here, the
18    microcellular technology, low mobility as they're put
19    here, which include Japanese PHS, European DECT, and North
20    American PACS.
21              Just a snapshot of where Hughes has -- this is
22    the only compulsory propaganda I'm going to give you about
23    Hughes, but you're again welcome to ask me questions
24    afterwards.  We're in every continent, and we have over a
25    million  lines commercially  contracted, which  by pyramid

                                                              33
 1    research estimates earlier this year puts us at what we
 2    think is the right point, about a 30-percent market share
 3    against our competition.
 4              A little bit, to explain the differences in
 5    wireless, analogue and how digital cellular, typically
 6    large cell structures covering 25 kilometers perhaps reach
 7    in a cell, and delivering pretty well basic services --
 8    speech, fax, you know, low-speed data, 9.6 kilobits on a
 9    typical cellular channel.  You know you can't send video
10    over a wireless cellular phone yet, but we're looking at
11    getting up to the T-1/E-1 rates, the high speed multiple
12    64 kilobit rates, with what I'll call broadband wireless,
13    and this is a technology emerging as a general technology.
14              Specific versions, LMDS/MMDS you may have heard
15    of, which are the cellular vision type home wireless video
16    broadcast technologies.  Broadband wireless is meant to
17    encompass that, and things like wireless fiber.  In other
18    words, alternatives to fiber, technologies that can carry
19    huge amounts of traffic 24, 38 GHz and so forth, companies
20    like Teligent, Teledesic and others that will be deploying
21    broadband wireless because fiber is no longer necessarily
22    the way to go.  Fiber again is stuck in the ground.
23              The beauty of the wireless technique, whether
24    it's a local access or a back phone, is that you can
25    deploy it on demand.  You can parcel out channels  to some

                                                              34
 1    customers for some period of time, and then move it around
 2    to somebody else within that cell coverage.  It's not
 3    stuck in one physical medium.
 4              A little bit on the service requirements most
 5    operators face.  Again, I stress that as we evolve to
 6    broadband wireless, it's no longer a world of voice and
 7    data that we're with today in mobile cellular.  It's voice
 8    data video, and then the wide band services for other
 9    types of data applications, like frame relay and so forth.
10              So we are facing a technology issue as network
11    suppliers that we have got to deal with, not just access
12    technologies of today, 801.9 GHz, various flavors, but now
13    the broadband wireless technologies that are evolving that
14    companies that are new, Celex, WinStar and others, will be
15    deploying because it makes more sense than fiber.
16              Another kind of technology mixture we see around
17    the globe, where there's a wire line switch with regular
18    loops, and then we build out cell structures and provide
19    fixed wireless terminals.  This is very popular in
20    countries where, like in the Czech Republic, they could
21    not actually put in the cables in the ground in the
22    downtown and core area, such a beautiful old town, and if
23    you've seen it, you know it's virtually impossible to dig
24    up the cobblestones, so we put in 40,000 of those.
25              And  actually in that  country they install them

                                                              35
 1    now themselves, the single units about the size of a page,
 2    a little smaller, comes with a battery backup, plug it in
 3    to the power, connect an antenna, there it is on the
 4    glass.  It's got sticky tape on it.  It takes you about 10
 5    minutes, and if the little green lights go on we had
 6    better have done our RF planning right.  You've got dial
 7    tone.  Connect up to five extension phones, a fax machine,
 8    take it home with you, and the Czechs let you do that for
 9    about $250 today, and you have dial tone.
10              In MSU we design this actually up to 96
11    connections, because in Russia there were apartment blocks
12    that had up to 96 customers.  Believe it or not, it was
13    designed for the blocks that were built in the former
14    Soviet Union, and people now can have dial tone through a
15    shared box.  It lowers the cost to them.
16              Speaking about economics, typical end-to-end
17    price today is below $1,000.  That includes the switching,
18    the back call, the radio equipment, and the subscriber
19    equipment.  So when you look at a loop, a wire
20    alternative, it's typically $1,000 and up as the distance
21    increases from a cellular switch, or from a switch, so as
22    I mentioned earlier, economics are in favor of wireless
23    and will continue to be.
24              Another derivative of in-building from a mobile
25    world   wireless  office   systems,   this  has   enormous

                                                              36
 1    opportunity surrounding it, because this will allow us to
 2    get to the heart of productivity improvements of people
 3    that work in places like hospitals and factories, even
 4    ourselves in white collar jobs, although it's annoying to
 5    get phone calls in an office setting, particularly if
 6    you're in meetings all the time.
 7              But if you're working, like some folks out there
 8    that are on the floor, and they're taking measurements,
 9    and they've got to make a call, or the boss has to reach
10    you to send you some data, or you need to do a quick
11    inventory check, the in-building wireless system is an
12    extension of the macro so you can roam seamlessly.  It's
13    going to up new venues of opportunity.
14              So in conclusion, as the subject we're dealing
15    with overall is universal telephony, the conclusion is
16    only  that  high  capacity  wireless  is  the  most  cost-
17    effective way to go.
18              Thank you very much.  I made it.
19              (Applause.)
20              MR. ALLEN:  Thank you, Dr. Slekys.  Our next
21    speaker is Dr. Jeffrey Krauss.  He is a consultant in
22    radio spectrum management and telecommunications
23    technology policy.  Dr. Krauss' clients range from major
24    equipment manufacturers to small start-up companies. 
25    Clients have used  his expertise to obtain  new or changed

                                                              37
 1    spectrum policies or standards, thereby creating important
 2    new business opportunities.  He is an active participant
 3    in telecommunications policy and standards activities of
 4    Government bodies and trade associations, including high
 5    definition television, personal communications service,
 6    and rural administrative conferences.
 7              He writes a monthly column for Communications
 8    Magazine and a design communication, engineering and
 9    design magazine entitled Capital Currents, which reviews
10    Federal Communications Commission and U.S. congressional
11    activities that influence telecommunications policy.
12              He has also contributed articles for Applied
13    Microwave and Wireless Magazine, Multichannel News
14    Broadcasting Magazine and Telecommunications Magazine.
15              Dr. Krauss has over 25 years of professional
16    experience, including employment at the Federal
17    Communications Commission, Bell Laboratories, American
18    Satellite Corporation, and MA/COM.
19              Dr. Krauss holds a Ph.D in theoretical physics
20    from Case Western Reserve University, Cleveland, Ohio.
21              Dr. Krauss.
22              (Applause.)
23                  DR. JEFFREY KRAUSS, CONSULTANT,
24             TELECOMMUNICATIONS AND TECHNOLOGY POLICY
25              DR. KRAUSS:  Thanks very  much.  It's a pleasure

                                                              38
 1    to be here today to talk about some of the technical
 2    issues that are arising in the area of wireless local
 3    loops.
 4              If you would go to the next slide, I want to
 5    categorize wireless local loop into four groups, first
 6    that I would call  modified mobile communications
 7    products, then part 15 devices, then a small category -- I
 8    don't know how exactly it's going to develop -- wireless
 9    communication services and, too, LMDS, and then finally I
10    want to spend most of my time talking about broadband,
11    about 10 GHz.
12              I'm not going to talk about the modified mobile
13    communications products.  I think there are going to be
14    other panelists that focus on that.  But part 15, you've
15    already heard Larry Irving talk about Ricochet, which is
16    the Metricom product that operates at 902 to 928.  That's
17    oriented toward data communications.
18              In the 2400 MHz band Tadiran has a product that
19    I'm going to talk about in a little bit more detail, which
20    is truly a point-to-multipoint wireless local loop
21    product.
22              At the 5 GHz and 24 GHz product range the
23    products seem to be mostly point-to-point, rather than
24    point-to-multipoint, but there's a petition pending at the
25    FCC from  Sierra Digital asking  to increase the  power to

                                                              39
 1    power limits there so that they can provide more
 2    flexibility.
 3              The Tadiran product, it potentially can operate
 4    in a variety of frequency bands.  In this country it's
 5    being  sold  in  the  2400 MHz  band.    It's  a point-to-
 6    multipoint frequency hopping spread spectrum product, can
 7    achieve, depending upon the attend at the base station,
 8    anywhere from a mile up to 6 mile range, and it's all
 9    digital.
10              Go ahead to the next slide and I will show you
11    some of the places it's being deployed in the United
12    States.  It's being deployed primarily by telephone
13    companies, not by competitive access providers, because
14    telephone companies are under a lot of pressure in some
15    areas with held orders, under pressure from their public
16    utility commissions, and they are using this product --
17    you don't need a license.  Part 15 devices are unlicensed.
18
19    Anybody can deploy them, but it is the telephone companies
20    that are the initial market, at least in this country.
21              This is the way the radio system operates in a
22    little bit of detail.  It's a frequency-hopping product,
23    which means that each base station has a series of hopping
24    frequencies.  Within each hop there is a time division
25    duplex, sharing  of the  frequency slot  by both  the base

                                                              40
 1    station and the subscriber station, so in that case it's
 2    similar to the personal handy phone in Japan, and then
 3    each -- so each frequency slot then is divided up into
 4    bursts.
 5              Let's move on to a category -- I don't know
 6    whether this is going to develop into a true wireless
 7    local loop category or not,  but around 2 GHz there are
 8    two services that could potentially develop.  Wireless
 9    communication services, WCS was auctioned by the FCC in
10    April of this year.
11              The technical restrictions that the FCC has
12    imposed make it difficult to use this band for mobile
13    communications, but -- and it is not clear -- it is not
14    clear what the licensees are going to do, what the auction
15    winners are going to do.  I think we will have to see. 
16    But this is potentially a band that could be used for
17    wireless local loops.
18              Another band is MMDS.  Now, MMDS today was
19    widely u sed for one-way video distribution, but there's a
20    petition that was submitted to the FCC, and the FCC just
21    recently issued a notice of proposed rulemaking to allow
22    two-way operations on these frequencies.
23              There's a challenge here.  It has to do with
24    interference -- technical challenge.  It's not clear that
25    you  can use  some of  these channels  for basically  high

                                                              41
 1    power one-way broadcasting and then adjacent to them use
 2    other channels for two-way cellularized communications. 
 3    We will have to see what develops here, but this is a
 4    possibility.
 5              What I really want to talk about, though, is
 6    broadband.  That is, frequencies above about 10 GHz, and
 7    the potential to use those for wireless local loops. 
 8    There are really, I believe, five frequency bands that we
 9    ought to focus on, although some people say that even
10    below 18 GHz there are some frequencies that could be
11    used, but 18 and 23 are two of the bands.  They've been in
12    use for quite a while, and then the DEMS band and the LMDS
13    band, which are just starting to emerge, and then finally
14    38 GHz.
15              This table tells you precisely what frequencies
16    we're talking about.  It tells you a little bit about the
17    channel plans, the band channel  bandwidths, the transmit-
18    receive separation -- that's important for that plays a
19    big role in determining the equipment cost because of the
20    filtering requirements that it imposes, and then finally
21    whether the band is licensed on an individual link basis
22    for area-wide communications.
23              Now, I want to make one additional point here,
24    and that is regarding the LMDS frequencies.  It's very
25    complicated.    There  is  no  specified channel  plan  or

                                                              42
 1    channel  bandwidth, and  there is  no specified  transmit-
 2    receive separation.  That's in the FCC rules.
 3              The FCC rules are very flexible.  That's an
 4    advantage.  The disadvantage is that equipment
 5    manufacturers don't know what product to develop.  There's
 6    a big chunk of spectrum for LMDS that first sub-band, 27.5
 7    to 28.35, that's 850 MHz.  That's probably well-suited for
 8    one-way video distribution, but maybe it could be divided
 9    in half and used for two-way operations.
10              The 29.1 to 29.25 band, that's shared with
11    satellite services, with the feeder-link earth stations
12    that are going to be used by -- are being used by
13    Motorola, Iridium, and by, I think it's TRW Odyssey, and
14    the 31 GHz piece, that's actually divided into two pieces
15    that are going to be auctioned separately.
16              The band is used a little bit right now by some
17    municipalities by point-to-point communications that
18    control traffic signals, and so some of those people are
19    going to have to be moved out, so LMDS faces the
20    challenge, it's not sort of the routine channel plan,
21    transmit-receive separation that these equipment
22    manufacturers are used to dealing with.
23              Okay.  One of the differences between these
24    frequency bands is that some of them are licensed on a
25    point-to-point  basis.    Individual links  are  licensed.

                                                              43
 1    Whereas other bands are licensed on an area-wide basis,
 2    and area-wide licensing is a really important, tremendous
 3    advantage, because it allows links to be deployed quickly.
 4              You don't need to do frequency coordination
 5    against other users and get their approval on an
 6    individual link-by-link basis, and you don't need to go on
 7    public notice at the FCC.  It allows the licensee to
 8    decide how much spectrum reuse to achieve.  It allows the
 9    licensee to decide whether to use narrow beam antennas or
10    wide beam antennas.
11              Frequency coordination for the most part you do
12    against your own system rather than others, so it has
13    implications for network design.
14              I want to touch briefly on two additional issues
15    at these frequencies.  One is rain attenuation and
16    atmospheric absorption, and then secondly building
17    blockage.  While rain attenuation and atmosphere
18    absorption, the major impact that it has is on your path
19    link, it means that as you go up to higher frequencies you
20    need to deploy more cell sites.
21              This is an ITU graph.  I like to show it because
22    along the bottom the scale is in GHz, so it goes from zero
23    up to 1,000 GHz.  It's nice to know there are people who
24    are thinking about the radio spectrum up to 1,000 GHz. 
25    This is the same chart, but only in the region 1 GHz up to

                                                              44
 1    about 300.  The point here is that there are some specific
 2    frequencies where there is tremendous signal attenuation,
 3    and you need to minimize -- you will have minimum path
 4    links if you operate on those frequencies.
 5              Let's see how quickly I can go through the rest
 6    of these, since I've run out of time.  Rain attenuation is
 7    another important issue.  As you go up in frequency the
 8    rain attenuation increases substantially, and the result
 9    is that at the higher frequencies you need very short path
10    links in order to deploy a network.
11              Building blockage is an important issue.  Go
12    ahead quickly to the next chart now.  There are data bases
13    that you can use to determine whether there is actually a
14    line of sight path between your cell site and your
15    subscriber station.
16              This is a picture of -- this is Washington, D.C.
17
18    There's a cell site here.  This is 15th and M.  The
19    colored buildings are buildings that block line of site
20    paths.  The buildings that have brown dots on them are the
21    buildings where you can achieve a line of sight path.
22              Go to the next chart -- and you can do
23    calculations with data bases of this sort and it will turn
24    out that really there are a lot of line of sight paths. 
25    If  you  pick arbitrary  cell  sites a  lot  of paths  are

                                                              45
 1    blocked, so one of the challenges for all of these systems
 2    is going to be your network design in order to avoid path
 3    blockage.
 4              This is just a summary of what I think the major
 5    challenges are.  Building blockage is a major challenge
 6    for all of these, and I've talked about some of the other
 7    challenges as I've gone through.
 8              Finally, the policy issues, I think the major
 9    policy issue here is confusion.  Wireless local loop 
10    means different things to different people.  There are
11    different frequency bands involved.  They have different
12    advantages, different disadvantages.  You can use them for
13    different services.  But I think that's one of the major
14    barriers that's going to have to be overcome, is this
15    confusion in the marketplace.
16              Thank you.
17              (Applause.)
18              MR. ALLEN:  Thank you, Dr. Krauss.
19              Our next speaker is David Trinkwon.  David has
20    more than 30 years experience in the telecom industry. I
21    think all together we have well over 100 years experience
22    up here, both in North America and worldwide.  He is
23    currently directing Nortel's fixed wireless access
24    business development for the North American market, and
25    has  published  many  papers,  articles  on  the  subject,

                                                              46
 1    including Nortel's responses to various FCC proceedings on
 2    wireless local loop and universal service, and the recent
 3    FCC wireless local loop tutorial.
 4              Today, David will summarize the various wireless
 5    local loop technologies, which will help incumbent and
 6    competitive fixed operators to resolve some universal
 7    service and facilities-based competition issues for
 8    residential voice data and Internet access applications,
 9    and what regulatory actions are needed to enable these
10    technologies to be developed.
11              DAVID  TRINKWON, DIRECTOR OF MARKETING,
12           NORTH AMERICAN FIXED WIRELESS ACCESS, NORTEL
13              MR. TRINKWON:  Thank you very much.  good
14    morning, and I would like to thank the NTIA and the CTIA
15    for organizing today and giving us the opportunity to
16    share this information with you.
17              I'm going to summarize the different families of
18    technology, some of which you've already heard a lot
19    about, so I'm going to focus on the ones that you  haven't
20    heard a lot about so far, how they do and don't fit the
21    various applications, especially in relation to
22    facilities-based competition and universal service
23    solutions.
24              I'm going to touch on the regulatory issues in
25    terms of  the enablers needed, and I'm also going to point

                                                              47
 1    you to more detailed information that we've got available
 2    at our booth, and there are copies of the charts out at
 3    the front if you didn't pick them up already.
 4              One of the papers was some comments we filed
 5    last year on the DCS petition for spectrum. There's a lot
 6    of information in there.  It is a year or more old right
 7    now, so there is some updated information as well, but the
 8    first way to look at it is to look at it from the point of
 9    review of the end user market, which covers everything
10    from mobile voice and data users on the left and to
11    broadband users watching TV's or businesses taking
12    multiple T-1 feeds and so on.
13              That really is the whole range of the markets
14    for telecoms access, and in terms of technologies, on the
15    left in the red triangle are what we would loosely call
16    the mobile technologies which obviously so far have been
17    rooted in the mobile services, but they do have the
18    technical capability to offer fixed or hybrid fixed and
19    mobile services, especially for voice, especially for
20    lower speed data applications, and those technologies are
21    evolving to try and offer data speeds up to a few hundred
22    kilobits and potentially one or two megabits per second
23    over the next 4 or 5 years.
24              They do have some limitations.  They have
25    limited bandwidths available.  The types of air interfaces

                                                              48
 1    used limit some of the features and services they can
 2    offer, and they also have some capacity limitations in
 3    terms of voice traffic and data traffic for which
 4    increasing the number of cell sites is one way around it,
 5    but then that tends to push the cost up and upsets the
 6    economics, so there is a balancing act.
 7              So the dotted area shows that these technologies
 8    do have a limited ability to take over the whole of the
 9    telecoms' access business from the wire line operators,
10    but nonetheless the emerging fixed mobile integration
11    market that we have started to hear about, which isn't
12    quite here yet, could easily reach 50 million homes by the
13    year 2000.
14              There are already 30 or 40 million homes with
15    one or more mobile phones.  I think Larry Irving just
16    confuses the statistics.  We don't know if he has two
17    homes or not, but he's got lots of phones.
18              Out of 100 million households that means -- who
19    also have a wired line in the U.S. at the moment, that
20    means it's quite easy to think of that 50 million
21    households in a couple of years or so could redefine the
22    way in which they buy their voice service from a
23    combination of fixed and mobile operators, using various
24    combinations of technologies.
25              That is a  major market segment.   I'm not going

                                                              49
 1    to spend much time on it today, certainly not in 10
 2    minutes.
 3              At the other end the green triangle is the
 4    broadband technologies, which in the wired world is fiber,
 5    and some copper now with HDSL and so on, or the broadband
 6    fixed wireless technologies, traditionally point-to-point,
 7    but now point-to-multipoint, as we have seen with Teligent
 8    and the recent application by WinStar to change their
 9    licenses to point-to-multipoint, and obviously we expect
10    to see a lot more activity there when the LMDS auctions
11    are over and done with and we can see where those business
12    cases are going, and we have technologies in that area as
13    well.
14              These technologies have a limitation, however at
15    the bottom end in terms of supplying small amounts of
16    capacity economically to individual residences and small
17    business presences.  One reason why fiber to the home and
18    fiber to the curb hasn't quite happened yet, despite lots
19    of trying, is that they just can't get the economics right
20    to deliver small amounts of capacity to individual
21    premises.
22              So in the middle, the black triangle is the area
23    dominated up to now by copper and fiber and the incumbent
24    telephone networks, very, very specialized to serving
25    individual premises,  homes  and small  offices, with  T-1

                                                              50
 1    links and multiple T-1 links going up to the larger
 2    premises, and in there we have this category of wire line
 3    equivalent fixed wireless access, which is where I'm going
 4    to focus on today, because this is where we focus on
 5    facilities-based competition and universal service in the
 6    wire line area.
 7              And the main characteristic is that these
 8    technologies must be interchangeable from the operator and
 9    the customer service point of view with the wire line
10    technologies that they are used in conjunction with.
11              Thank you.
12              Just to show -- you know, these systems are
13    alive.  They are being deployed in many countries around
14    the world, not just third world and developing countries,
15    and not just in rural areas who can't get anything better.
16
17    We've heard Ionica mentioned in the U.K.  Ionica currently
18    has about 30,000 subs live after their first year of
19    service.
20              The interesting thing is that their whole
21    business case is based upon a minimum 5 percent
22    penetration of households in a geographic area.  You'll
23    see later on you could never achieve that business case
24    with any cable technology.  They actually break even at
25    about 2  or 3  percent, an  they've already  achieved that

                                                              51
 1    within 8 months in their first coverage areas, so this is
 2    the issue of variable rather than fixed cost that Arunas
 3    spoke about earlier.
 4              Bell Canada is deploying the same technology in
 5    a universal service application for four-party relief. 
 6    It's no longer a trial, it is a commercial deployment,
 7    under temporary licenses until Canada finalized their
 8    policy for the 3-1/2 gig spectrum, first quarter next
 9    year.
10              Telstra in Australia is doing the same thing,
11    both for rural areas and a second line in ISDN overlays
12    for urban areas.
13              There are major deployments going on in Sri
14    Lanka, Colombia and Bolivia was mentioned earlier, and the
15    next major markets to open up will be Mexico, Brazil, and
16    South Africa, and interestingly enough a number of the
17    operators that we're working with and investors in those
18    markets are U.S.-based investors and operators who are now
19    starting to ask the questions as to why can't they use
20    this stuff at home as well.
21              That was the subject of a paper I presented in
22    Miami about a month ago.  Copies are available at the
23    booth.
24              Thank you.
25              So where is  all this stuff going?   Well, voice

                                                              52
 1    is not a major differentiator any more.  It used to be,
 2    but all voice is pretty good now. In fact, there's a lot
 3    of copper-based voices, which is not as good as some of
 4    the mobile voice in some areas.
 5              Capacity is an issue, how many air lanes or CCS
 6    you can carry.
 7              Reliability and integrity of the service, call
 8    dropouts and so on, these are things that have to be
 9    traded off, and the big area for the future is data.
10              Residential Internet access, as I said earlier,
11    the mobile technologies are trying to get from 14.4
12    kilobits up to 1 or 2 megabits over the next few years,
13    and in a few technology jumps, and the wire line industry
14    is currently sitting at around sort of 2 to 5, moving to
15    10 megabits to residential access, so that's the
16    benchmarks for the marketplace.
17              Then you've got the broadband industry sitting
18    on top, which is already capable of achieving tens of
19    megabits to individual premises.
20              Now, the point of this chart here is to show our
21    view of how these technologies are all going to move. 
22    We've got the current mobile technologies here with their
23    14.4 heading towards 28.8 kilobit data rates, and fixed
24    versions of those technologies which in our case are in
25    the  proximity  series,  which  can  do nomadic  or  fixed

                                                              53
 1    applications, and we have our Ionica type systems doing
 2    fixed only, which are offering up to basic rate.
 3              ISDN, the Tadiran system will be offering ISDN
 4    next year.  Lucent and DSC and other people have got
 5    systems, so our ISDN fractional T-1 is about where those
 6    technologies go at the moment.
 7              There is the 5 gig NII band which is trying to
 8    offer 5 or 10 megabit in building campus-type wireless LAN
 9    solutions over the next few years, and the third
10    generation mobile has got this interesting trick of being
11    able to do 64 kilobit when you're moving in a car, or 2
12    megabits if you're standing still.  They haven't quite
13    gotten there yet, but that's the way they're heading.
14              And so from our point of view the fixed-only
15    technologies are trying to meet this wire line
16    characteristic here of how to deliver 5 to 10 megabits to
17    homes for Internet-type access, in addition to whatever
18    the mobile technologies will deliver at the below 1 or 2
19    megabit stages.
20              So a simple snapshot of what's actually a very
21    complicated technology and market picture, and some of
22    the -- I've got them mixed up with all the paperwork 
23    here.
24              So we come onto the economics of it, and it's
25    really in two areas.  I've got some junk on there.   Sorry

                                                              54
 1    about that.  The picture here basically represents an
 2    incumbent's position using copper, where copper loops on
 3    average, if you've got lots of them and have been doing it
 4    for 100 years you can tell yourself that they cost you
 5    about $6 or 700 a loop.  They actually cost anywhere from
 6    $200 to about $20,000, and wireless is sitting here at the
 7    moment somewhere between $500 and $3,000 per loop,
 8    depending on the variables.  Wireless is coming down,
 9    copper is going up.
10              If you're a competitive access provider or you
11    just want to overlay a service like ISDN on an area, then
12    you're never going to attract more than 5, 10, or 20
13    percent of the households, and you will never do it if
14    you're starting with copper.  This was the basis for the
15    Ionica business case, and that's the situation at Celex
16    when they're making their technology decisions, which is
17    why up to now they're only addressing business premises
18    delivering T-1's.
19              There was a paper on these economic issues that
20    we submitted to the universal service comments about a
21    month or two back, and now just quickly on the next one, a
22    year ago we did a major workshop with Columbia University.
23
24    Alex Wolfson is on the next panel, which went through all
25    of  the issues  of  universal service  and  the role  that

                                                              55
 1    wireless can play.  Again, the paper is available.
 2              It does change.  Somebody mentioned this
 3    earlier.  The fundamental basis of providing service in a
 4    rural area, and the nature of the subsidies that are
 5    needed, you equalize the situation rather than subsidize
 6    it forever, and you can offer people in that community
 7    multiple services for multiple operators from a single
 8    infrastructure, something you can't do very easily with
 9    copper.
10              The conclusions of that particular workshop were
11    that the regulators needed to do two things, one was make
12    sure that all of the reviews and redefinitions going on of
13    universal service and so on take proper account of the
14    role of wireless, and not be biased toward cable
15    solutions.
16              There has been a lot of progress made there, and
17    latest comments on the universal service reforms are aimed
18    at getting wireless technologies into the cost models that
19    are being used there, and then ensure that spectrum is
20    allocated, and I was pleased to hear Larry refer earlier
21    to the work we're doing with the NTIA and the Department
22    of Defense  to see if  there's a way to  bring the Ionica-
23    type systems into this market for the benefit of Native
24    communities, underserved and competitive communities using
25    what's currently Government spectrum.

                                                              56
 1              Thank you very much.  There are three or four of
 2    us in the room.  The contact list is on the back of the
 3    charts if you need any more information, and we will go
 4    through the panel thing after the next speaker.
 5              QUESTION:  (inaudible)
 6              MR. TRINKWON:  Wireless is somewhere between
 7    $500 and $3,000 per line.  $3,000 would be in a very low
 8    density rural area where the cost of the base station is
 9    more dominant.  You can get down to $200 or $300 with
10    multiline boxes and so on, as the gentleman from Hughes
11    mentioned earlier, but $500 would be a good number.
12              Copper, you can come up with numbers anywhere
13    from $200 to $20,000 depending upon the variables that
14    apply to copper.
15              MR. ALLEN:  Thank  you, Mr. Trinkwon.
16              Our last-but-not-least speaker today is Gerald
17    Vanderwel.  He is the director of services line planning
18    fixed wireless services AT&T wireless services.
19              Gerald is currently a member of the AT&T WS
20    fixed service initiative responsible for service product
21    planning and business development, addressing the emerging
22    needs of mobility, Internet, and high-speed access for the
23    residential consumers and small businesses and AT&T local
24    access initiative.
25              He graduated from college in 1974 and has worked

                                                              57
 1    with Bell Canada, Stentor, Microcell and AT&T Wireless,
 2    and called upon to do the strategic planning for emerging
 3    opportunities.  He has extensive system engineering and
 4    business development experience in data, integrated voice
 5    and data and office automation technologies.
 6              He was accountable to Stentor's Infotainment
 7    program, and positioned VCI to participate in the
 8    entertainment industry, leading to the launch of Canada's
 9    Express View digital satellite service, similar to direct
10    TV in the United States, and performed early ADSL trials
11    in campus and consumer trials.
12              He has been involved in t he PCS industry since
13    1992, assisting in the establishment of Canadian PCS
14    policy at 944 MHz and at 1.9 GHz.  He has participated in
15    addressing PCS opportunities from a mobile and fixed
16    perspective for Canada's incumbent telephone and PCS
17    cellular companies with significant focus on the threat
18    and opportunity of wireless local loop.
19              Mr. Vanderwel.
20                      GERALD VANDERWEL, AT&T
21              MR. VANDERWEL:  I would like to spend a few
22    minutes this morning talking about wireless, but I'm going
23    to take a little different perspective.
24              Working in the wireless group of AT&T, which is
25    formerly a part of McCaw Cellular, the largest cellular --

                                                              58
 1    I don't really represent Lucent.  We have decided that
 2    inside AT&T that we needed to bring this project in-house,
 3    and we needed to change the way that we think about
 4    wireless.
 5              We have heard a lot of technology push, and I
 6    think we need consumer pull.  I think the two have to come
 7    together in some sort of a time alignment to bring the
 8    success that we're all looking for, and I think we're
 9    going to have to change the way we think about wireless.
10              These are changing times.  We are seeing
11    tremendous pressure on copper to deliver higher speed
12    Internet services, and as a competitive service provider
13    you have to determine whether or not you can play.  The
14    decision is no longer simply going to be one of plain old
15    telephone service, but I think the contemporary household
16    leading to the information highway is going to expect an
17    awful lot, and the solution we're working on today are
18    really solutions that need to take us to tomorrow.
19              As a result, we formed an interesting team.  We
20    have 200-plus scientists and other specialists that I work
21    with quite extensively bringing concepts -- we do a lot of
22    evaluation of competitive technologies.  We've made a
23    determination that the technologies that exist today don't
24    offer the type of spectral efficiency that is needed to
25    deliver in this kind of a marketplace.

                                                              59
 1              When you look at air line load and you talk
 2    about the average consumer, you're talking about 1,400
 3    minutes of traffic, on average, per household.  If you
 4    look at the density of households that we're covering
 5    you're looking at 1,000 households, typically, per square
 6    kilometer.  That typically represents a reasonable
 7    suburban mix, and if you look at that air line load and
 8    you combine it with data loads and everything else, you
 9    understand that the challenges we're all facing, we as a
10    service provider are all facing, is to deliver a platform
11    that has the capability to address what's being asked of
12    it.
13              So we've gone out and tried to acquire the best
14    scientists from wherever we could, and we've picked them
15    up from all over the world.  We have established a leading
16    edge design and manufacturing facility in Redmond.  We
17    have broken ground.  The lines are being put in, power is
18    being put in, and the assembly equipment is being
19    positioned to allow us to start running product.
20              We're doing this because one of the things that
21    we expect to learn as we move forward is, we need to have
22    very rapid ability to change our designs as we move
23    forward and as we learn.  We have state-of-the-art testing
24    facilities in place.  We have in an installation test bed.
25

                                                              60
 1    A lot of this is going to be tied in to how effectively we
 2    can install in a consumer's premises.
 3              This is not just a piece of technology.  You
 4    could in many cases argue that you may be able to position
 5    it.  I think when you look at what we're trying to
 6    accomplish, we're trying to be better or equal to copper. 
 7    Copper set some very, very tough matrix that we need to
 8    meet, and radio needs to deal with them as effectively,
 9    and so we have done that, plus we have a Nation-wide
10    implementation team with AT&T.  We have called upon a lot
11    of subject matter experts to assist us.
12              So what are we really trying to deliver?  First
13    of all, we're trying to deliver high quality digital
14    telephony.  We've listened to it.  I don't want to be as
15    bold to say it sounds CD-like, but it has a certain
16    clarity that you don't get on copper.  At the same time,
17    trying to achieve that in an implementation, in a city
18    like Seattle, presents some formidable challenges.
19              We are constrained by link budgets.  We are
20    constrained by physical heights of towers, aesthetics.  We
21    have RF phenomenon we need to deal with, and at the same
22    time we do have consumers that expect this to be equal to
23    copper.  They will not tolerate dropouts of more than 50
24    calls in 1 million call attempts.  That's the wire line
25    model.   In fact,  one would  argue it's even  better than

                                                              61
 1    that, and the RF models that we're going to provide are
 2    going to have to be equal to that, so we set that as our
 3    benchmark, and our objective is to meet those metrics and
 4    exceed them.
 5              Additional phone lines without delay.  This is a
 6    computer on the side of the house.  This is a smart box. 
 7    We want to make it smart enough so that we can do most of
 8    our work over the air, downline load capability into the
 9    consumer, and enable without additional dispatches, and
10    there are obvious reasons from a business point of view
11    why we'd want to do that.
12              I'd like to spend a few minutes talking about
13    Internet access.  Currently we're capped at 56 on copper. 
14    People talk about XDSL taking us higher.  We're looking at
15    256 as kind of the stake in the ground that we think we
16    need to deliver over this particular service to support
17    our customer base, and we're looking further at the
18    integration.
19              The phenomenon or concept of PCS is an
20    interesting one, and we all imagine ourselves walking
21    seamlessly between these networks, and we do believe it's
22    a network of networks.  We do believe, if we look at the
23    spectral efficiency of GSM and other systems, that we
24    don't have the capacity in those systems to support all of
25    these services  we're looking  for, and  so we  do believe

                                                              62
 1    this will be a tiered approach.
 2              When you talk about tiered architectures,
 3    obviously the complexity goes up as you try to manage
 4    calls in progress and pass them off back-and-forth between
 5    systems, so we are looking at integration between our
 6    services and we see this potential video capability.
 7              Some people talk about real time.  Security
 8    cameras is potentially another application.  This is
 9    probably going to be longer term capability as we learn
10    how to do more sophisticated compression and encoding on
11    the air link to improve the Internet access performance.
12              One of the more formidable challenges we're all
13    going to be faced with is interfacing to the consumer. 
14    This is a very simple drawing of a very complex product.
15              Line of sight, as you saw in one of the
16    speaker's diagrams, suggests that there are little
17    pinpoints on some houses, a rooftop, a chimney, et cetera.
18
19    We are avoiding a line-of-site implementation.  We are
20    going to be mounted on the side of the home.  We're going
21    to be compatible with inside wiring.
22              We're not suggesting that we rewire the home. 
23    We are working towards plug-and-play architectures, and as
24    you see here, we do believe in a very short period of time
25    that  we  will have  some  sort of  integration capability

                                                              63
 1    inside the home.
 2              Now, we all want to do that over the existing
 3    twisted copper, and we want that air link to deliver a
 4    number of services.  Internet, traditional telephony, fax
 5    support, and high-speed modem support in an analogue
 6    portion as well as digital PCS.
 7              One of the interesting things about radio and
 8    the fact that when you start digitizing this bit stream
 9    leaving the home is that you can intercept it and you can
10    intercept it in the network, and when you intercept it in
11    the network you can divert it, so for the first time we
12    see ourselves offering the equivalent of a dedicated
13    digital network to our consumers.
14              We're not thinking of taking Internet service
15    through switched architectures.  We're thinking of taking
16    Internet services through dedicated customized backbone
17    architectures, picking up at our base station, feeding it
18    into new services platforms that we're currently
19    developing and offering a full-time connected data service
20    to the home, packet-based.
21              Now, just to give you some idea of where we are
22    right now, back in the early part of this year we said we
23    would do it.  We have done it.  We targeted December 2 as
24    our lab in Chicago.  We did go live in Chicago.  We did
25    install  a  base  station.    We  did  bring  all  of  the

                                                              64
 1    electronics that we produced together.  They were
 2    operational.  We managed to establish calls, RU-to-RU or
 3    home-to-home.
 4              The calls fundamentally sounded great.  They
 5    weren't perfect.  We still had many issues to deal with,
 6    obviously, because of the way -- the state of this
 7    development, this early prototype work, but for the people
 8    that experienced it, the homeowners, ex-AT&T employees
 9    that were part of this trial, the feedback we got was that
10    it was a new experience, and we will continue to build on
11    what we learned.
12              We're not stopping right now.  There's going to
13    be a lot of competitive alternatives in wireless.  We're
14    evaluating how well we stack up against the products that
15    other people are putting together, and as we learn more,
16    we and our engineering team determine whether or not and
17    when we can develop this product in its next iteration.
18              We are currently at the first release, and we do
19    expect it will involve releases year after year.
20              What drives us to do this?  First, we need to
21    break the local bottleneck.  AT&T has significant long
22    distance business that it wishes to protect.  We
23    understand with the new legislation that people are going
24    to be highly competitive.  We're going to see a lot of
25    bundling  of   local  service,  mobility   services,  long

                                                              65
 1    distance services.
 2              The current options available to us, and we have
 3    tried them, have been difficult in some cases.  We think
 4    the industry needs a strong competitive push, and we're
 5    going to position for a strong competitive push, and I
 6    think history has taught us one thing.  We think it's a
 7    lot more than 1 million customers.  We think we can
 8    deliver a service that is going to meet consumers'
 9    expectations.
10              I think it's very important, though, that we're
11    looking at services that are differentiating.  We're not
12    looking at strictly POTS service.  We believe the
13    contemporary home, to win the contemporary customer is
14    going to take some work.  We think this is kind of where
15    it starts.
16              We think that as we're learning and as we
17    miniaturize and as we reduce cost and as volumes go up,
18    life will change and cost will come down, and deployment
19    business cases will change as well, and fundamentally what
20    we're doing is building today for the networks of the
21    future.
22              Thank you.
23              (Applause.)
24              MR. ALLEN:  I would like to thank all of our
25    speakers one more time.

                                                              66
 1              (Applause.)
 2              MR. ALLEN:  And we are interested in receiving
 3    any questions that you may have.
 4              VOICE:  As I understand it, most of the
 5    discussion was focused on terrestrial systems, but if we
 6    think of a local loop as a last mile and dial tone, LIO
 7    and MIO systems, do you see a future here, and if not, why
 8    not?
 9              DR. SLEKYS:  I will address that, but there will
10    be some people here from Teledesic later on who may want
11    to address that.  Certainly we see an opportunity there,
12    and companies like Iridium already off and running with
13    their local service globally.
14              The issue is that capacity density, traffic
15    density in the context of voice, in a city and so forth,
16    and data services.  I think the terrestrial systems are
17    still going to win out on the economic side, and for
18    satellite to compete with that, it's not really -- it's
19    not its turf.
20              I think we see satellite delivery through LIO's
21    and MIO structures certainly as proven.  With business
22    plans that are being funded, Iridium, Global Star and
23    others, there will be an opportunity, and there's a global
24    roaming market of some number.  I don't know what that is
25    yet, but clearly there is some global roaming market.

                                                              67
 1              The new generation mobile networks, the 2 G that
 2    was put up there that's coming to fruition sometime in
 3    2000-plus, David, I guess, will seek to address that as
 4    well from the terrestrial side, so even that will be
 5    tackled by terrestrial wireless, and certainly with the
 6    numbers you saw up there, 200 million and growing at the
 7    rate we're growing, I think satellite fundamentally should
 8    stick to broadband data services.
 9              VOICE:  In regard to the current ongoing NPRM,
10    regarding the two-way broadband services using MMDS
11    licenses, I would like to get a little more information in
12    terms of the interference issues that I think Dr. Krauss
13    had brought up and also maybe from whoever in the panel
14    would like to help us with a better understanding of what
15    are the current technologies in terms of air link that is
16    being considered suitable for MMDS.
17              DR. KRAUSS:  Well, let me take the first part of
18    that, at least the question of interference.  The MMDS
19    service today has serious interference issues, because
20    even though it's all one-way video distribution the
21    channel plan, the FCC's channel plan and the way the
22    channels are assigned, they're not contiguous in
23    assignment to a particular licensee.
24              It's not four channels continuous, but it's four
25    channels every other  channel, and that means  that if you

                                                              68
 1    have these four channels -- and I won't use my fingers
 2    because the people that are recording this won't be able
 3    to get that.
 4              If you're assigned channels A-1 through A-4, and
 5    somebody else is assigned channels B-1 through B-4, they
 6    are interleaved, and if you don't operate at the same
 7    transmission location then a particular receive location
 8    might be getting interference, adjacent channel
 9    interference in his TV set because of the near-far
10    problem, the fact that he might be a lot closer to the
11    unwanted transmitter than to the wanted transmitter.
12              So let's say that now we go to an environment
13    where some of these MMDS channels are used for two-way
14    operations.  You have an even more serious problem with
15    the near-far problem, or near-far interference, because
16    the two-way operations are going to be much lower power
17    than the one-way broadcast.
18              And unless you can convince everybody, or almost
19    everybody in the market area to convert from high power to
20    lower power, if your receiver if your subscriber station
21    is too close to a high-powered transmitter he's going to
22    get adjacent channel interference, and there are a
23    substantial number of licensees who are likely to continue
24    to want to use these frequencies for one-way video
25    distribution,  because these are  educational institutions

                                                              69
 1    that are using it for educational lectures.
 2              So unless it's going to be possible to
 3    coordinate all of the users in a particular geographic
 4    area, I foresee practical problems if this does go to two-
 5    way.
 6              MR. ALLEN:  If anyone else would like to ask a
 7    question, if you would come up to the microphone, then we
 8    could take you in order that way.
 9              QUESTION:  Could you address the second part of
10    my question?
11              MR. TRINKMON:  We have been watching, but we
12    have not seen anything emerge yet.  And we do not see a
13    solution apart from the power interference problems that
14    Jeffrey just mentioned.  The fact that nobody has
15    contiguous spectrum means it is very difficult to
16    construct a series of air interfaces that you could deploy
17    for any voice or data service, even if you did not have
18    the high power problem.  If you have to live within the 6
19    meg boundaries in some applications, even though some
20    licensees might be able to put two or three together.  It
21    makes it very difficult to figure out an architecture and
22    a system that you could sell and get volume out of.
23              The major obstacle we have seen is that the
24    starting point of most business cases assumes that they
25    can  reuse their  very  high towers  on  the biggest  hill

                                                              70
 1    around, which is the way you do broadcast.  And when you
 2    look at the coverage plans that you would need to do a
 3    two-way service, that is probably the last place you would
 4    choose to put your towers.
 5              So this whole idea that they have got a cheap
 6    ride already, they have basically got to pull it all down
 7    and start again.  So those are the factors, I think, that
 8    are stopping this from moving on.  But that does not stop
 9    a lot of people from trying to find the answer.  Which is
10    great.  And we are watching.  But we have not seen one pop
11    up yet.
12              MR. NELSON:  I am Mike Nelson with the FCC.  And
13    I had a question for Mr. Vanderwel.
14              I was wondering if you could give us a few more
15    details of your Chicago trial, and tell us a bit more
16    about how many people were involved, what kind of services
17    they were signing up for, what some of the bugs were.  And
18    I would also like to hear a bit more about some of the
19    regulatory barriers that you anticipate that you might
20    have to deal with as you roll out the service.
21              MR. VANDERWEL:  Maybe the latter point I am not
22    probably as qualified as some others in our organization
23    to deal with the regulatory issues, but I would like to
24    address the former, if I may.
25              Chicago is a significant accomplishment for this

                                                              71
 1    particular team, because it required proof of concept of
 2    many of the technologies that we have been building.  We
 3    are, obviously, from a base station, from a fixed
 4    perspective, trying to emulate many of what you would call
 5    I suppose traditional telephony building blocks, to allow
 6    a high degree of compatibility with switching
 7    infrastructures that exist, to allow cost-effective
 8    deployment.  And so much of the testing was to demonstrate
 9    that our prototype products were in fact operational.
10              The second part of the test was to prove that
11    the air link concepts that we were working on were also
12    doable.  And therefore, what we did, we utilized one of
13    our towers in Chicago, our mobility towers, we collocated
14    on that tower.  We located residences -- I think the
15    furthest residence was 1.9 kilometers away from the tower.
16
17    We populated all homes.  There were a total of nine
18    participants in a distributed area.  We populated their
19    homes with this technology.  You saw in the last slide the
20    square pizza box.
21              We gave them telephony service, traditional
22    telephony service.  We did not have the data architecture
23    in place.  And as I mentioned earlier, that basically ends
24    up being diverted to a separate network, which is in the
25    process of being developed and built.

                                                              72
 1              But we did demonstrate analog circuit switch
 2    data capability over the system.  And we did allow people
 3    to make any number of call combinations, including
 4    house-to-house calls.
 5              When we tested the thing, obviously we had
 6    prototype problems in the boards because of the state of
 7    the technology as it was being supported.  But when it was
 8    stable, it was very, very clean communications.  The air
 9    links performed as we expected.  We were stress tested by
10    weather.  It was snowing and cold.  RU's were installed in
11    the middle of that.  Testing was done to make sure that we
12    had correct signal strength and that customers would be
13    happy.  And we noticed no degradation because of snow or
14    ice or any other situations.
15              MR. NELSON:  How fast were the applications?
16              MR. VANDERWEL:  The data applications were
17    circuit switched.  They would be constrained to what
18    people could do with a portable PC at 2833.  Obviously we
19    need to go much higher than that.  But that is part of a
20    specialized data network that is being built as a
21    companion piece to this particular architecture.
22              DR. KRAUSS:  Let me put in a plug for regulatory
23    barriers -- the question that you asked.  I think that it
24    is time for the FCC to go back and take another look at
25    the computer  inquiry  rules and  regulation  of  customer

                                                              73
 1    premises equipment.  We are talking here about different
 2    regulatory schemes that apply to different kinds of
 3    service providers for equipment that is located at or on
 4    or near the customer premises.
 5              And this is not only for radio based, for
 6    wireless technology that we are talking about, but also
 7    for a telephone company that wants to put in fiber to the
 8    home or co-ax to the home or anything like that requires
 9    what you might call a residential gateway or some kind of
10    a terminal in the home that is more complex than just an
11    RJ-11 jack.
12              QUESTION:  Is there any place to go for more
13    details on the Chicago trial?  Is there any Web site?
14              MR. VANDERWEL:  We do have a Web site.  I could
15    get that maybe for you at the conclusion of the session. 
16    You could always contact me.  I would be pleased to
17    provide you with more information.
18              QUESTION:  Thank you.
19              QUESTION:  I guess this is directed toward all
20    of you.  I am curious that, given the continuing need for
21    wire line services in terms of a loop, OC-3's and OC-12's,
22    for those that continue to be wire line, do you really
23    feel that wireless can develop to be a true wireless local
24    loop, or is it more of a less-mile solution, as the cliche
25    goes?

                                                              74
 1              MR. VANDERWEL:  If I could try to take it.  We
 2    see it as a last-mile solution.  The solutions that we
 3    have proposed here have been that.  However, we see a lot
 4    or emerging technologies.  LMDS may be one where we are
 5    going to see significant capacity capability.  And so we
 6    are looking at all of the emerging technology.  And we do
 7    expect that some of them will become more appropriate.
 8              Our current architecture leverages much of what
 9    is there.  We just take it from the last serving office
10    and take it to the customer in a different implementation
11    than people are used to.
12              DR. SLEKYS:  I think your question really is: 
13    Does wireless impact broad band and high bandwidth
14    services?
15              I guess I am not sure everyone knows the buzz
16    words, but you are talking about data rates that are
17    multiples of T-1 rates, and multiples of E-1 rates in
18    European norms and so forth.  And I think the answer is
19    yes, wireless is going to impact that and already is. 
20    Technologies are coming out that have bit error rate
21    performance of 10-to-the-minus-9.  And other than this
22    issue of weather, which does have a deleterious effect --
23    and in particular, rain -- but that can be solved as well
24    with proper planning.
25              So I  think that  the impact  is clear.   It  is

                                                              75
 1    happening.  The economics of wireless have the advantage
 2    over fiber in the context of delivery on demand.
 3              The European ETSI norm, 1.75 megahertz at a
 4    time, 2 and a half bits per second per hertz, yields a
 5    couple of E-1's on every link.  And you can just keep
 6    going.  And they basically view that as a standard that
 7    can be applied at any of these allocations, 28, 38, and so
 8    forth.
 9              MR. TRINKMON:  If I could comment, on a couple
10    of things.  We are not comfortable with this last-mile
11    phrase, because in the economics of deployment,
12    particularly for universal service and so on, it is the
13    last 10 or 15 miles.  And it completely changes where you
14    put your switches and all your backhaul costs.  And that
15    is a big factor in it.  So you need to be aware that some
16    technologies are limited to the last mile, but others are
17    not.
18              And in the broad band case, I have not found too
19    many people putting OC-48's to the residential yet.
20              (Laughter.)
21              MR. TRINKMON:  Or even fiber to the home.  As I
22    mentioned earlier, there are economic problems.  And the
23    same applies with the wireless technologies.  The higher
24    frequencies that go with the very high bandwidth require
25    you to go pure line of sight, limited link budgets  and so

                                                              76
 1    on.  So they are not really deployable to individual
 2    residential premises.  But to business parks or apartment
 3    buildings and stuff it is fine.  So it is horses for
 4    courses again.  And the goal posts keep on moving.  But
 5    there are some limits.  Ohm's Law still applies somewhat.
 6              QUESTION:  I would like to extend that point in
 7    the form of a question regarding what you had just
 8    mentioned, David, and what Jeff had mentioned also.  We
 9    are clearly a technology-driven industry here.  But, on
10    the other hand, when we keep looking at the investment and
11    operating cost, my question is, to what extent do we
12    consider the interactive nature of the current regulatory
13    environment and the pricing structure that is associated
14    with, for example, flat-rate ISP usage and things like
15    that?
16              And how does that dictate, if it does at all,
17    any kind of emphasis in terms of frequency spectrum
18    utilization and emphasis on technical design, excepting
19    the asymmetry, if you want to call it that, of the
20    regulatory policies that are in being and may continue
21    indefinitely?
22              DR. KRAUSS:  Well, this is, as you say,
23    interactive.  It is an interactive process.  A
24    manufacturer comes up with an idea for using radio
25    spectrum in  a particular  way and  tries to  get spectrum

                                                              77
 1    available to use it.  That, I guess, is what is going on
 2    with Nortel's product right now.
 3              So some manufacturers will take the lead and do
 4    the technology development and then go to the government. 
 5    Others will look at the technical rules that are in the
 6    FCC regulations and the spectrum allocations that are in
 7    the FCC regulations and they will design products that
 8    confirm to the existing regulations.  And there is -- you
 9    know, this is not a simple -- this is a very complex
10    situation.  Different manufacturers have different
11    incentives.  There are some manufacturers who will try to
12    drive -- who are perfectly happy with existing standards
13    and will try to evolve their products to improve the
14    performance and decrease the cost within the existing
15    standards.
16              There are others who will say, I can do a lot
17    better if you will change the standards for me.  And this
18    is simply a process that goes on over time.
19              QUESTION:  Excuse me, I just want to clarify.  I
20    am not talking about the technical standards alone.  I am
21    talking about the financial and regulatory rate design
22    standards, access charges, interconnection, unbundling,
23    the asymmetry of the treatment of the different service
24    providers.  To what extent does that dictate, if at all,
25    any change or emphasis in the technical design criteria in

                                                              78
 1    the process of design?
 2              MR. TRINKMON:  Yes, you have touched on some
 3    very key points.  Obviously, manufacturers do not just
 4    invent stuff for the hell of it.  We try and figure out
 5    who is going to buy it and use it and what for and how
 6    many and so on.  And it actually is a key area at the
 7    moment in the segment I talked about, on the fixed mobile
 8    integration.  One of the biggest factors holding back the
 9    mobile industry at the moment from going into fixed
10    services is how to compete with free local calls and so
11    on.  Which happens to be the way tariffs are set up in
12    this country.
13              That itself has spawned a huge paging industry. 
14    The called party pays philosophy.  All these things are
15    all linked together and limit what people can choose to
16    operate and deploy, and therefore what people develop to
17    meet those services.
18              On the sort of implied part of your question, in
19    terms of the different types of spectrum and the value of
20    them, we are seeing the example in the Mexican auctions at
21    the moment, where the two PCS A and B bands -- I have not
22    kept up with the latest numbers, but I think they are
23    adding up to a couple of hundred million or something --
24    300 at the moment -- and the 3 and a half gig fixed
25    wireless block, three-four  to three-six, is sitting  at I

                                                              79
 1    guess about 50 million or somewhere around there.
 2              Which confirms what we have always known, but it
 3    needed confirming:  That not all spectrum is equal.  There
 4    is not a so many dollars per megahertz number out there. 
 5    And it depends on the value of the applications.  And if
 6    the service is a wire line fixed service competing with a
 7    copper technology or nothing at all -- you know, you just
 8    go without dial tone for another 50 years -- then that
 9    puts a constraint on what the spectrum is worth.
10              So I think some of that was buried in your
11    question as well, in terms of the interplay between the
12    way regulations are set out and the way spectrum is
13    managed and allocated and licensed, as well as what the
14    various technologies can and cannot do -- which changes --
15    and what various people see as an attractive business
16    case, or not.  What business do they want to be in?
17              So you can obviously take a lot longer to go
18    over this stuff.  But I think those are the main elements
19    I picked out of your question.
20              DR. SLEKYS:  Perhaps the most provocative
21    conclusion of that whole dialogue would be, Why do we need
22    any rate control?
23              DR. KRAUSS:  But there is also a related issue. 
24    And that has to do with spectrum and spectrum allocation
25    and  whether  spectrum is  free  or not  and  the cost  of

                                                              80
 1    coordination.  It would be wonderful if there were an
 2    infinite amount of spectrum and everybody could do
 3    whatever they wanted with it.  That would mean that you
 4    could buy relatively inexpensive equipment that makes
 5    relatively inefficient use of the spectrum.  That would
 6    drive down the cost of the equipment and drive down the
 7    cost of the service, and totally, totally revolutionize
 8    the way the telephone industry operates.
 9              But that is not the case.  And so we live within
10    the constraints that spectrum is a limited resource and we
11    will always have that constraint.
12              MR. ALLEN:  I was hoping to get one last
13    question in.  And that is that I think some PCS service
14    providers are advertising that they have home
15    communication available, as well, where they do not charge
16    you, or something, for the air time when you are in your
17    home.  But going beyond cellular and PCS offerings, when
18    do you envision a person living in a typical metropolitan
19    area in the United States expecting to be able to have a
20    choice and at least one wireless local loop service being
21    offered?  How many years from now do you expect that to
22    happen?
23              MR. TRINKMON:  I think it comes back to what is
24    the service.  Many people would think they are getting
25    that at  the moment from their cellular or PCS phones, and

                                                              81
 1    the only issue is how much they have got to pay for it. 
 2    Is it 50 bucks a month, all you can eat, or is it 10 cents
 3    a minute or whatever?  And that is the tariff issue I
 4    referred to earlier.
 5              There are examples now, in Israel and Denmark
 6    particularly I can think of, where the mobile rates have
 7    come close enough -- not equal to, but close enough to the
 8    fixed rates, but that is on a per-minute basis -- that
 9    people are giving up their wire lines now and just using
10    their mobile service.  So these are tariffing and bundling
11    issues, which is particularly difficult to solve in the
12    U.S. and Canada, with the free local call tariffs on the
13    fixed service.
14              So that is a hurdle which people have not quite
15    managed to jump yet.  One or two operators have tried it
16    and then suddenly attracted more capacity than they could
17    deal with.  So they sort of backed off for a little while
18    until they figure out the next combination that works.
19              MS. BROWN:  Well, I want to thank this first
20    panel.  Are there any last comments from anyone?
21              DR. SLEKYS:  I was going to add to what David
22    says.  It is happening now.  Most of the business plans we
23    look at for PCS investment all have all you can eat plans
24    at some point.  And the key will be their bundling of
25    that,  with not  just their  mobile, but  then with  other

                                                              82
 1    services.  Because they are all hungry to do direct to
 2    home video and anything else they can get their hands on
 3    as service providers.
 4              So I think that the wireless world, which is
 5    looking at a 50 percent penetration in the next 5 years,
 6    will have flat rate and mobile combined in a way that it
 7    will be questionable whether you will want to keep your
 8    land line phone.
 9              MS. BROWN:  We may just hold you to that.
10              (Laughter.)
11              MS. BROWN:  So, on that note -- and I think we
12    will press this issue throughout the day -- and when we
13    get back to the next panel, which will really center
14    around this notion of universal service, perhaps we can
15    take that question up some more.
16              I really want to thank this first panel.  I
17    think you have laid a very good, solid foundation for the
18    discussions for the rest of the day.
19              There are refreshments around the corner.  We
20    will resume back at 11:15.
21              (Applause.)
22              (Recess.)

              REACHING OUT WITH WIRELESS LOCAL LOOP:
                IMPLICATIONS FOR UNIVERSAL SERVICE

25              MS. BROWN:   I think our  first panel gave  us a

                                                              83
 1    good primer on the kinds of technologies that we are
 2    talking about.
 3              The one thing I want to tell you is that we are
 4    so scrupulous about use of the microphones.  We are
 5    broadcasting over the Internet right now.  And in order
 6    for us to be effective in that medium, we need to use the
 7    microphones.  So, if you would, please step up to the
 8    microphone when you are speaking.  That would be very
 9    helpful to folks who are listening to us over the Net.
10              Our second panel, what we would like to do is to
11    explore a little bit some of the implications for this
12    notion that we call universal service with respect to
13    wireless technologies and the kinds of technologies we
14    have just been talking about.
15              Alex Wolfson, from Columbia, was to be with us. 
16    I think he is lost on the Amtrak right now.  We had
17    invited him because Columbia did a very good program about
18    a year ago on universal service and wireless technologies,
19    which really got a lot of us thinking about what the
20    hurdles were to full deployment of these technologies,
21    really in pursuit of some of our public policy goals.
22              With his absence and with your indulgence, I
23    will try and moderate the panel and get it going.  And if
24    Alex shows in the middle, I am going to turn the podium
25    over to him.

                                                              84
 1              Interestingly, I just returned from India, where
 2    I accompanied Secretary Daley on a trade mission.  And we
 3    talked to the top of the Indian Government on opening
 4    trade to United States businesses, and particularly to
 5    telecom concerns.  And one of the major areas of
 6    discussion and one of the areas I spent enormous time on
 7    was the use of wireless technologies to bring telephony to
 8    the villages of India, where there is no telephone at all.
 9              One of the major goals of the Indian Government
10    is to have one telephone in every village by the year
11    2000.  And a major discussion we had was on particular
12    technologies and the effect of rain, for instance, on
13    those technologies in rural villages, and how those
14    technologies could be deployed to achieve this notion of
15    universal service.
16              Interestingly, while I was about that work, at
17    home here, the debate is boiling and roiling on and on
18    around universal service and how we assure ubiquity of
19    telephone service in this country, how we assure
20    affordable telephone service, and whether and how, and how
21    much, our system of subsidies ought to be.  And it seems
22    to me that these two things come together in sort of an
23    interesting way.
24              We talk about universal service here so much
25    around a subsidy system.  And I think we have to step back

                                                              85
 1    from that and start thinking about a competitive system
 2    and how we can make services affordable and what kind of
 3    alternatives there are in our markets to ensure
 4    affordability.
 5              And I think that the discussion this morning
 6    starts us thinking that way:  Well, if it is economic --
 7    we heard from someone.  And, well, if it really will work,
 8    the technology is there -- we heard from someone else. 
 9    And if there really are solutions to some of these
10    regulatory problems, well, then, where is it?  And can we
11    get it out there?  And can we deploy these technologies in
12    this country?  And can we be as ardent about it here as we
13    are in South America, in India, in Vietnam?  What is in
14    our way?
15              So I am hoping that folks will think about those
16    questions as they are addressing us.  We specifically, in
17    our statute, talk about affordable telephone service to
18    all areas of the country.  We are worried, from a public
19    policy perspective, about our rural areas, about our
20    low-income areas, and about specific institutions in our
21    country -- schools, libraries and rural health care
22    centers.  And I hope, as you are all talking, you will
23    talk to us about how these technologies might work to meet
24    some of our public policy goals.
25              With that,  I  would like  to introduce  Jeanine

                                                              86
 1    Poltronieri, from the FCC.  She is the Associate Chief of
 2    the Wireless Bureau.  And she has primary oversight
 3    responsibility on issues relating to wireless competition.
 4
 5    So I have asked Jeanine to sort of set the stage from us,
 6    tell us about the regulatory framework, and we will move
 7    on from there.
 8              Thank you.
 9           JEANINE POLTRONIERI, ASSOCIATE BUREAU CHIEF,
10                WIRELESS TELECOMMUNICATIONS BUREAU,
11                 FEDERAL COMMUNICATIONS COMMISSION
12              MS. POLTRONIERI:  Thank you.
13              We heard this morning about how increasingly one
14    can view wireless services as a substitute for wire line
15    telephony and not merely a complement to wire line
16    telephony.  As the cost of the wire line network declines,
17    that makes wireless clearly an economical choice in many
18    areas.  We especially see this where wire line loops have
19    not yet been installed, the wireless local loop solution
20    becomes very attractive.
21              You heard this morning about the examples we see
22    abroad of this, in the developing world.  And we believe
23    that, as the costs go down wireless local loop will also
24    be a competitor, where wire line loops have already been
25    installed.

                                                              87
 1              I am going to focus a little bit on the
 2    regulatory background of universal service, and try to
 3    give some guidance as to how we are trying to work out
 4    some solutions that make sense to increase competition for
 5    rural areas, as well as satisfy the other principles in
 6    the Act, of providing support for schools and libraries
 7    and hospitals.
 8              As you know, after the 1996 Act was passed, it
 9    included Section 254, which set out the principles for
10    universal service.  At the Commission, we had a pretty big
11    challenge facing us, because we had to take a decades-old
12    system that had provided support through a series of
13    implicit subsidies and turn it into something that could
14    react to the advances that we see in technology, as well
15    as create new programs for schools, libraries and health
16    care providers.
17              For the high-cost areas, in the past, support
18    was based on the actual reported costs of the ILEC, the
19    wire line incumbent.  And we needed to make that a more
20    competitively neutral system so that other competitors,
21    wireless competitors generally, as well as potentially
22    wireless local loop competitors, can become eligible for
23    the support and provide service to those areas.
24              In looking at the universal service support
25    mechanisms  that were  in  place, we  were  guided by  six

                                                              88
 1    principles that were set out for the Commission in Section
 2    254 of the Act.  Important for our discussion today is
 3    that the Commission, guided by the Joint Board -- the
 4    Joint Board was a group of State and Federal regulators
 5    who gave the Commission guidance on how to implement
 6    Section 254 -- chose to add a principle to the principles
 7    that had already been enumerated in Section 254.  They
 8    added the principle of technological neutrality.
 9              So that was one of the guiding principles that
10    we looked at as we looked to revise and update the subsidy
11    program that was in place.  It has been quite a challenge
12    regarding the high cost rural areas, and trying to make
13    sure that we can meet this goal of technological
14    neutrality.  Two ways that we had to fundamentally change
15    the way we had looked at universal service support
16    mechanisms was in the way we calculate and distribute
17    universal service support.
18              Of these, getting the support distributed to a
19    wider range of telecommunications provider was the easier
20    of the two.  We set out a group of services that needed to
21    be provided by a telecom carrier in order for them to
22    receive support from the universal service support for
23    high-cost areas.  And we went to some lengths to ensure
24    that these were fairly basic services that a whole variety
25    of different competitors could provide.

                                                              89
 1              When it comes to being eligible to receive the
 2    support, that is a matter that is largely within the State
 3    control.  The State certifies the carrier is eligible and
 4    also establishes the service area.  And we have been
 5    encouraged to see that at least some wireless providers
 6    have been able to go to the State and receive
 7    certification for eligibility.  So that means if they
 8    provide the enumerated services, they can receive support
 9    from the program.
10              Regarding the service area that the carrier
11    would have to provide service to, again, this is an area
12    that is largely within State control.  But the Commission
13    did give some guidance to the States.  And the guidance
14    was basically that when thinking about service areas, you
15    should think about new competitors and how to encourage
16    them to come in and provide service in your high-cost and
17    rural areas.
18              And the suggestion is that perhaps a service
19    area that was equal to the ILEC service area would not be
20    appropriate in order to encourage new competitors to enter
21    the field.  So that was the first part.  That was
22    determining eligibility for the high-cost and rural
23    program.
24              The second question that has proven to be a much
25    harder problem for us is determining how much support each

                                                              90
 1    carrier would receive for providing the service to the
 2    various areas.  The Commission decided to go through a
 3    modelling process.  And this is an ongoing process at the
 4    Commission right now.  And it is a little bit different
 5    than the typical rulemaking you might see at the
 6    Commission in a number of ways.
 7              For one, there has been a lot of cooperation
 8    with the States on this issue.  And we have had a lot of
 9    dialogue back and forth on how to model a cost model that
10    can make sense for a national policy but, as well, give
11    flexibility to the States.
12              There has also been a lot of back and forth with
13    carriers who are participating in this rulemaking.  And at
14    different stages in this proceeding, the Commission has
15    given guidance to carriers who are working on the
16    modelling process, and trying to make sure that they are
17    receiving from the Commission good guidance as to the
18    direction that we want to go.
19              In this regard, we have had a fair amount of
20    participation from wireless carriers, but we would like to
21    have more participation from wireless carriers.  Because I
22    think it is important that this modelling process not go
23    forward without them.
24              The models that were originally proposed to the
25    Commission were wire line-based models.  And that is where

                                                              91
 1    we are taking off from.  But there is an understanding
 2    that that cannot be the only solution to these problems. 
 3    So we are working with different carriers, and trying to
 4    figure out how to incorporate a wireless solution into
 5    these models, for purposes of determining the amount of
 6    support.
 7              And anyone who wants to participate in that
 8    proceeding, you should know that in the first quarter of
 9    1998, we are going to be giving some broad guidelines on
10    the platform that is going to be used to determine
11    universal service support.  And then, after that, we are
12    going to be going forward to determine what inputs would
13    be appropriate to put in that model.  And this whole
14    modelling process is supposed to tie up in the summer of
15    1998.
16              We are also going to be looking at competitive
17    bidding as a solution.  Although that has taken a little
18    bit of a back seat right now to the modelling process, it
19    is definitely something that the Commission is interested
20    in.  Because we think that it is a way to ensure that
21    different carriers, different telecommunications services,
22    can compete for the universal service funds.
23              So, at some point in the future, the Commission
24    will be issuing a notice on that issue, to look at those
25    issues more fully.

                                                              92
 1              On schools, libraries and health care providers,
 2    there is a pretty broad set of services that can be taken
 3    by any school and library who is eligible under the
 4    program.  So, in that sense, there is a real interest in
 5    having a lot of competition and a lot of different types
 6    of services provided to the schools and to give schools,
 7    libraries and health care providers flexibility in the
 8    sort of technology that they choose.
 9              And as wireless local loop becomes better able
10    to provide access to the Internet, I expect that more
11    schools will be looking to that as a solution, especially
12    where there may be practical problems such as asbestos, or
13    rewiring internally.
14              I see there is a green light right now, so I am
15    going to tie up that right now.  But I am more than happy
16    to talk to anybody more about how things are going forward
17    at the Commission, as well as the broader policies.
18              MS. BROWN:  Thank you, Jeanine.
19              Alex is here, so I am going to bring him up to
20    date.  But let me just get Ed Cameron up here to give you
21    sort of the overview of the rural perspective.  Ed is the
22    Acting Deputy Assistant Administrator of the
23    Telecommunications Section at RUS.  RUS has been very,
24    very, very actively involved in the universal service
25    debate  before the Commission  since the implementation of

                                                              93
 1    the Act.  They have extensive experience with carriers in
 2    rural areas.  And we thought it would be interesting to
 3    hear RUS's perspective, and we are very pleased that Ed is
 4    here.
 5                      ORREN E. CAMERON, III,
 6              ACTING DEPUTY ASSISTANT ADMINISTRATOR,
 7                     RURAL UTILITIES SERVICE,
 8                   U.S DEPARTMENT OF AGRICULTURE
 9              MR. CAMERON:  Thank you.
10              The Rural Utilities Service is part of the
11    Department of Agriculture.  I will give you just a touch
12    of background.
13              Each year, we lend approximately $900 million to
14    rural telephone companies, which are now called rural
15    LEC's.  And we have about 900 rural LEC's that borrow from
16    us across the country.  I think there are about 1,300
17    telephone companies in the United States right now.  And
18    we finance 900 of them.  At one time, we financed about
19    1,000.  But we have had some companies that have graduated
20    from our program.
21              The universal service issue is our issue.  In
22    this country, we have basically got universal service in
23    rural areas.  And the hard part is to figure out how to
24    keep it.  As we move to a competitive environment, it is
25    very hard to justify support  policies that keep telephone

                                                              94
 1    rates affordable in rural areas.
 2              And a lot of people think of rural areas as
 3    Charlottesville, Virginia.  But I think of rural areas as
 4    Dell City, Texas.  The rural areas that I visit, you would
 5    not even think of them as communities.  The largest
 6    community we can finance has a population of 5,000
 7    inhabitants.  That is in our statute.
 8              We are very interested in the universal service
 9    rulemaking proceeding.  And Jeanine has just discussed
10    half of it -- the half that affects the non-rural LEC's. 
11    And the other half of it is going to start in about a
12    year.  And that is the half that is going to affect the
13    rural LEC's, which are the small companies that serve
14    about half of what is really thought to be rural America.
15              The RBOC's and GTE and some other large,
16    non-rural LEC's actually serve half of the 80 percent of
17    the land mass of the country, which is generally
18    classified by the Department of Agriculture as rural
19    America.
20              And Jeanine mentioned that the supported
21    services were debated and have been defined.  And that is
22    right.  But there is one detail that has not been defined
23    yet.  And that is the local usage component of the
24    supported services.  And that is a critical issue in a
25    wireless forum.

                                                              95
 1              Traditionally -- and the FCC has recognized this
 2    in their orders -- traditionally, wireless services have
 3    been provided with low-cost access but high-cost usage
 4    fees.  And wire line services have been provided with
 5    higher-cost access -- that is your monthly base rate --
 6    and low-cost, or maybe no cost, usage fees for local
 7    service.  And so there we see a fundamental difference in
 8    the pricing structure between traditional wire line and
 9    traditional wireless services.
10              And one thing we have been arguing in our
11    comments to the FCC is that the usage of a telephone for
12    local service has become very dependent upon very low-cost
13    usage.  The wire line network has been able to provide
14    this.  There is not a limit on spectrum.  You create new
15    spectrum every time you lay a wire to the house.  And so
16    spectrum has not been a problem in the wire line network. 
17    And the population, and particularly the rural population
18    of this country, has become accustomed to having all the
19    time on the telephone they need.
20              And a new development in telephone usage that we
21    are seeing, which is Internet usage, is even going to
22    emphasize this further.  If you want rural school children
23    to be able to use the telephone to access the Internet --
24    which is going to be the interim solution for Internet
25    access --  we recognize that a high usage charge, which is

                                                              96
 1    typical of the traditional wireless carriers, is going to
 2    be a back-breaker for rural families.
 3              And so that is one of the things we have
 4    commented on.  But that is a detail -- I believe the FCC,
 5    in the May 8 order, has said that they were going to
 6    specify the local usage component by the end of 1997, by
 7    the end of this year.  I think that is right.
 8              MS. POLTRONIERI:  We have definitely received
 9    comments on in the proxy modelling.
10              MR. CAMERON:  Right.
11              I do not know how you all are getting anything
12    done.  You have so much to do.  I have been to the proxy
13    model workshops on Wednesdays.  And we have commented to
14    you.  I do not know how you can keep up with this.  It is
15    an enormous task that has been given to you.
16              It is an enormous task just to comment on all
17    the notices that you put out.
18              We have had a lot of experience with wireless
19    services in rural areas.  We actually were the catalyst
20    for bringing about the service known as basic exchange
21    telecommunications radio service, BETRS.  We brought
22    together interested parties in the late eighties.  And we
23    petitioned the FCC for some primary frequency allocations
24    for a rural radio product.  Because we knew that wireless
25    was going to be a  tool that we just had to  have to serve

                                                              97
 1    the most remote parts of the country.
 2              So we have financed many BETRS systems.  We have
 3    had many interesting experiences with BETRS systems.  And,
 4    frankly, BETRS has not taken off the way that we hoped it
 5    would.  We have run into quite a bunch of interesting
 6    problems with BETRS.  And I want to tell you some of our
 7    experiences with this.
 8              Right off the bat, I have got to tell you that
 9    BETRS has made possible services in certain areas that
10    would not have been possible physically otherwise.  In
11    Alaska, I have been at a Native village that is across a
12    very angry river, and a seasonal river, from the rest of
13    the larger community.  And without BETRS service,
14    telephone service could not have been extended to that
15    small village.
16              There are some areas along the Mississippi River
17    that are cut off by the Mississippi River, by the rest of
18    the county in certain States.  Because, as you probably
19    know, the Mississippi River has changed courses over the
20    years.  And BETRS is used to serve subscribers across the
21    river from their exchange.  And I would hate to try to run
22    telephone cable across the Mississippi River anywhere that
23    there is not a bridge.
24              So BETRS has been able to do things that we
25    would not have been able  to do otherwise.  Unfortunately,

                                                              98
 1    the average cost per subscriber for a BETRS system -- and
 2    this is just for the outside planned loop; this does not
 3    include central office equipment -- has been, for systems
 4    with about 50 subscribers, which you have to accept is a
 5    relatively large BETRS system in our world -- is about
 6    $10,000 per subscriber.  That is very high.
 7              And if you look at those 50 subscribers, you
 8    have to figure that each one of them would be more
 9    expensive to serve with conventional outside plant or they
10    would not be served by that BETRS system.  So maybe those
11    subscribers would have averaged $15,000 to $20,000 per
12    subscriber to serve, and the BETRS system has saved us
13    money.
14              Most of the systems we have fewer than 50
15    subscribers.  It has been very difficult to get spectrum
16    from the FCC for BETRS.  And I think, in recent years, the
17    spectrum requests have been especially difficult.
18              That $10,000 does not include any cost for
19    spectrum, which we imagine we might have to start paying
20    for.  So all of that spectrum was free.
21              The systems are line of sight.  And customers do
22    not live on hilltops.  So if you have a hilly or
23    mountainous terrain, you have some real service problems
24    getting down into the valleys.
25              We  have run  into  some interesting  regulatory

                                                              99
 1    situations.  The Oregon Public Service Commission required
 2    that one telephone company reimburse customers for power
 3    consumption, because the BETRS system operates off of the
 4    customer's power meter.  And the Oregon PSC regulates
 5    power and telephone service, and they were aware of this
 6    considerable usage.  I think it was a $7- or $8-a-month
 7    cost.  And so we ran into that with one company.  And that
 8    kept that company from buying any more BETRS.
 9              Rural customers do not live in clumps or
10    clusters.  In most parts of the country they tend to be
11    dispersed pretty well.  So it makes it so that you have to
12    have a receiving antenna at each house.
13              Having said all that, I still think that BETRS
14    has been something that we were lucky to get into.  It has
15    done some jobs that would have been very difficult to do
16    otherwise.  We are looking for more wireless loop
17    products.  And we are in contact with manufacturers right
18    now.
19              But I would say that BETRS has not been a
20    successful commercial product in the United States.  And
21    the only reason we can buy the product is that it has a
22    lot of international application.
23              We will finance any technology.  If a company
24    comes to us, we can finance any sort of technology.  We
25    are not bound to wire line facilities.

                                                             100
 1              And my red light is on, so I will stop.
 2              MR. WOLFSON:  Thank you very much, Ed.
 3              I am sorry for my late arrival.  But just before
 4    getting back to the panel, I will just tell you a little
 5    bit of why I am here.
 6              I work at the Columbia Institute for
 7    Tele-Information at Columbia University.  And last
 8    October, we did a little exploratory study, looking at the
 9    role of wireless technology in universal service.  And
10    similar to this, we put together panels on technology, on
11    policy and on the economics.
12              And one of the people that is actually here,
13    Dr. Terry McGarty, who I will introduce now, we are very
14    lucky to have him here.  Because, from an academic world,
15    we like Terry because he thinks a lot and thinks forward
16    looking and has intelligent things to say.  But he is also
17    a practitioner.  So he can sort of take the theory and
18    tell us how it is applied in the real world.
19              I will hand it off to Terry.
20                  TERRENCE P. MCGARTY, PRESIDENT,
21                      THE TELMARC GROUP, INC.
22              MR. MCGARTY:  I want to thank you all for being
23    here, and especially Kathy Brown, because when she spoke
24    to me earlier this morning, I totally rewrote my paper. 
25    So the slides you will see are basically stage props.  And

                                                             101
 1    I enjoy 2-second stimulating discussions, because I think
 2    they did focus me a great deal.
 3              It also was interesting to learn that Larry
 4    Irving was up this morning, dressed in glitter and tinsel.
 5
 6    Which I guess is the Washington way to celebrate
 7    Christmas.  I am from New York, so we do things
 8    differently I think.
 9              Also, a third point -- and Alex did make that
10    point -- I have probably the distinct disadvantage of
11    being one of the only, if not the only, person here today
12    where we actually invest our own money.  So this is a
13    unique experiment.  We make decisions based upon whether
14    or not we want to put my money into something.  And so,
15    therefore, there is instantaneous feedback.  We either are
16    successful or not.
17              Another point which I think is useful, I was at
18    one time COO of Nynex Mobile, prior to going back into my
19    investment firm.  I have not had a cellular phone since I
20    left Nynex Mobile.  I do not use one.  I do not own one. 
21    I would not buy one.  Namely because, if somebody wants to
22    reach me, I still have my pager, which I have had for 10
23    years, and I do not like being bothered.  But that is
24    purely a psychological factor.  There is about .5 percent
25    of the population as weird as I am.

                                                             102
 1              In addition, too, about 5 years ago, we started
 2    out in wireless.  And today we have, other than a CMRS
 3    license, we have absolutely no wireless operations.  We do
 4    IP telephony internationally and we are in the CLEC
 5    business.  And I think some of the things I am going to
 6    talk to you about today are reasons why we have eschewed
 7    wireless operations.
 8              So, very quickly, let me go through the first
 9    slide, if I may.
10              (Slide.)
11              MR. MCGARTY:  This was the universal service
12    issue.  I think the FCC adequately covered that.
13              (Slide.)
14              MR. MCGARTY:  These are basically the things
15    that go into universal service from the FCC's viewpoint. 
16    Very simplistic, but bear with me as I go through it.
17              Single-party service, voice-grade PSDN, DDTMF --
18    which is tone signalling, operator services, some toll
19    limits, 411 information, and 911 help.  Okay.  This is
20    kind of the package of things you got to sell.
21              Now, the question is, what is the platform that
22    you sell these things on?  And that is the key issue.
23              (Slide.)
24              MR. MCGARTY:  And they were driven by Alex's
25    questions  to me,  which  I have  taken  the advantage  of

                                                             103
 1    republishing.  Which is, What is the comparability between
 2    land based and satellite and wireless?  What is the impact
 3    of population density to break-even points?  And what
 4    should government do?  And that was driven by Kathy's
 5    comments earlier.
 6              (Slide.)
 7              MR. MCGARTY:  What is wireless?
 8              Well, it is features and coverage and investment
 9    and a bunch of things.  And wireless is in the eyes of the
10    beholder.  I am very fixated on wireless local loop,
11    mainly because it is direct competition to the incumbent
12    local exchange carrier.  I have looked at LMDS, which is
13    somewhat the rage.  I have got not the most favorable
14    opinion about that from the economic perspective. 
15    Cellular PCS, LEO's, Teledesic, and the others.
16              The problem with the satellite business, of
17    course, is it is really the field of dreams, in the sense
18    that you throw up hundreds of millions of dollars and pray
19    that somebody is going to be there.  I have been in and
20    out of that business probably most of my life.  LEO's and
21    Teledesic are two extremes of that.
22              Wireless local loop is also an issue where
23    coverage is important.  Not as important, obviously, as
24    cellular, where you need 1,000, 2,000, 3,000 square miles
25    of instantaneous coverage.  You can do wireless local loop

                                                             104
 1    with clusters of a few hundred square miles.  But it is
 2    important.
 3              The low-hanging fruit opportunity, of course, is
 4    LMDS, where you can sit out there and say, okay, I am
 5    going to target this building, that building and whatever.
 6              (Slide.)
 7              MR. MCGARTY:  This is a calculation -- and for
 8    those of you sitting in the second row who cannot see it,
 9    I am going to comment on it -- it has some value.  Because
10    we did this -- good Lord -- 5, 6, 7 years ago.  This is
11    the Qualcomm CDMA numbers that we based our initial
12    assumption to spend some money on to get into the C band
13    licensing phase.
14              And this said, for 1,000 square miles -- and the
15    top line is number of subscribers, going from 10,000 to
16    300,000 -- and actually these were the numbers from the
17    Boston market -- these were the total capital per
18    subscriber numbers as we grew from 10,000 subscribers to
19    300,000.  the Boston market is about 4.5 million in the
20    SMSA-type size.  Okay.  I will not get to BTA's and MTA's.
21
22    It is about BTA size.
23              If you take a look at the bottom line, the
24    capital per subscriber, even at 10,000, was $587.  That is
25    for infrastructure.  It does not include the switch and it

                                                             105
 1    does not include the terminal.  It goes down as low as
 2    around $366.  That is for a 10 megahertz spectrum. 
 3    Because we actually were thinking about 10 megahertz.  It
 4    is about $50 per subscriber less for 30 megahertz.
 5              Which meant you did not have a significant
 6    premium between 10 and 30.  You got clobbered somewhere on
 7    the high end, but it was like about a 15 percent premium,
 8    and that was about it.
 9              (Slide.)
10              MR. MCGARTY:  Then we took a look at -- and this
11    was the telling chart -- we took a look at what we had was
12    the net present value per pop.  And "pop" is the euphemism
13    used in cellular/wireless for people.  And this was a net
14    present value per pop -- I'm sorry, it is not per square
15    mile, but just net present value per pop as a function of
16    the number of pops per square mile.
17              And it really said, gee, if I am at the low end,
18    say, 5 percent penetration, at the 10th year, then it is
19    about $11 that i should bid for this if I have 1,000
20    people per square mile.  That is a hell of a lot of
21    population density.  Okay.  Especially if you are going to
22    talk about universal service and rural applications.
23              As you went below 400 people per square mile, at
24    the low end penetration, it was not worth going into the
25    business.  Now,  let's talk about 5  percent, because that

                                                             106
 1    is a key issue.  The percent penetration in 1993 of
 2    telephones per pop was about 99 percent per household. 
 3    But there are 2.5 people per household.  So, therefore, if
 4    you looked at the percent penetration of telephones per
 5    pop, it was less than 50 percent.
 6              So the 5 percent number meant you got 10 percent
 7    of the market at that time.  Which was rather aggressive,
 8    considering there were 6 or 7 or 8 or 9 or 10 or 11 other
 9    players.  All right.  And you were so good that you were
10    going to get at least pari passu if not better.
11              NextWave bid on a 15 percent penetration, which
12    of course was one-third of the total market, which was a
13    rather aggressive number to bid on -- for those of you
14    that are still watching the bankruptcy of the C band
15    market.
16              These are the types of numbers that we worry
17    about, especially as we take a look at the low end here. 
18    Again, this is CDMA technology, and I am not going to get
19    into a technology battle.
20              (Slide.)
21              MR. MCGARTY:  We will go back to policy issues.
22              It really gets back to some issues that I would
23    like to just sort of bring up very quickly.  If you take a
24    look at five areas that the FCC has worked in -- PCS,
25    satellites,  cable,  local   loop,  and  interexchange  --

                                                             107
 1    interexchange has been successful.  Prices have gone down
 2    threefold in 15 years.
 3              PCS, what do we have?  When I was selling stuff
 4    at Nynex, I had 19.95 a month basic input, and it was at
 5    55 cents a minute off time.  Now, it is 24.95 a month and
 6    75 cents a minute.  Prices have gone up.  Not too good an
 7    idea.
 8              Satellites have been around.  The FCC had a
 9    policy.  Has there been a change in satellites below
10    cable?  No.  They are almost exactly pari passu.
11              Cable rates have gone up and down and up and
12    down and up and down.  We have a lot of price caps.  The
13    net result:  They were 5.95 in 1985.  They were at 10.95
14    in 1990.  And they are 29.95 today.  Inflation has not
15    gone up that much.
16              Local loop, the story has yet to be told.
17              So, therefore, of those five areas, at best, we
18    have one success, one uncertainty and, in my opinion,
19    three failures.
20              Five recommendations.  I think you should open
21    up the C band residuals to open bidding for additional
22    players.  I think the FCC's ruling was a way to get out of
23    the bankruptcy problem, because they did not put the UCC
24    in the agreements.  But we will leave that to the lawyers.
25              I   think  you  have   got  to   allow  spectrum

                                                             108
 1    disaggregation, and specifically unbundling of the current
 2    players.  There are current players that are effectively
 3    de facto CLEC's.  I mean they are owned and held and
 4    controlled by them, and we have petitioned the Commission
 5    on multiple and repeated occasions to do this --
 6    basically, unbundling elements that are there now, as you
 7    unbundle in the local loop.
 8              I think next you have to take a look at CMRS and
 9    CLEC's as equals, and specifically with regard to the
10    access fee.  That is, eliminate it.
11              And, then, finally, I think you ought to take a
12    look at CLEC's, effectively, more working with the ILEC's.
13              MR. WOLFSON:  Thank you, Terry.
14              I think it is interesting to sort of contrast
15    the last two points of view that were presented. 
16    Obviously, what Terry is saying is that if you look at the
17    cost, especially in a low-density situation, there is
18    really not the revenues to support this.  At the same
19    time, this is a technology that is cheaper than some other
20    options.  And somehow, we are going to have to figure out
21    a way, if we want to bring this technology out to these
22    places, and it is better, it is not just going to be the
23    private market.
24              The 1996 Act says opening various things to
25    competition,  but  how   are  you   going  to  make   that

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 1    competition happen if a real, legitimate market is not
 2    there?
 3              Next we are going to have Joseph Sandri, who is
 4    Assistant Vice President and Regulatory Counsel for
 5    WinStar, which is doing some very interesting wireless
 6    local loop stuff in the United States.  We had an
 7    interesting yesterday on the phone, when we finally
 8    figured out that we were both going to finally be on the
 9    same panel.  And some of the interesting things that he
10    brought up, which I thought was going to be very important
11    for this panel also, was talking also about the schools
12    and libraries issues, which is a big chunk of the
13    universal service package that has been put out.  And it
14    is going to have to be addressed in some form or another.
15              So, thank you.
16                      JOSEPH M. SANDRI, JR.,
17         ASSISTANT VICE PRESIDENT AND REGULATORY COUNSEL,
18                   WINSTAR COMMUNICATIONS, INC.
19              DR. DAVIS:  Thank you, Alex.
20              Where is service to schools and libraries? 
21    Where is wireless local loop?  We believe, at WinStar, we
22    are not only doing it right now -- we are funded, we are
23    licensed, and we wanted to sort of give you an overview of
24    what is going on, because there is a lot of questions
25    being asked  about  how operation  is actually  occurring.

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 1    And we are doing it, so we wanted to let you know what is
 2    going on.
 3              What I would like to do is spend about 4 minutes
 4    discussing where our infrastructure is.  And then I would
 5    like to hand over to Gary Markowitz, who is our new Vice
 6    President in charge of WinStar for education.  Gary was
 7    formerly President of Community Schools Network, which
 8    WinStar purchased last month.  And it shows, once we build
 9    a large pipe to a school, are we just giving them a dumb
10    pipe or are we going to give them something that is
11    intelligent?  And Gary will speak to that.
12              Gary is over there.  And sitting next to him is
13    Tom Snenicker, who is going to be doing a lot of our
14    paper, Strictures, with the schools and libraries, helping
15    them through the process that the FCC is so intelligently
16    putting together.
17              First, to the panel here, what is WinStar?  We
18    are a 38 gigahertz technology.  We hold, I believe, more
19    spectrum than anyone in the United States on a terrestrial
20    basis.  In the top 50 cities we have licenses.  In the top
21    20 cities we have at least 500 megahertz.
22              For comparison, the wider PCS players have 25 or
23    I guess up to 50 megahertz in their slots.  They are down
24    at 2 gigahertz.  We are up at 38 gigahertz.  The
25    technology allows for wireless fiber, which is our service

                                                             111
 1    mark.  That means we use an engineered beam that shoots
 2    out to building from a hub site with 99.999 percent
 3    reliability.  Your average RBOC phone is 99.7.
 4              This is basically a fiber optical equivalent. 
 5    And if you do not count fiber optic cuts, it is an
 6    equivalent.  If you count all the cuts that occur when a
 7    fiber optic line gets cut, due to construction, rights of
 8    way issues in urban cores where we are primarily located,
 9    it makes us even a little bit more reliable.
10              We use a hub network.  And we have deployed or
11    we are going to be deployed in the top 20 cities by the
12    end of 1998.  Right now we are in New York, Chicago, San
13    Diego, Washington, D.C., Dallas, and a few other cities
14    that I cannot recall.
15              (Slide.)
16              MR. SANDRI:  We have interconnection agreements
17    with all the RBOC's, with GTE, with a lot of the major
18    independent LEC's.  We are a certified CLEC, competitive
19    local exchange carrier, in 29 jurisdictions.  We are a
20    CAP, competitive access provider, in 38 now.  And we have
21    long distance authority in 47.  So we could bring this
22    entire package, and we have close to
23    three-quarters-of-a-billion dollars in funding.
24              (Slide.)
25              MR. SANDRI:    That just  shows  our  nationwide

                                                             112
 1    license coverage.  The licenses are area-wide licenses. 
 2    They are typically up to 10,000 square miles.  The FCC has
 3    announced an auction to -- any open areas will be
 4    auctioned off on a BTA basis, and we will probably round
 5    out a lot of our areas in that auction.
 6              (Slide.)
 7              MR. SANDRI:  As I was speaking earlier, this is
 8    a high-speed communications link.  It is point-to-point
 9    technology.  We shoot from building to building, and then
10    we tie it back into a Lucent -- primarily a Lucent
11    switching, class 5 switches, which can handle local and
12    long distance services.
13              Right now, our wireless shots are about DS-3
14    level per 100 megahertz.  That is 672 voice-grade lines. 
15    And we can reuse the spectrum quite aggressively.  We can
16    engineer it, because our beams are very narrow.  It is not
17    like TV or radio, where you are out in an omni-directional
18    capacity.  So we can provide multiple links per channel
19    per city, and we have multiple channels per city.
20              (Slide.)
21              MR. SANDRI:  It is microwave.  It is 38
22    gigahertz.
23              That is just sort of a mockup of -- the green,
24    in the middle, is a switch site, where we will have a
25    Lucent switch.  We will sit on either a fiber ring, like a

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 1    sonet ring, and the red diamonds are our other hub sites
 2    in a city.  In Washington, D.C., we have three hub sites. 
 3    One or two are up and operating.  We have a switch here on
 4    1850 M Street, a hub up top.  And buildings all over the
 5    city.  We're going to be firing to and try to get line of
 6    sight.
 7              And we engineer usually shots up to a couple of
 8    miles in this area.  We usually do not need to go that
 9    far, though, because our hubs are planted strategically.
10              (Slide.)
11              MR. SANDRI:  That just shows the next
12    generation.  On December 9th, we started testing, in
13    conjunction with Siemens-BNI, a multi-point system.  The
14    FCC has authorized multi-point operations at 38 gig.  And
15    what you can do is you can do bandwidth on demand, up to
16    OC-3 -- which is I guess three or four DS-3's -- per 100
17    megahertz.
18              (Slide.)
19              MR. SANDRI:  That is a hub site that is going up
20    in Chicago.  It is just the little antenna on top.  It is
21    kind of art deco looking.  So they are not ugly --
22    depending on your taste.  And the antennas on the B site
23    buildings are literally little pie plates.  So they are
24    very unobtrusive, and we are not going to run into a lot
25    of  the   issues  that  are   encountered  in  a   lot  of

                                                             114
 1    communities, and zoning issues.
 2              (Slide.)
 3              MR. SANDRI:  And that is just a closeup of it.
 4              So that is the technology.  We are funded and we
 5    are operating.  We are providing local phone service in a
 6    lot of cities.  And we will be providing a lot more as we
 7    roll out this year.  And I wanted to introduce Gary
 8    Markowitz, who is Vice President of WinStar for Education.
 9              MR. MARKOWITZ:  Good morning, everybody.
10              What I would like to do is maybe just change the
11    pace a little bit, or change the direction.  Because as
12    you are talking about all of this technology, what I would
13    like you to keep in mind, particularly with universal
14    service as it relates to the schools and libraries, that
15    what you are really worried about is success -- successful
16    students and teachers and schools.
17              And as we talk about all this technology, keep
18    in mind that what we are trying to do is to bring this
19    technology to the schools and to the students so that they
20    can be competitive in the future.  So that they can go out
21    there and that information technology world that we are
22    talking about, the information economy, and secure
23    high-paying jobs and make a living.
24              And when you do that, you have to look beyond
25    technology.  You  really have to look  at four fundamental

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 1    issues when you are talking about the schools.  You have
 2    to look at the funding issue.  And that is what universal
 3    service is all about.  You have to look at the
 4    infrastructure issues.  And today we are here talking
 5    about wireless.  Wireless, it turns out, is particularly
 6    important when you are talking about inner-city schools.
 7              On Monday, I was with the New York City Board of
 8    Education.  And on Monday, we were looking at plans for
 9    various city school buildings.  And I have to tell you
10    that for many of the inner-city school buildings in New
11    York City and here in D.C., also, you cannot get into them
12    with wire, because they are so laden with asbestos and
13    other problems that our wireless solution is perhaps the
14    best solution.  And a totally, totally wireless solution. 
15    Not only the wireless solution that Joe was just talking
16    about, in terms of a T-1 coming to the rooftop of the
17    building, but an internal wireless LAN solution.
18              So the more that we can push these technologies,
19    to make it simpler for schools that have these antiquated
20    facilities, to use them, the better off we are going to
21    be.  But once you get to that point, even when you have
22    gotten to the point of having a T-1 going to your school,
23    and you have solved the problem of the wireless LAN
24    inside, and you have got the PC's and the MacIntoshes and
25    whatever else you need, there are other larger problems to

                                                             116
 1    be solved.
 2              Believe it or not, as difficult as those
 3    problems are, those technology issues, they are the
 4    10-percent issue for the schools.  Once you solve that,
 5    you run into the 90-percent issue.  And the 90-percent
 6    issues revolve around two things.  They revolve around
 7    skills and staff development.  Because no matter how much
 8    technology you push into the schools, unless the teachers
 9    know how to use it, unless they can integrate it into
10    their curriculum, unless they can make it a part of the
11    educational fabric, it will be for nought.  You will have
12    wasted time and money.  And, in fact, if anything, you
13    will have frustrated the educational process.
14              The fourth item that I have got up on that last
15    bullet there is the quality issue.  Because, you see, when
16    I go and I talk to schools, the thing that I see is that
17    most of the schools, first of all, as soon as they get
18    somebody coming in with a suit and representing a
19    telephone company, they start to worry.
20              But what most of the schools are saying is,
21    look, we have been sold this bill of goods on technology
22    so many times.  You know, in the past it was, just buy
23    PC's and that will solve all your educational problems. 
24    Then it was, just buy this software and it will solve your
25    problems.   Now, just  buy this  multimedia CD-ROM  and it

                                                             117
 1    will solve all your educational problems.  Well, it does
 2    not.
 3              And the whole quality issue is that the really
 4    important thing is, how do we raise the reading, the
 5    writing and the mathematic scores of the children?  How do
 6    we also do one other thing -- how do we bring the children
 7    together?  How do we get children from Washington talking
 8    to children from New York, talking to children from the
 9    Fiji Islands, talking to children from Japan and China and
10    elsewhere?  Because that is what is going to be important
11    to our economy in the future.
12              (Slide.)
13              MR. MARKOWITZ:  What the next slide shows is
14    actually the journey that the schools are on.  This is the
15    journey from connectivity, which we are taking a big step
16    forward with the FCC and with universal service.  But they
17    have got to get through content.  They have got to put
18    that content into context.  Because it has got to mean
19    something in the curriculum.  And then, collaboration.
20              And that is what we have done.  We have
21    addressed those tools.  We have built tools for the
22    schools to do that.  And, by the way, we give them away
23    free with all of the WinStar pipes that go to the schools.
24              Beyond collaboration, something that is very,
25    very important  is creativity.   We  have just  hired John

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 1    Conin, who was IBM's top inventor, with over 100 U.S.
 2    patents himself.  And he has developed a whole series of
 3    creative problem-solving tools which we are turning into
 4    Web tools that we will be giving free to all of the
 5    schools.
 6              Those tools are going to teach our children, the
 7    next generation, to be more creative.  Because in
 8    tomorrow's economy, it is intellectual capital that
 9    counts.  It is not brute strength.  It is not muscle.  It
10    is products of the mind, not products of muscle.
11              And beyond that, what we have got to do is we
12    have to teach the children about electronic commerce.  How
13    can they make this happen?  How can they participate in
14    it?  And when we have done that, we will get to the end
15    goal.
16              See, because the end goal is a community of
17    learners, a worldwide community of lifelong learners.  And
18    that is where we are at.  And the FCC and universal
19    service is just the beginning of this entire journey.
20              Thank you very much.
21              MR. WOLFSON:  Well, we got two for the price of
22    one.
23              Next, I would like to introduce Jonathan
24    Chambers.  Jonathan Chambers is the Vice President of
25    External Affairs  and General Counsel  of Sprint PCS.   In

                                                             119
 1    looking over people's backgrounds, it is nice to see that
 2    a number of people on the panel have served in public
 3    service, either at the FCC or in Congress.  And it sort of
 4    gives me hope that some day I will get a paying job, too.
 5              (Laughter.)
 6                  JOHN CHAMBERS, VICE PRESIDENT,
 7                     PUBLIC POLICY, SPRINT PCS
 8              MR. CHAMBERS:  Thank you.
 9              I work for a company called Sprint PCS.  And my
10    end of the business is the legal side, regulatory, both at
11    the Federal and State level.
12              Let me give you just a moment's background on
13    Sprint PCS in case you have not heard of us.  We
14    participated in the A and B block PCS auctions.  We
15    acquired licenses throughout most of the country.  And
16    then, one of our partner companies, Sprint Corporation,
17    acquired licenses in the D and the E block auctions,
18    filling out our footprint.  So that we now have licenses
19    throughout the country, throughout the U.S., from Hawaii
20    to Maine.
21              We began building our network in 1995, after we
22    acquired the licenses.  We have now launched our first
23    phase.  That is, everywhere we acquired an A and B block
24    license.  We are now serving in 134 metropolitan areas in
25    the country.  And we are currently building in D and the E

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 1    block licenses, and hope, by the middle of next year or
 2    so, to have built out, so that we will have truly a
 3    nationwide presence.
 4              Where we are launching now -- or where we will
 5    be launching next year -- we are launching in markets
 6    where there are already two incumbent cellular providers,
 7    one or two PCS providers, sometimes three PCS providers,
 8    and oftentimes NexTel.  Which is to say you have, in a lot
 9    of the country right now -- metropolitan areas -- you have
10    four and five and six wireless carriers.
11              As I say, we will be entering markets next year
12    where we will be the sixth of the seventh wireless
13    carrier.  I mention that just to point out that -- I know
14    there has been a lot of hand wringing since passage of the
15    1996 Telecom Act that competition has not developed. 
16    There, most people are talking about competition in the
17    local exchange.
18              The wireless business -- the mobile wireless
19    business anyway -- has been a real success story as far as
20    policy is concerned, as far as the policy of promoting
21    competition in this country.  And I take a bit of slight
22    issue with -- I am not sure what prices you were referring
23    to -- but part of the success is that prices have really
24    come down in wireless.  And I do not expect to sell you a
25    phone, but maybe it is time you look again at the prices.

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 1              Prices tend to be, now, down to the
 2    10-cent-a-minute range.  Which is a pretty dramatic drop
 3    since you had a duopoly situation with cellular providers.
 4              As I say, it is a robustly competitive market. 
 5    And I mention that as much because I think when you have
 6    the fifth and the sixth carrier getting into the
 7    marketplace, or the seventh carrier getting into the
 8    marketplace, the carriers are going to have to start
 9    looking at other markets to get into than just serving
10    downtown D.C. or downtown New York or L.A.
11              Part of what I think carriers are going to start
12    looking more seriously at is the local exchange.  And I
13    appreciate NTIA putting on this day-long discussion,
14    because I do think, just as a matter of where you go as an
15    industry, the wireless industry is looking more and more
16    at competing with the local exchange.  I do not think we
17    are there yet.  But I think it is most of the companies'
18    business plans.
19              And the other piece that companies might start
20    looking at is serving, as I say, more than just the
21    metropolitan areas.  And as you build out these systems,
22    you build out -- primarily you start in the more populated
23    areas, and you build out along the highways, to sort of
24    connect the dots.  And it does not take any great genius
25    to see  that as you build along highways, you are building

                                                             122
 1    along rural areas.
 2              So I certainly do not dispute that it is --
 3    where you have low population densities, it is not a great
 4    business to try to spend a lot of money putting CDMA base
 5    stations in to serve 50 or 20 or 100 or a couple of
 6    hundred people, but where you have not incidentally built,
 7    where you have built a network along highways, along
 8    routes, so that your basic customer base can travel from
 9    city to city, you have got capacity that is going unused.
10              And so I do think, as I mentioned, as you have
11    this very intensive competition in metropolitan areas,
12    that will start to spill over into more rural -- and I am
13    not talking about, you know, rural-rural -- it may get
14    there at some point, but you will get into the
15    less-populated areas, you will have wireless deploying
16    more throughout the country, and not just in sort of the
17    traditional metropolitan centers.
18              Which brings me to the universal service point. 
19    And that is the wireless industry is, for the most part,
20    if you have read their comments in proceedings before the
21    FCC or at State commissions, the wireless industry has
22    viewed universal service primarily as a tax.  And I know
23    that is a bit of a loaded word, but it is shorthand for
24    what it looks like to us anyway.
25              When  you  have  a  State  like   Kansas,  which

                                                             123
 1    imposed, earlier this year, a 9 percent charge on your
 2    revenues within the State of Kansas, growing to 14 percent
 3    in 3 years, and you combine that with the Federal charge
 4    of 2 or 3 or 4 percent, or whatever that turns out to be,
 5    it looks like a pretty healthy chunk of change to take out
 6    of your revenues or to pass along to your consumers.  And,
 7    obviously, it looks like a negative to us.
 8              It looks like a negative to us as we begin to
 9    compete more and more for price, as we try to make
10    wireless service available and affordable to all
11    Americans.  And I think, in a way, it actually contradicts
12    sort of the intent of Congress to make telephone service,
13    basis telephone service -- and in this case, basic
14    wireless service -- affordable to all Americans.
15              To the extent that the government imposes more
16    and more good ideas, you know, good service ideas, E-911,
17    number portability, CALEA, that sort of thing, things that
18    look pretty good just on paper, they all impose costs. 
19    And those costs are certainly going to be passed along to
20    consumers -- certainly when there is competition, they are
21    going to be passed along to consumers.
22              And to the extent that those numbers run up into
23    the -- again, just take the State of Kansas, where you
24    have got 15 or 20 percent new tax, new money being taken
25    out,  it  makes   the  service  less  affordable   to  our

                                                             124
 1    customers.
 2              Now, I want to get away a bit from the notion
 3    that it is just a tax.  Because we, as a company, have
 4    been looking at universal service and the funding
 5    mechanisms as a way to help us deploy our service to rural
 6    America, as a way to serve other parts of the country. 
 7    And we have applied -- we are one of the -- Jeanine
 8    mentioned some companies -- I do not know who else -- but
 9    we have applied in several States to be an eligible
10    telecommunications carriers.  That is the term in the 1996
11    Act.
12              In order to be an eligible telecommunications
13    carrier, you have to meet the various criteria set out by
14    the FCC.  You have to provide certain services.  They were
15    shown on a slide just a moment ago.  And you have to be
16    willing to -- you have to be a common carrier, which is
17    what we all are by law.  And you have to advertise your
18    services widely.  And I am sure most people are sick of
19    the advertisements by now -- for wireless service anyway.
20              We applied in several States.  And we have been
21    granted ETC status, at least in Arkansas, and California
22    had their hearing yesterday.  And I have not heard how
23    that came out, but I expect we will have been granted ETC
24    status in California as well.
25              We have done it as much as a defensive mechanism

                                                             125
 1    as anything.  I mean I think, until other service
 2    providers begin to draw from the Universal Service Fund,
 3    begin to compete directly with the carriers that are
 4    receiving subsidies from the Universal Service Fund, that
 5    until that happens, you really will not have a situation
 6    where not only competition develops, but where you will
 7    have competition for the subsidy.  And hopefully, at some
 8    point, the subsidies will come down.
 9              I certainly do not question the goals of serving
10    all of America.  I question the way in which some of the
11    rural telecos have been protected in the Telecom Act.  I
12    am just talking now about the high-cost areas served by
13    non-rural LEC's.  We did not apply to serve rural LEC's,
14    because you cannot really apply to serve in rural LEC
15    territories.  The Telecom Act makes that virtually
16    impossible.
17              And I can get into it a little bit more.  There
18    are some real serious obstacles to overcome in becoming a
19    designated eligible carrier -- eligible to receive funds. 
20    And those obstacles mainly have to do with the way in
21    which the funding mechanisms have been set up, the
22    criteria have been set up.  Because they very much have
23    been set up as if the world was just a wire line world.
24              The service areas that Jeanine mentioned -- and
25    while the FCC encouraged States not to adopt large service

                                                             126
 1    areas, States have -- some States have just adopted the
 2    service area of the serving local exchange carrier.  And
 3    that is not our service area.  And it should not be made
 4    to be our service area.
 5              The local minutes of use -- and I will wrap up
 6    with this -- is another area in which -- as was mentioned,
 7    you have got a different way in which the two
 8    technologies, the two types of carriers price.  So if you
 9    come out with a decision -- if the FCC comes out with a
10    decision which skews local minutes in favor of the way the
11    wire line carriers price, it is obviously going to make it
12    more difficult for wireless carriers to provide service.
13              And with that, I will end and turn it over to
14    the discussion.
15              MR. WOLFSON:  Thank you very much.
16              It would seem that with wireless technologies,
17    things are looking brighter.  We see that the opportunity
18    to have competitive services in urban markets and
19    competitive markets, the big MTA's, is possible.  It gives
20    better consumer surplus.
21              We have also seen that wireless technologies can
22    help reduce costs in urban areas, such as the BETRS
23    system.  But I guess the question I want to bring to the
24    panel is, how do we take from this added surplus, this
25    added value that  we can  get from wireless  technologies,

                                                             127
 1    and use it to make the existing system better?  Where does
 2    wireless really fit in universal service?
 3              And you can either take it one way, make a
 4    comment, or if you could do one thing to change the system
 5    to make it better, how would you change it?
 6              And maybe we will just go down the panel,
 7    beginning with Ed.
 8              MR. CAMERON:  The question was, where does
 9    wireless fit in universal service?
10              I want you to focus the question a little bit
11    for me.
12              MR. WOLFSON:  Okay.  The question is, if we are
13    gaining consumer surplus, either by reducing cost in
14    providing to rural areas or having a more competitive
15    environment in urban areas, how can we use this
16    undercurrent of change brought about by wireless to make
17    the universal service program work better?
18              MR. CAMERON:  Every time we make a loan to a
19    rural LEC, we do a feasibility study.  And one of the
20    tests we perform on it is whether or not that loan would
21    be feasible without universal service contributions.  And
22    almost without exception, they would not be feasible
23    without universal service contributions.
24              Wireless loops may cut the cost some.  I mean we
25    have used them  whenever they have  in the past.   And new

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 1    technologies, I have to believe, being an optimistic
 2    engineer, will cause lower costs and lower costs and lower
 3    costs.  But it would take negative costs to make the rural
 4    companies feasible using any technology.  There is just no
 5    way.
 6              The chart that you saw up here, showing the
 7    relationship between population density and feasibility of
 8    wireless local loop companies, that is about the same
 9    chart you have with wire line systems.  And the 900
10    companies that we finance, the areas they serve, and
11    similar areas served by the RBOC's, just have such low
12    density that there is nothing we can do, short of magic,
13    to get the costs down so that you do not need the
14    universal service support mechanism.
15              Now, anything short of that, any money we save,
16    is certainly going to be a boon to the entire system.  It
17    is going to cut the need for funding from the universal
18    service support mechanism.
19              But the situation is so dire in rural America,
20    in really rural America, that it does not seem like the
21    problem with competition -- or the challenge with
22    competition is that the local companies will face much
23    competition, because nobody is going to come into their
24    areas to serve.  The problem is that they are going to
25    lose  the funding that  they need  to survive and  to keep

                                                             129
 1    rates affordable.
 2              MR. WOLFSON:  Thank you.
 3              John?
 4              MR. CHAMBERS:  Well, I think it is still very
 5    much an open question of whether wireless can take
 6    advantage of the funding mechanisms or whether it is
 7    economic to do so.  And part of that, as most of you know,
 8    a lot of what 1998 is going to be about in universal
 9    service is determining the proxy models and, by
10    determining the proxy models, determining what the level
11    of subsidy is going to be for serving high-cost areas. 
12    And once you know what the subsidy is that is going to be
13    available, you will be able to make an economic
14    calculation as to whether it is worth serving that area.
15              The policy change that I would suggest is while
16    we can meet the eligibility criteria that were set out by
17    the FCC, the FCC only addressed their part of it, their 25
18    percent part of it.  And they have left it up to the
19    States to design any type of funding mechanism they would
20    like, so long as the rules are not inconsistent with their
21    rules -- whatever that means.
22              And it makes it more difficult.  You would think
23    that if you meet eligibility criteria for one set of
24    rules, it should be enough.  You should not have to have
25    then a  second set of rules that  might be a different set

                                                             130
 1    of rules in order to be eligible.  And if you can only
 2    take advantage of 25 percent of the funds, then it may not
 3    be the same economic calculation if you could take
 4    advantage of 100 percent of the funds.  And obviously it
 5    will not be the same economic calculation.
 6              The policy change -- I think the FCC needs to --
 7    maybe together with the States -- but just say, all right,
 8    here is the -- if you are designated as eligible, you are
 9    eligible for both the Federal and the State funds.  You do
10    not just have an eligibility criteria for one set of funds
11    and then you have to do something else.  And in doing
12    that, as I mentioned, I think they really ought to be
13    technology neutral -- getting to your question of how do
14    you allow wireless to contribute to this -- they really
15    ought to be technology neutral rules.  Which I realize is,
16    in a way, in the eye of the beholder.
17              MR. WOLFSON:  Thank you.
18              Terry?
19              MR. MCGARTY:  I think one of the first comments
20    is that the perception is that policy is typically based
21    upon past practices.  And the comments that have been made
22    today, even about the current models that are going
23    through -- and there is very interesting debates about the
24    cost models -- in many cases they are based somewhat
25    against past practices.

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 1              And when people enter the market -- and one of
 2    the questions we were asked before by some of the hardware
 3    companies that were here:  how do you make decisions to
 4    markets -- it really is not just an engineering decision,
 5    it is you have to understand the regulatory policy as
 6    currently in place at the time you decide to engineer and
 7    build the system.  And there is a great deal of regulatory
 8    twisting and turning on how you design a system.  All
 9    right.
10              If somehow or other the regulatory process could
11    really be positioned to enhance and support new
12    alternatives -- not necessarily being based on past
13    paradigms -- I think there would be a lot more flexibility
14    there.
15              But let me just give you a quick numerical
16    example which gets back to John's contretemps to me.  Why
17    do we make a decision to focus more on CLEC than on
18    wireless?  It was just a bottom-line number decision.  We
19    took a look at the 1996 Act.  And we can buy local loops,
20    twisted pair from Nynex, for about $8.50 a month, with no
21    investment.  I do not have to bid for an auction.  I do
22    not have to do anything if I want to be in the business of
23    doing local phone service.
24              If I had to do the same thing in a PCS
25    environment, if you look at  my prior numbers, it is  $300

                                                             132
 1    for the infrastructure, $100 for the switch $300 for the
 2    phone, and then add another allocated cost for winning a
 3    license if we were so lucky, and you are around 16.50 a
 4    month per access line.  That is assuming good penetration.
 5              So the interesting thing is you have got to take
 6    a look at these economics on a state-by-state basis. 
 7    There is an intertwining playoff here between what the
 8    local commissions are doing on CLEC -- on unbundled
 9    elements and what you are going to do if you are in a
10    wireless environment.  And then you take a look at
11    universal service, and what is happening is that portion
12    that is subject to effective universal service competition
13    is getting pushed more and more into a corner, which
14    becomes less and less economically attractive.
15              So there really is an issue of, again, from the
16    policymakers, trying to understand -- and it is difficult,
17    because you cannot predict the future -- policy is based
18    on past paradigms, but you have got to be able to do so in
19    such a way that you enhance or enable the new
20    alternatives.  And that is a very difficult challenge. 
21    But I think that is the challenge -- at least from my
22    perspective -- that the policy people have.
23              MS. POLTRONIERI:  It seems to me that just as I
24    went through the process of the universal service
25    reform -- and now  I am currently at  the Wireless Bureau,

                                                             133
 1    but prior to this I was over at the Common Carrier Bureau
 2    working on universal service -- so the process of what we
 3    did at the Agency is something that I was pretty
 4    intimately involved with.
 5              And it is not surprising to me that there would
 6    be a lot of controversy and a lot of problems, given what
 7    the task was at the outset and given the time frame the
 8    Commission and the States and the carriers all had to work
 9    on this.  We took a decades-old system of monopoly
10    subsidized service and tried to move that into a
11    competitive paradigm and tried to make implicit subsidies
12    explicit and also add onto that additional funding for
13    schools, libraries and health care providers.  So the
14    level of kind of controversy and rhetoric that surrounded
15    this process is really not that surprising given all the
16    sort of different, varying interests that were coming to
17    bear on this proceeding.
18              So I guess I am definitely sensitive to the
19    points that are being made today.  And I think that there
20    is definitely -- I agree that a lot of what we did was
21    based on what was already existing in the United States,
22    and kind of that was what we looked to as our starting
23    point.  We are continually trying to make it a better
24    process and we are continually trying to make sure that we
25    can  include  a  whole  bunch  of different  technologies,

                                                             134
 1    including wireless technologies.
 2              So I guess my only suggestion would be that if
 3    people can maybe just drop the level of kind of criticism
 4    or controversy about these things and try to work with us
 5    on this, I think that, over time, we will be able to come
 6    up with some better solutions.  And we are continuing to
 7    work on it now.
 8              MR. SANDRI:  I guess, in line with what Jeanine
 9    is saying, once the FCC completes what has got to be for
10    them an excruciating task of simmering through a variety
11    of conflicting viewpoints, if the final FCC order comes
12    out and you can turn it over and, right in the back, five
13    points.  And those five points would probably be can a
14    school order a T-1 regardless of the technology, freely,
15    that would be nice.  And then two through five would be
16    one.  Thanks.
17              MR. WOLFSON:  I think we will open it up to
18    questions.  If you do have a question, if you could step
19    up to the microphone and let us know who you are.
20              QUESTION:  Good morning.  I guess my question is
21    directed to Mr. Sandri.
22              I wanted to get an assessment of WinStar's view
23    of the residential market, in terms of a potential
24    customer base for you.  I can see that Washington is one
25    of  your major cities  where you  are operating, and  I am

                                                             135
 1    wondering, as a resident of Washington, could I call today
 2    to get my residential service from you?  And if not, what
 3    is the reasonable time frame for me to expect that to be
 4    available?
 5              MR. SANDRI:  We launched our network September
 6    25th of this year.  And that was our first hub, on 1850 M
 7    Street.  And if you are in line of sight of 1850 M Street
 8    and you also had a need that is roughly equivalent to a
 9    T-1 -- I think we have sold all the way down to partial or
10    fractional T-1's.  If you have got some serious
11    Intel-based chips in your house in some computers, yes, we
12    could shoot to you, as long as you are within line of
13    sight, as we grow out to the residential areas, up in
14    Virginia and Maryland.  We are looking to serve them.
15              There is a curve that we are looking at.  Right
16    now, our equipment -- if you went to a fiber-based
17    company, for example, or the incumbent LEC, and said, I
18    need a couple of T-1's to my house -- or fiber optics, for
19    example -- to get a fiber optic line that was truly
20    state-of-the-art, you are going to run into a few hundred
21    grand-type of costs.  And you are going to run into months
22    of delay, permitting processes, cracking the streets to
23    lay the glass.
24              We can do that within our line of sight -- and
25    other CLEC's can do -- there are a couple of  other CLEC's

                                                             136
 1    who are following what we are doing -- they can do that. 
 2    All of us can do it if we had to in a matter of a day or
 3    two if you are within line of a sight of a hub system.
 4              So we will come to you.  But our long-term look
 5    is really, now that we have signed large agreements with
 6    large household name corporations to build especially this
 7    multi-point system I threw up real quickly, we are hoping
 8    at some point it will come down to about 250 buck per
 9    household to get the equipment in.  Sort of like -- you
10    know, our dish is smaller than a DirectTV dish.
11              And once we get to that point, just like VCR's
12    when they first came out were 1,500 bucks and now you can
13    go to Circuit City -- I checked on Sunday -- $99, we are
14    hoping that the LMDS auction, Teligent at 24 gigs, other
15    folks, they are going to drive equipment prices down.  The
16    fiber costs are still going to go up, because that is a
17    labor intensive -- and wire line costs are still going to
18    go up -- that is a labor-intensive industry.
19              So the long answer -- and if I could sum it
20    up -- is yes, we would like to get to you.  And if you are
21    within line of sight and you really need it, we will give
22    it to you now.  And also, MDU's, multi-dwelling units in
23    downtown areas, we can shoot and we are actively
24    targeting.
25              QUESTION:   How about regular  residential areas

                                                             137
 1    further out?
 2              MR. SANDRI:  Do you mean residential downtown or
 3    suburban?
 4              QUESTION:  Residential suburban.
 5              MR. SANDRI:  Suburban.  Let's say Montgomery
 6    County.  We have a shot now -- we are shooting from 1850
 7    M.  I think we can hit like National Cathedral.  And let's
 8    say you are north of National Cathedral and you have got a
 9    line of sight -- or we get to a street and we get on an
10    electric utility pole and hit your neighborhood -- as long
11    as you are within line of sight, the technology is there.
12              I am not sure if the economics are there at this
13    point, but we are aggressively monitoring that.  And at
14    some point, when we can get to you for 250 bucks, in your
15    house -- or if you have a home business, where you really
16    need the capacity today and you want to pay the fiber
17    costs, we are definitely cheaper and we want your
18    business.
19              MR. CLYER:  My name is Logan Clyer and I work
20    for WinStar actually here in the Virginia area.  So I am
21    fairly intimately familiar with your question also, which,
22    if you want to talk about it later, is fine.  But my
23    question now is back towards universal service.  Seeing as
24    how the mantra on universal service seems to be towards
25    affordable access, I am curious  if any of you think  that

                                                             138
 1    given that it is somewhat of an efficiency equity debate
 2    in economic terms, being you think it is an efficient idea
 3    to perhaps increase prices for rural users by a few
 4    dollars, seeing as how local phone service, the basic
 5    line, is probably an inelastic good and that with that
 6    increase in price there might be some efficiencies for
 7    companies like Sprint PCS that, using those extra dollars
 8    that are available to them, they can do other things in
 9    the larger markets or perhaps expand at a faster rate.
10              MR. CAMERON:  I think we probably want to let
11    the Congress answer that.  They addressed it in the
12    universal service, Section 254 of the Act.
13              No, I do not believe that it is national policy
14    for us to have premium prices for infrastructure in rural
15    areas.  Rural users do not pay more for roads and they
16    cost more per person.  They do not pay more for other
17    forms of infrastructure.  And I think the Congress
18    reaffirmed that in Section 254.
19              Does the FCC agree?
20              MS. POLTRONIERI:  Yes.  I mean what a particular
21    company might choose to do is something that is probably
22    best left to them.  But one of the things that we were
23    trying to do was to get rid of implicit subsidies and make
24    them explicit.  And that is one of the primary directions.
25              So I think  what you are talking  about would be

                                                             139
 1    sort of an internal company cross-subsidy sort of
 2    situation.  So I do not know if the FCC would want to
 3    direct something like that or just --
 4              MR. CAMERON:  Well, I have to follow up on that.
 5
 6    There are over 1,200 rural telephone companies in this
 7    country that do not have urban areas to subsidize the
 8    rural areas.  And for the RBOC's, asking them to
 9    subsidize -- if you expect subsidies from urban areas to
10    go into rural areas, which has been the practice in the
11    past, but under the new competitive environment that is
12    being created, you cannot expect that, because the RBOC's
13    are going to be facing severe competition in their urban
14    markets.
15              What I think is going to happen -- and I have
16    been saying this for quite some time -- I think the small
17    telephone companies in rural areas are going to provide
18    good service to their customers.  I think the rural
19    customers that are really at risk are probably the rural
20    customers of the RBOC's.  Because what is going to happen
21    is there is going to be an enormous demand for the RBOC's
22    and the non-rural LEC's to dedicate their resources to
23    their tough markets.  And the rural areas are not their
24    tough markets.
25              And so I  think what we  are going to see  is we

                                                             140
 1    are going to see a real slowing of infrastructure
 2    investment in rural areas served by the larger companies. 
 3    In the past, toll settlements and toll revenues were based
 4    on investments.  But in the new system, they will not be
 5    based on investments.  And if they are not based on
 6    investments, then your revenues from the universal service
 7    support mechanism will be the same whether you have got
 8    $300 invested in serving a rural subscriber or $3,000.  So
 9    there is not going to be any incentive in the new
10    system -- as it looks like it is going right now -- for
11    the RBOC's to invest money in serving rural subscribers.
12              MR. KAMOSKI:  My name is Kenneth Kamoski, and I
13    am here representing the Nationwide Coalition of Nonprofit
14    Organizations interested in Universal Service.  We are
15    involved in working in communities where we are trying to
16    distribute the 35 million used computers that were created
17    by this economy last year to the households of low-income
18    people -- the 17 million poverty-level households in this
19    country and the other 5 million or 6 million working poor
20    households, which represent about 25 percent of the
21    households in the 100 million frame of this country.
22              My question is:  Are there players here -- is it
23    Mr. Cameron, is it Mr. Markowitz from WinStar -- who are
24    willing to work with us in a proposal that we have talked
25    to people on the Hill about for a low-cost wireless modem,

                                                             141
 1    operating with spectrum hopping and collision detection
 2    and correction, which could do the following things: 
 3    enable us to provide at-home access to the over 1,000 kids
 4    on the Chicago South Side who have learned and earned
 5    their home computers?  We never give a computer away;
 6    computers have value.  When you learn it you have earned
 7    it.
 8              We need a way of connecting those kids to a
 9    local network.  The coalition is called LINC, Learning and
10    Information Networking for Community via telenetworking or
11    telecomputing.  And we are in a number of communities
12    around this country.  We are going to soon be asking the
13    FCC for an experimental bubble to work in Phoenix, where
14    we are working with a community of 1,800 households -- 26
15    percent do not have telephone connectivity -- 30 percent
16    of the adults, by the way, are illiterate in Spanish. 
17    They are Hispanic and they are illiterate in Spanish.
18              This is a large part of America today.  And as
19    Mr. Markowitz said, the name of the game is really
20    lifelong learning and being able to bring not only the
21    children but the adults now.  Let's not lose that
22    potential market of 17 million poverty-level households. 
23    We have work-fare people in Long Island who are learning
24    and earning their computers and getting jobs.  We have
25    free Internet access for these  people through the Suffolk

                                                             142
 1    Cooperative Library System.  If they learn and earn a
 2    computer, they are on the Net.
 3              I am here to see whether there are partners for
 4    this nonprofit nationwide coalition.
 5              MR. MARKOWITZ:  I would like to respond.  The
 6    answer is yes.  And I would be happy to meet with you
 7    afterwards.
 8              We are working with the I Have a Dream
 9    Foundation in communities and schools.  So I would be very
10    happy to sit down with you and talk to you about what you
11    would like to do, particularly as it comes to both the
12    wireless part, but more importantly, from my perspective,
13    for the communities.  That is what it is all about --
14    providing those tools for children to be able to access
15    other children and access all the educational materials
16    and be involved in a lifelong learning process.
17              MR. KAMOSKI:  And from their homes.  Because
18    children only spend 19 percent of their time in the course
19    of a year in school.  And for low-income people, home is
20    where the time is.  And if they can get a computer in
21    their home, you are going to increase learning time. 
22    Those kids who have earned computers in Chicago do it by
23    tutoring younger kids on their time, after school.  They
24    are doing the hard work of learning on their time and
25    their reward is a computer they can take home.

                                                             143
 1              MR. WOLFSON:  One last question.
 2              MR. TRINKMON:  My question actually follows on
 3    from the comments of that gentleman, and I will come and
 4    see you afterwards, because Nortel would like to help you,
 5    too.
 6              The question is really focused around the
 7    "service" part of universal service, and mainly aimed at
 8    the FCC, I believe.  In the universal service orders last
 9    year, the FCC deliberately held back from defining
10    anything other than basic voice service with DTMF and 911
11    and so on, as was on the chart.  We understood that that
12    was to specifically allow PCS and cellular operators to be
13    able to come into the market and try and offer solutions
14    to some of the universal service problems, as opposed to
15    mandating ISDN or data rates or other things to be part of
16    the pot.
17              The criteria that had been laid down for the
18    proxy cost models requires the wire line networks, which
19    is what the cost models are based around at the moment, to
20    be engineered to be ready for advanced services.  So
21    no-loading coils, and the implication is that you can come
22    along and add on some ADSL modems or cable modems or other
23    things, and therefore the infrastructure has to be
24    advanced-services ready.
25              Over and  above that,  if you  talk to  research

                                                             144
 1    communities, native bands and so on, there are not many
 2    customers out there who really just want to get to 2400
 3    baud data speeds, which is what some of the State
 4    regulations require, and they want to be on the same sort
 5    of services and choices as the urban areas.  And whereas
 6    the problem has always been basic dial tone, they are now
 7    falling further and further behind as urban areas get
 8    multiple operators, multiple speeds and services and so
 9    on.  So the whole universal service issue is a moving
10    target.
11              And I just wondered if there was some way of
12    rationalizing this definition of the services which are
13    there to be supported or subsidized.  And I think, as we
14    just heard, people at home rural areas do not just need
15    dial tone any more.  It is one thing to have the kids at
16    school find out what the Internet can do for them, they
17    need something to do at home as well.  So it does concern
18    me that we have got an anomaly between the two parts of
19    the universal service process.
20              MS. POLTRONIERI:  In terms of the services to be
21    supported, we were to look at a number of criteria that
22    are set out in the Act.  And one of them which leaps to
23    mind is whether it is subscribed to by a majority of
24    citizens was one of the factors we were looking towards. 
25    We certainly considered the idea of advanced services, and

                                                             145
 1    kind of left the door open that in the future we may
 2    revisit that issue.  But at this time, we felt that we
 3    were kind of prescribing a set of services that we thought
 4    were accessible and that were really the core that is
 5    needed right now.
 6              In terms of the modelling process, I think the
 7    language that is used there is that you provide technology
 8    that would not impede advanced services at some point in
 9    the future.  And there is some tension between what goes
10    on in the modelling process and what is set out in the
11    services to be provided.  I think some of that is the
12    modelling process is really aimed towards figuring out a
13    network and then figuring out the cost of that network for
14    purposes of providing the support.
15              I do not know that you can really draw from that
16    any larger conclusions about what we are going to look to
17    support in the future.  But it is really more of a very
18    technical exercise that is being undertaken to replace
19    what we have done in the past, which is we have looked at
20    the ILECs' reported costs of their infrastructure and
21    given it to them.  And this was an attempt to make things
22    a little bit more technologically neutral and a little bit
23    less dependent on the ILECs' costs.
24              Of course, it is not there yet.  We are still
25    using  a  wire line  network.    And  we  are  looking  at

                                                             146
 1    different ways to incorporate a wireless solution into the
 2    model.
 3              MR. TRINKMON:  Apart from putting these criteria
 4    in which will increase the cost of that model network,
 5    does that mean that a wireless carrier, such as a cellular
 6    or PCS carrier, who is not advanced services ready in that
 7    same way, does that make them ineligible?
 8              MS. POLTRONIERI:  No, I would not think so. 
 9    Because as long as they can comply with the supported
10    services that are set out in the eligibility criteria,
11    they will be okay.
12              MR. TRINKMON:  Okay, thank you.
13              MR. WOLFSON:  Thank you very much.  I would like
14    to thank the panelists for enlightening all of us in this
15    issue, and thank Kathy Brown and the NTIA for having this
16    great event.
17              (Applause.)
18              MS. BROWN:  Thank you.
19              We are going to break for lunch, until 1:30.
20              If I can hold you one more minute, though.  As I
21    was sitting here thinking, I was hoping you would take
22    some thoughts away, because this afternoon we are going to
23    talk more about regulatory issues and we are going to talk
24    a little more about competition issues.  And it seems to
25    me we are starting to get to a place where we are focusing

                                                             147
 1    on some particular issues that we ought to talk about.
 2              One I heard was this notion that our policies
 3    are backward looking and they need to be forward looking,
 4    in terms of bringing on new alternatives, and query
 5    whether doing costing models based on the cost of
 6    incumbent LEC's is a way to think about how subsidies
 7    ought to be distributed question.
 8              If that raises a question, then what are some
 9    other ways of thinking about, in a market that we just
10    heard where there is no market, where we know there will
11    be ongoing subsidies, well, then, how do you get in, and
12    how do you, Jonathan, be able to compete for those
13    subsidies so that you can make a business case and use
14    these technologies, which you are telling me are more
15    effective, more efficient, for these areas?
16              Those are the kinds of questions we need to
17    grapple with and we would really like to discuss this
18    afternoon.  So chew on that over lunch and come back ready
19    to talk at 1:30.
20              Thank you.
21              (Whereupon, at 12:50 p.m., the Forum recessed
22    for lunch, to reconvene this same day at 1:40 p.m.)
23
24
25

                                                             148
 1                         AFTERNOON SESSION
 2                                                   (1:40 p.m.)
 3              MS. BROWN:  Welcome back.
 4              Just a couple of organizing remarks before we
 5    start the afternoon.
 6              This afternoon, I think our first panel, we are
 7    going to talk some more about the regulatory issues that
 8    we started to discuss this morning.  And I think we have
 9    some very interesting perspectives to follow on this
10    morning's discussion.  So I am actually very much looking
11    forward to this discussion and to your comments on how we
12    might be able to confront some of the nettlesome issues
13    that have been raised thus far about full deployment of
14    these technologies, whether in fact it is economic,
15    whether in fact the technology will do it and sort of what
16    is up.
17              I wanted to just take a minute -- and I hope you
18    will allow me to do this -- just to thank my own staff and
19    folks at NTIA.  As you know, these things always take an
20    effort to put on a day like this, and certainly to
21    organize folks and to get people here.  So I want to
22    particularly recognize the staff of OPAD, the Office of
23    Policy Analysis and Development, who are here around the
24    room and who actually, day in and day out, do this kind of
25    policy analysis and are thinking through this question.

                                                             149
 1              Our office, together with the office of counsel
 2    and OIA and the others, OSM, and our office out in
 3    Colorado, have been very engaged in this whole
 4    pro-competitive dialogue for a very long time.
 5              In that regard, I want to specifically recognize
 6    Joe Gattuso, who is my deputy in the office.  He has long
 7    been involved with wireless issues and has worked very
 8    hard on spectrum issues, and has really been instrumental
 9    in putting the day together.  So he and Anne, who I do not
10    know where she is, are really the folks who have organized
11    this day.  And I owe you a lot of thanks.
12              With that, Joe, why don't you take over, and
13    introduce this afternoon's panel and sort of set the
14    stage.
15              MR. GATTUSO:  Thank you, boss.  Thank you,
16    Kathy.
17              Good afternoon, and welcome back, or welcome to
18    those of you who were not here this morning, to this part
19    of the Wireless Local Loop Forum.  We are here this
20    afternoon to pick up on the regulatory issues that we
21    dived into fairly quickly this morning, when we went,
22    first, very fast over understanding what types of
23    technologies we are talking about, and then went into
24    questions about universal service and universal
25    availability.

                                                             150
 1              It will be my pleasure to introduce the next two
 2    panels, and the panelists and our moderators for them. 
 3    But, of course, since Kathy let me have the microphone,
 4    that gives me my chance to tell my wireless local loop
 5    story, which is brand-new as of last night so I have to
 6    tell it.  It has to do with my brother -- my evil brother.
 7
 8    Some of you know that I have a brother who also works in
 9    this field, in telecommunications.  And if anything goes
10    wrong, it is always his fault, by the way -- if you hear
11    it is a Gattuso.  If it is successful, it is me.
12              But he took to Timbuktu on a trip a couple of
13    weeks ago, and came back last night, and of course called
14    me from the airport with only $2 left in his pocket and
15    40,000 West African francs, which are pretty useless at
16    National Airport.  So I had to go pick him up.  I had not
17    heard from him in 2 weeks, and I asked him why he did not
18    call.  I could understand from Timbuktu, the service
19    probably was not very good telephone-wise.
20              But it turns out he was back in Spain on
21    Wednesday, and I asked why he had not called.  He said,
22    well, the folks he was staying at were out in the
23    mountains, out in a research district.  And I said, well,
24    they don't have telephone service?  He said, well,
25    actually, they do have telephone  service.  But they chose

                                                             151
 1    to go with the cellular.  Because, in fact, the wireless,
 2    the mobile phone, turned out to be less expensive and just
 3    as good as the wire line.  And they had to drop one.  They
 4    dropped the wire line service.
 5              And so, in fact, here was rural area, somebody
 6    in Spain, using a wireless phone in place of the wire line
 7    service.  And there is not much lesson there, because he
 8    still did not call me.
 9              (Laughter.)
10              MR. GATTUSO:  Not that I worry about my little
11    brother, but service is only as good as the people who use
12    it.
13              (Laughter.)
14              MR. GATTUSO:  But we are here today to discuss,
15    aside from not wanting to and not knowing how to use a
16    wireless phone, what does it mean to be in a position to
17    choose between the wired and the wireless.
18              Our next panel is going to discuss some of the
19    regulatory issues -- and I think there are several of
20    them -- that can affect whether or not wireless does in
21    fact become something that in the future we look to as an
22    alternative to our wired service or a supplement to our
23    wired service.  If it is going to happen, there is going
24    to be a government involvement, for good or for bad.  And
25    there are government regulators at  the Federal, State and

                                                             152
 1    local level who are making a lot of decisions in a lot of
 2    contexts.  And they have a very great importance to what
 3    we are talking about today.
 4              I would like to introduce our moderator of this
 5    panel, who will introduce the panelists to you.  David
 6    Aylward founded National Strategies, Inc., in 1985, after
 7    8 years of service on the staff of the U.S. House of
 8    Representatives.  From 1981 to 1984, Mr. Aylward was Chief
 9    Counsel and Staff Director of the U.S. House of
10    Representatives Subcommittee on Telecommunications,
11    Consumer Protection and Finance, which has jurisdiction
12    over Federal communications regulation and other aspects
13    of the United States securities industry and financial
14    markets, and other areas.
15              From 1977 to 1981, he was Legislative Director
16    to U.S. Senator Timothy Wirth, the Democrat from Colorado,
17    then a member of the House.  He also has extensive private
18    sector experience, starting communications companies and
19    advising clients on business strategy.
20              He holds a B.A. from Dartmouth College and a
21    J.D. with high honors from the National Law Center of
22    George Washington University.  Based on his public and
23    private sector experience, he is an expert in the
24    intersection of public policy and private initiatives in
25    U.S. domestic and international communications.

                                                             153
 1              So, David, I introduced you, and start the panel
 2    discussion.  Thank you.

             REGULATORY TWISTS ON WIRELESS LOCAL LOOP:
                        POLICY PERSPECTIVES
                            MODERATOR:
        DAVID AYLWARD, PRESIDENT, NATIONAL STRATEGIES, INC.

 7              MR. AYLWARD:  Thank you, Joe.  Thank you for
 8    having me.
 9              We are going to do four presentations.  I am not
10    going to do one.  I will just make a few remarks at the
11    beginning and hopefully have a lot of time for people to
12    interact and ask questions.
13              I am an amateur student of history, particularly
14    in communications.  And one of the things I was thinking
15    about and particularly reminded of as I looked across the
16    room and saw Dale Hatfield for the first time in a long
17    time is that when, 20 years ago, 25 years ago, a few
18    people in government thought -- and outside of
19    government -- thought it would be a good idea to have
20    competition in long distance, they started a process.  And
21    while at the time, in going through it, it certainly
22    appeared, on a day-to-day basis, there was not a grand
23    plan, and there were forward steps and backward steps,
24    indeed there was, in some senses, a grand plan or a grand
25    vision.   And that was  the achievement of  competition in

                                                             154
 1    long distance.
 2              And the Federal Communications Commission, led
 3    originally by people like Dean Burch and Dick Wiley and
 4    Dale Hatfield and Phil Verveer and a variety of others --
 5    and I apologize if I have left somebody really important
 6    out -- led that charge, and said, this is going to have to
 7    happen, and for it to happen there are a series of
 8    barriers that have to be knocked down.  And the next 10-15
 9    years was a process of knocking those barriers down.
10              And what we are really talking about here when
11    we look at local loop is kind of the same issues arising,
12    or many of the same issues arising, now that this last
13    monopoly island in what is becoming an interesting sea of
14    competition around it faces these same kind of questions.
15              And you would like to think it would happen
16    because the marketplace demanded it, either from an
17    economic point of view or from a political point of view. 
18    But go back in long distance, when Bill McGowan was trying
19    to sell his wares in the mid- to late-seventies, when he
20    first squeezed into my cubbyhole in the Cannon House
21    Office Building and tried to teach me what long distance
22    was all about, there were not any pro-competitive forces. 
23    People did not know what they did not have.
24              And there were a few computer companies that
25    came in  and said,  you know,  our main  frames are  being

                                                             155
 1    slowed down by these slow long distance lines, we need
 2    competition.  But there was no political force to really
 3    make this happen.  And I think that is exactly the case
 4    today.  You do not see consumers rising up in arms and
 5    say, give me my Maypo; give me my local competition.  They
 6    do not know what they do not have.  So that force is
 7    absent.
 8              There is a very large and successful wireless
 9    industry, which I am privileged to represent, CTIA, but
10    they do not care very much about wireless local loop.  You
11    do not see CMRS companies, particularly the established
12    cellular companies, saying, We want to do this; we have a
13    business plan and we are going to do it now.  There are a
14    few wireless startups, like WinStar and Teligent and
15    others that are interested, but that is basically the
16    equivalent of McGowan back then.
17              And there are certainly entrenched interests
18    who, if I were a LEC, I do not want wireless local loop
19    competition.  I would have to be an idiot not to want to
20    have competition, with a nice, $90 billion market to
21    myself and my colleagues.
22              So it really kind of comes back to, if it going
23    to happen, who is going to knock down the barriers?  And
24    that is going to be government, if it happens.  And it is
25    either going to be 51  State governments, which it may  be

                                                             156
 1    in some instances, or it is going to be the FCC.  It is
 2    not going to be Congress.  Congress thinks it already did
 3    it.
 4              So maybe some people in Congress will push, but
 5    the fact is that my experience when I was on the Hill, and
 6    I think it is still true now, is that congressmen are in
 7    favor of competition until it changes something.  And as
 8    soon as it threatens to change something, like your bill
 9    going up or you adding 75 cents on your bill in order for
10    another bill to go down, then they get very upset and they
11    do not want to see things change.  So I do not think
12    Congress is going to make it happen.
13              So it is really going to be the government.  And
14    I think it is fair to say that neither the current
15    Commission -- the current Commission has not said that,
16    has not adopted that approach yet, and it would be
17    interesting to see whether they do or not.
18              But in trying to think about these issues, the
19    way issues in communications tend to come up is in
20    dockets -- a piece over here, a piece over there, an issue
21    over here.  And it is hard to kind of see that forest. 
22    And if you are Bill Kennard or his new colleagues or Susan
23    Ness or Dale Hatfield or any of these other folks -- I
24    insulted you once before, Dale, then you came in, so I had
25    to do it again --

                                                             157
 1              (Laughter.)
 2              MR. AYLWARD:  -- trying to get a grip on the
 3    forest.  I have tried to organize the issues into five
 4    areas.  And let me just try to describe five clumps of
 5    issues, and then hopefully the speakers will take on some
 6    of the pieces of those when we get into the rest of the
 7    matter.
 8              Authority issues.  As a parent, I am always
 9    interested in authority issues.  And I think here, there
10    is kind of, Who is in charge?  Is it the FCC or is it the
11    States?  And the answer may be different, depending on
12    whether you are moving when you are on the wireless phone
13    or whether you are not moving on the wireless phone.  Or
14    whether, as I said in a speech at PCIA a couple of months
15    ago, if you go into wireless local loop, make sure you
16    have a CMRS component to it.
17              So, question one:  Who is in charge, both on the
18    front end and on the back end?
19              Section 332 gives a special status to CMRS,
20    which the Commission may or may not want to exercise. 
21    That is one question.  But it also gives -- turns CMRS
22    carriers into LEC's at some point down the road, and
23    therefore, presumably, gives local folks the authority
24    down the road, whenever that is.
25              There is  some economic  issues which  I do  not

                                                             158
 1    think have been addressed at all.  We tend to address
 2    economic issues by themselves, in little pieces. 
 3    Universal service we will address as an issue.  We have
 4    spent a lot of time in our company looking at a wireless
 5    local loop business plan.  And we would like to go into
 6    this market with a start-up company.  And one of the
 7    things that we have been looking at is, what are the
 8    aggregate effects on investment of the various mandates,
 9    fees and taxes that various entities of government are
10    starting to look at?
11              And I would suggest that the FCC and NTIA ought
12    to be taking a look at this, because that is the only
13    place I know that it can be done in the aggregate.
14              If you add all of these up, you are starting to
15    look at 20 to 30 percent on gross revenues.  That is a
16    huge burden to throw on any company or any group of
17    companies that you want to do something new.  You are
18    saying, come on down, let's start -- saying to CMRS
19    carriers, hey, why don't you get out of this comfortable
20    wireless business you are in and go compete with the local
21    monopoly.  Which is kind of a tough thing to do to begin
22    with.  And, by the way, here is a burden of 20 to 30
23    percent we are going to add to your bills.
24              Now, government is having trouble thinking about
25    that, because the universal service people say, I only put

                                                             159
 1    3.75 percent on your bill.  Yes, but what about the State
 2    version of that?
 3              The local tax people say, what is wrong with my
 4    7 percent, 10 percent special wireless tax?  The City of
 5    Dallas says, what is wrong with my franchise fee of 5
 6    percent or so on new wireless providers?  I do it to the
 7    phone company.  It is a right-of-way fee.  I am sorry you
 8    are wireless, you do not use the rights-of-way, but you
 9    would if you needed to, or maybe you do not, but I want
10    your money anyway.
11              If you add all of these up -- and you look at
12    number portability and CALEA -- just the general clump of
13    taxes, it is a significant economic issue.  And I would
14    argue, one that any economist will tell you is going to
15    reduce investment.  Or it is going to cut demand, which
16    will then reduce investment.  And neither is a good thing
17    if you are trying to get new companies into a market or
18    old companies to do something different.
19              Access issues.  There is a whole series of
20    issues under this, whether it is siting of antenna or what
21    I would argue is probably maybe a bigger issue, access to
22    premises -- or equal to that.  We fought this issue 20
23    years ago with supers in New York, who did not want to let
24    cable into their buildings.  Congress has legislated on
25    this, saying you cannot be prevented from having a dish.

                                                             160
 1              Well, what is the difference between a flat
 2    panel and a dish?  One is curved.  One is flat.  One says
 3    "telephone, video and data," one does video.  Can building
 4    owners be a barrier?
 5              Rights-of-way.  Interconnection agreements.  I
 6    mean there are a series of access issues.
 7              There are some consumer issues.  If wireless is
 8    really going to compete, it is going to have to do things
 9    that wire line companies do today, like E911, calling
10    party pays, service issues, time of service, directory
11    assistance, voice quality, that kind of stuff.
12              And, finally, universal service, which I guess
13    is an economic issue.  I am thinking of it more as a
14    flat-out barrier to entry.  In the business plan we
15    developed to do wireless local loop, if somebody says the
16    LEC is going to get 10 bucks a subscriber subsidy, and
17    then another 5 bucks a subscriber from a State fund, and I
18    want to go compete with them, unless I am going to get the
19    10 bucks and the 5 bucks, I am not going to compete with
20    them.
21              And I am sorry I missed the discussion this
22    morning, but unless there is a flat equality of treatment
23    per subscriber there, universal service will become a
24    barrier to entry.
25              So there are lots of  issues.  I think the  real

                                                             161
 1    issue is whether the government decisionmakers are going
 2    to look at this and say, we want to achieve that goal, so
 3    let's start walking down the road and knocking down these
 4    barriers.
 5              And we have got four people here today to talk
 6    about these issues.  We have appropriate quota
 7    representation, since this is a Democratic administration.
 8
 9    We have two former NTIA people.  We have two current or
10    former FCC people.  We have two Hill people.  There are
11    only five us, so you can tell there is a little overlap. 
12    That is called two-fers, by the way.
13              Michele Farquhar I think most of you know.  She
14    last served as Chief of the Wireless Bureau at the FCC. 
15    She was at NTIA before that in two very senior positions. 
16    She was at CTIA before that, when I first met her.  And
17    she is now a Partner at Hogan & Hartson, making an ungodly
18    amount of money for the first time in her life, which I
19    congratulate you, and continuing her expertise in wireless
20    and a whole bunch of other issues.
21              So, Michele, why don't you go first.
22                   MICHELE C. FARQUHAR, PARTNER,
23                          HOGAN & HARTSON
24              MS. FARQUHAR:  Thanks, David.
25              Good afternoon.  It is great to be here.

                                                             162
 1              My remarks today are focused on three primary
 2    areas:  First, the current wireless market growth trends. 
 3    Second, regulatory and other obstacles, both overt and
 4    covert, to wireless competition in the local exchange
 5    marketplace.  And, third, several suggestions for how both
 6    regulators and the wireless industry can foster increased
 7    wireless/wire line competition.
 8              In particular, I believe that incremental and
 9    docket-by-docket efforts may not be sufficient to prompt
10    wireless entry in the local market in the near term. 
11    Indeed, both regulators and industry advocates need to
12    take a comprehensive look at this issue and develop and
13    overarching policy framework for jump-starting wireless
14    facilities-based competition.
15              The wireless marketplace continues to boom, with
16    both cellular and PCS subcribership now exceeding 50
17    million.  The number of subscribers has almost doubled in
18    the last 2 years, from about 25 million when I first
19    joined the FCC's Wireless Bureau in 1995.
20              Another trend is that subscribers increasingly
21    use their phones for personal rather than business use. 
22    Cellular subscribers usage is 58 percent personal versus
23    25 percent business.  And PCS subscribers slightly less. 
24    Their usage is 49 percent personal compared to 30 percent
25    business.

                                                             163
 1              Moreover, an increasing percentage of customers
 2    are buying a second, third or fourth wireless phone for
 3    their households.  Thirty-four percent of all wireless
 4    users indicated that they had more than one wireless phone
 5    in their household in March of 1996, whereas the number
 6    had climbed to 44 percent for PCS and 39 percent of
 7    cellular users by early 1997.
 8              Already about 1 in 6 cellular and PCS users have
 9    said that they have three or more wireless phones.  And
10    for those of you who heard Assistant Secretary Irving's
11    remarks this morning, his household is certainly one of
12    those, with about four wireless phones.
13              In addition, the entry of PCS into many markets
14    has had a positive impact on subscriber rates, generally
15    leading to a price reduction of about 25 percent in these
16    markets.  In the Washington, D.C. market, for example, the
17    launch of APC-Sprint Spectrum led to a 35 to 55 percent
18    decrease in cellular rates.  And the average monthly bill
19    in the U.S. has fallen to below $50.
20              Already wireless revenues are more than 10
21    percent of wire line revenues, although wireless minutes
22    constitute only 3 percent of the minutes of wire line
23    communication.  The Yankee Group predicts that by 2004, 20
24    percent of voice calls will be wireless.
25              These trends --  rapid growth, declining prices,

                                                             164
 1    increasing personal use, and more wireless phones per
 2    household -- may suggest greater consumer willingness to
 3    view wireless as a substitute rather than a complement to
 4    their existing residential wire line service.  The FCC's
 5    second annual report to Congress on competition in the
 6    commercial mobile services, released in March of this
 7    year, indicates that 13 percent of Americans are using
 8    wireless telephony as a complement to their wire line
 9    communications, with some possibly using wireless as an
10    alternative to a second line.
11              The report indicates that the primary obstacle
12    to classifying wireless as a true or potential substitute
13    for wire line remains the permanent charge, despite the
14    recent price reductions.  On the other hand, the report
15    notes that several PCS carriers are not charging for the
16    first minute of incoming calls, and their subscribers are
17    more likely to use their phones as a general
18    communications device and not just for special or
19    emergency communications.
20              Another important development is that more
21    wireless services will be deployed in the business and
22    consumer market as the FCC prepares to auction spectrum at
23    28 gigahertz, 39 gigahertz and possibly 24 gigahertz in
24    the coming year.  Many potential providers in these bands
25    are targeting  the  business rather  than the  residential

                                                             165
 1    markets, at least initially, often for a wireless fiber
 2    access service rather than a true wireless local loop
 3    service.
 4              Nevertheless, new fixed wireless services, as
 5    well as the eventual buildout of the PCS C, D and F bands
 6    and the wireless communications service at 2.3 gigahertz,
 7    may contribute to what one Deloitte & Touche economist
 8    recently described as the coming spectrum glut, at which
 9    point carriers will have to take any warm body as a
10    customer, even a land line caller.
11              Despite these trends, when policymakers evaluate
12    the success of the Telecom Act of 1996, particularly the
13    state of local competition in residential markets, the
14    picture looks grim.  Wireless still remains a potential
15    success story in U.S. local consumer markets.
16              Several factors are usually identified -- I will
17    call these overt barriers -- which tend to operate at the
18    customer level.  And these include current wireless
19    billing practices under which consumers pay for incoming
20    as well as outgoing calls, number portability, consumer
21    concerns about service quality, and, perhaps most
22    importantly, cost.  While some of these obstacles affect
23    all competitive local exchange carriers, or CLEC's, such
24    as number portability, many are unique or loom far larger
25    in the wireless arena.

                                                             166
 1              Wireless carriers' profits, for example, are
 2    increasingly nibbled by State and local taxes, new
 3    universal service payments, higher than cost
 4    interconnection rates, and regulatory mandates for new
 5    location technology, leaving little cushion for aggressive
 6    buildout or drastic rate reduction that would help them
 7    compete better with the low wire line charges.  Wire line
 8    subsidies that keep the cost of local service artificially
 9    low may also set a high bar for the wireless industry to
10    meet.
11              The FCC's pending proceedings on calling party
12    pays billing mechanism, as well as its ongoing efforts on
13    the LEC-CMRS interconnection rules, could offer some
14    relief as soon as next year.
15              Other factors, which I will refer to as covert
16    obstacles, include the threat of increased State and local
17    regulation, tower siting and other capacity issues, and
18    general regulatory uncertainty.  The threat of increased
19    State and local regulation and taxation could actually
20    serve as a disincentive for many wireless carriers seeking
21    to enter the residential market, especially given the
22    additional infrastructure investment needed to deploy
23    these services.
24              Likewise, carriers' requests for many additional
25    tower and  antenna  sites, especially  important  for  the

                                                             167
 1    fixed wireless services at the higher gigahertz
 2    frequencies, could languish in the hands of local zoning
 3    authorities.  These issues, in conjunction with the
 4    regulatory profit nibbling that I mentioned earlier, could
 5    affect carriers' willingness and ability to provide
 6    residential services.  So that the consumer may really
 7    never have a choice between technologies.
 8              It is also worth noting that wireless revenues
 9    remain a major source of profit for many wire line
10    companies, perhaps encouraging these particular carriers
11    to continue to view mobile service as more of a
12    complementary service than as a substitute to their own
13    residential service.
14              Commission action on pending preemption
15    petitions as well as its ongoing proceedings to determine
16    State regulatory authority over fixed wireless services --
17    commonly referred to as the CMRS flex proceeding -- and
18    the full extent of local authority over tower siting
19    issues, which was raised in its recent notice in the RF
20    proceeding, could help alleviate some of the current
21    uncertainty.
22              Finally, how can government and industry
23    encourage greater deployment of wireless local loop?  As I
24    suggested earlier, a critical first step for government
25    policymakers  is  to work  with  the wireless  industry to

                                                             168
 1    identify obstacles and plan a comprehensive, pro-consumer
 2    policy framework to address the issue.  Incremental,
 3    docket-by-docket efforts may not be sufficient to prompt
 4    wireless entry into the local market.
 5              In addition, it may be time to reevaluate
 6    whether a strict technology-neutral framework is helping
 7    or hurting wireless/wire line competition, at least in the
 8    short term.  Inherent differences between wireless and
 9    wire line technologies and networks, differing regulatory
10    frameworks, and differences among the wireless
11    technologies themselves may suggest the need for a new
12    interim model, or a greater effort to remove any inherent
13    bias against wireless providers.
14              Indeed, short-term incentives to encourage
15    wireless local loop may produce a legion of pro-consumer,
16    pro-competition and pro-universal service benefits, as
17    well as more economic development.
18              Policymakers should also study international
19    wireless local loop deployment for successful models, and
20    ensure that spectrum policy, local competition policy and
21    Federal preemption policy are all moving in the same
22    direction.  Most importantly, recognition of the need to
23    avoid a death by 1,000 cuts at the Federal, State and
24    local level could fuel wireless deployment in the same way
25    that  regulatory forbearance  has fostered  the tremendous

                                                             169
 1    growth of the Internet.
 2              Internet service providers, for example, have
 3    garnered congressional interest in a short-term national
 4    moratorium on State and local taxes of electronic
 5    commerce.  In describing this effort, Senator Ron Wyden of
 6    Oregon notes that the growth of Internet taxes could kill
 7    the goose that lays the golden eggs.
 8              Many wireless carriers advocate that the simple
 9    answer is suggested by the recent Eighth Circuit ruling on
10    interconnection:  broad Federal preemption of State and
11    local regulation, under Section 332.  Yet cities have
12    successfully argued that placement of towers and taxation
13    are uniquely local, and States are unlikely to relinquish
14    jurisdiction over intrastate telecom issues or services. 
15    Even if broad Federal preemption is legally possible, it
16    is unlikely to be politically sustainable in the long run.
17              Instead, carriers could seek short-term,
18    targeted preemption, or Section 332 relief, directly tied
19    to the FCC's desire to encourage facilities-based local
20    competition.  Carriers could begin competitive local entry
21    and the offering of full service bundles of telecom
22    service in specific test markets -- much like AT&T is
23    planning to do -- with or without such relief.
24              This would provide an opportunity to inventory
25    the necessary investment, the actual barriers to entry, as

                                                             170
 1    well as consumer acceptance.  The FCC still lacks data on
 2    all of these fronts.
 3              The industry could also undertake a
 4    comprehensive economic analysis of LEC/CMRS
 5    interconnection issues and the role of wireless in the
 6    local competition marketplace, particularly the types of
 7    stimuli or incentives necessary to encourage such entry.
 8              Finally, the wireless industry could take better
 9    advantage of the current government programs that might
10    leverage their infrastructure investment, such as NTIA's
11    Telecommunications Information Infrastructure Assistance
12    Program, or TIIAP.  According to TIIAP Director Steve
13    Downs, less than 10 percent of the grants during the first
14    3 years have gone to wireless projects.  This program
15    could serve as a real test bed for future schools,
16    libraries and health care projects, and even general
17    residential service initiatives, enabling wireless
18    carriers to develop projects to offset some of their
19    universal service contributions.
20              In sum, the Information Super Highway still has
21    many separate lanes for separate technologies:  wireless,
22    wire line, cable, broadcast, satellite, et cetera. 
23    Policymakers should work together at the Federal, State
24    and local levels to encourage greater convergence and
25    competition   between   the   wireless   and   wire   line

                                                             171
 1    technologies, particularly by removing any roadblocks.
 2              NTIA is well suited to play a key role in this
 3    effort, and I applaud its leadership in hosting today's
 4    forum.
 5              Thank you.
 6              (Applause.)
 7              MR. AYLWARD:  Tom Sugrue is our next speaker. 
 8    He is a partner in the Washington firm of Halperin,
 9    Temple, Goodman & Sugrue.  He specializes in
10    communications in a wide variety of areas.  I think many
11    of you know him.  He has served at the NTIA.  He has
12    practiced before the FCC, the Congress, the executive
13    branch in Federal courts, and lots of international
14    organizations.
15              He has represented folks on interconnection,
16    universal service, access charges, standards and
17    procedures for the Bell Company entry into the InterLATA
18    market, which some of you may have missed -- it is kind of
19    a small issue going on these days -- and is implementing
20    regulatory reform provisions of the Telecommunications
21    Act.
22              Prior to joining this firm, he was the Deputy
23    Assistant Secretary of Commerce, Deputy Administrator of
24    NTIA.  And he comes from Harvard Law School, the JFK
25    School at Harvard, and Boston College.

                                                             172
 1              Tom.
 2                      THOMAS SUGRUE, PARTNER,
 3                HALPERIN, TEMPLE, GOODMAN & SUGRUE
 4              MR. SUGRUE:  Thank you, David.
 5              It is good to be here with such a large number
 6    of former colleagues and current friends, I hope, both on
 7    the panel and in the audience.
 8              Michele is always a tough act to follow.  I
 9    think we are, as speakers, going in descending order in
10    terms of preparation and organization.  She is very well
11    prepared and organized as always, if you know Michele.
12              I have an outline that I hope has a beginning, a
13    middle and an end.  I do not know if they all relate to
14    one another, but we will find out.
15              Salemme is writing his remarks right now, so
16    they will not be stale when he gets up here.  And Roz,
17    being from the government, can say whatever the hell she
18    likes and everyone will pay attention to it.  At least
19    that was my attitude when I was in government.
20              So I thought I would address one aspect of the
21    regulatory policy affecting the deployment of wireless
22    local loop that I think sometimes gets ignored.  And that
23    is that wireless local loop is part of -- it is one kind
24    of facilities-based competition in the local exchange
25    area.   And the rules that the Commission has adopted, the

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 1    1996 Act, and the rules the Commission -- and the
 2    States -- have adopted to implement that Act will have an
 3    impact -- a direct impact on the incentives to use this
 4    particular technology.
 5              And while there are a lot of issues that are
 6    specialized to wireless local loop, having to do with
 7    spectrum allocations and tower siting and things like that
 8    that are very important, there is also a set of generic
 9    issues that directly affect the business and economic
10    incentives to invest in any local infrastructure on a
11    competitive basis.
12              And I would like to look at some of that, and to
13    provide just a brief background, a brief but somewhat,
14    admittedly biased and tendentious background, of the 1996
15    Act, in order to sort of set up these points.  And the
16    basic facts, I am sure, are familiar to everyone here,
17    although I will add, as I said, some editorial comments as
18    I go along to provoke either discussion, thought, or one
19    or the other.
20              Of course, the Act opened all telecom markets to
21    competition.  And I would not quarrel with hardly anything
22    David said in his opening remarks, although I would not
23    discount that particular declaration that Congress made. 
24    There is one part of the Act that is relatively clear: 
25    All markets, all barriers are down, and everyone should be

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 1    able to offer any other service.
 2              Would that it had spoken with similar clarity in
 3    some other provisions as well.
 4              It preempted State and local barriers to entry,
 5    although there are a number of particular State and local
 6    regulations, obviously, that affect particularly wireless
 7    local loop deployment -- public rights-of-way, the taxing
 8    issues, the franchise fees, and so forth.  But I am going
 9    to focus on another part of what the Act did, which was to
10    establish three key obligations of incumbent local
11    exchange carriers and three key rights of new entrants.
12              And that is interconnection, access to unbundled
13    elements and resale.  And these are the three main
14    vehicles for entering the local market for any local
15    competitor, whether it be wireless, wired or otherwise.
16              One way to look at these three provisions is
17    that they provide a hierarchy of entry vehicles, in terms
18    of the extent to which a new competitor has or is planning
19    to deploy its own facilities as part of its competitive
20    strategy.  Interconnection is obviously a key.
21              You can have two competitors with their own
22    facilities, serving their own customers, but unless the
23    two can interexchange traffick, can interconnect, so that
24    a subscriber to one can call a subscriber on the other,
25    the things the economists call network  externalities take

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 1    over and the local exchange goes back to being probably a
 2    natural monopoly.  But, again, interconnection is
 3    something that two facilities-based networks do vis-a-vis
 4    the other.
 5              At the other end of the spectrum there is a
 6    provision in the Act so that new entrants can come into
 7    the market without any facilities.  And that is called
 8    resale.  They have a right to purchase any service the
 9    incumbent provides on a retail basis, to get it at a
10    wholesale discount, and can offer it to subscribers of
11    their own on a resale basis.
12              In between, the Act creates the right to acquire
13    parts of the incumbent's network on an unbundled basis. 
14    And that is the UNE's, the unbundled network elements,
15    that have been the subject of great debate.  The policy
16    ground there, as I see it -- and, again, this is my
17    interpretation of it -- is building a full, complete
18    network is very expensive, very time consuming.  It
19    involves putting in place switches, loops, transport
20    networks, signalling and so forth.
21              And in order to facilitate competition and to
22    make it happen more rapidly, the law provides that the new
23    entrants can purchase parts of the incumbent's network,
24    match them up with its own facilities to provide an entire
25    network, and  then  invoke its  rights to  interconnection

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 1    through the interconnection provisions of the Act and the
 2    regulations.  So I would interpret these three provisions,
 3    again, as providing this hierarchy between full facilities
 4    competitor, partial facilities and no facilities.
 5              Well, a number of actions the FCC and the States
 6    have taken in interpreting the Act and these provisions
 7    affect the ability and the incentives of competitors to
 8    invest in facilities that would provide a basis to provide
 9    what I would consider the most robust and most complete
10    form of competition in the local exchange.  The first has
11    to do with the pricing of unbundled network elements.  And
12    I am going to focus on -- for this purpose -- namely,
13    unbundled network elements.
14              The statute says the price must be based on
15    cost.  The FCC applied a pricing methodology known as
16    TELRIC, total element long-run incremental cost.  It is a
17    forward-looking cost methodology based on the most
18    efficient technology available.  I do not intend to get
19    into all the details of TELRIC.  I am not probably
20    competent to do so, or to debate them -- although I have
21    heard some people debate them who did not seem to be
22    competent to do so either.
23              (Laughter.)
24              MR. SUGRUE:  But suffice it to say it produces
25    low prices for unbundled network  elements.  I think there

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 1    is general agreement on that.  Obviously, "low" is a
 2    relative term.  But I think the new entrants would largely
 3    say those are -- or many new entrants would say -- they
 4    are reasonably low, appropriately low.
 5              The incumbent providers say they are
 6    unreasonably -- indeed, unconscionably or even
 7    confiscatorially low.  And the FCC is fairly explicit
 8    about saying, yes, we want the rates for unbundled network
 9    elements to be low, to facilitate rapid entry by new
10    competitors and entry through unbundled elements, which
11    they view as a stronger form of competition than resale
12    entry.
13              A second set of issues has to do with the
14    availability of unbundled network elements.  Two key
15    issues there.  One could argue -- indeed, it was argued --
16    that unbundled network elements should be limited to those
17    parts of the local network that exhibit natural monopoly
18    characteristics, or are essential facilities in the
19    language of antitrust, and not that just a whole network
20    should be available.  You should look element by element
21    and say, can this be effectively supplied on an efficient
22    basis by competitive supply?
23              That was not done, basically.  The Commission
24    interpreted the law pretty much as saying that all parts
25    of the  network, at least at the  present time, have to be

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 1    unbundled and provided on an unbundled basis.
 2              The second issue is who can take unbundled
 3    network elements.  Should it be limited to those
 4    competitors who have some of their own facilities, and so
 5    they need to lease loops here or a switch here or a
 6    transport there or a signalling there to sort of flesh out
 7    their network?  Or can a new entrant with no facilities at
 8    all lease a complete set of unbundled elements and put
 9    them together?  This is the network platform concept.  And
10    the Commission, as I think most of you know, said no, we
11    are not going to limit the availability of unbundled
12    network elements to competitors who have some of their own
13    facilities.
14              Now, fair enough, we should note that not all
15    these rules survive legal challenge.  The Eighth Circuit
16    reversed the FCC on jurisdictional grounds on the pricing
17    rules.  But I think the FCC's pricing rules have been very
18    influential.  Most States have adopted some version of
19    TELRIC for their own pricing.  And I think the FCC could
20    properly claim credit for a lot of that.  And in large
21    part, the FCC's approach, at least, is in place, despite
22    the Eighth Circuit's reversal.
23              As to the availability of unbundled network
24    elements, those rules, the court said, was within the
25    FCC's jurisdiction.  It upheld  the FCC on the point  that

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 1    they are not limited to essential facilities, basically. 
 2    The FCC defined what elements have to be available.  And
 3    it upheld the Commission that a competitor does not have
 4    to have its own facilities.
 5              It did say, though, that the competitor has to
 6    combine those elements itself; that the incumbent carrier
 7    does not have to do that job for it.
 8              And I should also note that many of these issues
 9    are subject to petitions for review in the Supreme Court,
10    and so we may not have heard the last of this on the court
11    basis.
12              Well, what sort of impact does this have on the
13    deployment of wireless local loop or on competing
14    infrastructure generally?
15              And my concern is that unbundled network
16    elements really serve a dual role.  They are a way that a
17    new competitor can enter the market efficiently and
18    rapidly.  They provide more opportunities.  They are
19    cheaper than resale, at least for many purposes.  For
20    example, the most lucrative business customers.  They
21    provide more revenue opportunities because you get the
22    exchange access revenues.  But, at the same time, they are
23    a competing source of supply if you are an entrant that
24    has its own facilities or wants to offer competing
25    facilities.

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 1              So unbundled local loops provided by the
 2    incumbent are a competing source of supply if you want to
 3    be in the wireless local loop business.  So there is a
 4    tradeoff here.  Rules and regulations that facilitate
 5    achievement of the first goal make unbundled elements
 6    freely available, as cheap as possible and so forth
 7    arguably could undermine the second goal.  That is, you
 8    are making one competitive source of supply too cheap, too
 9    available and too easy a means to enter the market.
10              And just to cite a couple of examples of
11    pricing -- and again, without getting into whether prices
12    are right, just as general matter, the cheaper the prices
13    of unbundled network elements local loops, the lower the
14    incentives, or the harder the business case to make to
15    deploy competing infrastructure to offer local loops,
16    whether they be wireless or otherwise.  And local loop
17    infrastructure is not inexpensive and it is not free of
18    risks.
19              And one risk now if you are going to make such
20    an investment, you have to take into account not only the
21    market risk or what the incumbent will do to its prices,
22    but that the regulator will come in and say, those prices
23    for those unbundled loops have to be lower and lower.
24              The availability of unbundled network elements
25    is a  similar  thing.   If you  are  limited to  essential

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 1    facilities or you had to have some of your own facilities
 2    to acquire unbundled network elements, there would be
 3    stronger incentives, I suggest, for competing
 4    infrastructure.
 5              Other countries -- Canada, for example, does
 6    limit unbundled network elements to essential facilities. 
 7    Switches are not unbundled.  Local loops are unbundled in
 8    urban areas only for 5 years.  It is too early to tell. 
 9    These rules in Canada were just adopted a few months ago. 
10    But it will be interesting to see how infrastructure
11    investment in local exchange develops in Canada.
12              The U.K. even took a more extreme position. 
13    There is no unbundling at all.
14              Now, people argue with some degree of validity,
15    the U.K. had a special case.  The telephone plant was
16    being deployed with cable plant at the same time. 
17    Nevertheless, those decisions were made in both Canada and
18    the U.K. not as a favor to the incumbent carrier, but
19    really as to provide an incentive for the competing
20    providers to invest in their own infrastructure, and
21    arguably to reward the competing providers for taking
22    those risks when they make those investments.
23              So I would just suggest one thing to my friends
24    at the FCC or input to the States or in public policy is
25    that, as  we proceed along, the fight has often been about

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 1    the new entrants on one side and there is the incumbent
 2    local exchange industry on the other.  Among the new
 3    entrants, not all interests are the same.  I would suggest
 4    to you that among those who want to compete by way of
 5    facilities, some of their entrants are really
 6    diametrically opposed with those who want rapid entry just
 7    by whatever means possible.
 8              The fault line on this seems to have been
 9    dividing -- that is, IXE's on one side and some
10    competitive LEC's on the other -- that may not always be
11    the case.  MFS and Brooks are being acquired by WorldCom,
12    which will be WorldCom and MCI.  So major IXE's and major
13    CLEC's are getting together.
14              The incentives may change somewhat; the
15    arguments may change somewhat.  But I have not seen
16    myself, in the regulatory discussions, enough of a sense
17    that by promoting one form of competition you really may
18    be cutting the legs out from under this other form of
19    competition.  And while you may say the Act -- and the
20    Commission does argue -- the Act is neutral as to
21    facilities or resale competition, I do not think it is
22    beyond the ken to make a judgment on that.
23              I would make a judgment on that and say I would
24    err on the side of trying to promote incentives for
25    investment in competing  facilities.  It is  a more robust

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 1    form of competition.  It is a more real form of
 2    competition.  It provides a path out of regulation, so we
 3    can have a deregulated, fully competitive market.  A
 4    resale market does not do that.
 5              So I would hope as we move along -- there are
 6    some little drops along the way that indicate the
 7    Commission may be thinking along these lines -- Joe
 8    Farrell's, who is the Chief Economist, valedictory address
 9    last May, I thought was very thoughtful on some of these
10    points, and laid out some of the balance.  The Commission
11    has said it is going to look at the impact on incentives
12    for innovation on the ILEC side.  I would suggest they add
13    to that the incentives for innovation on the new entrant
14    side, for adding facilities and for trying to compete on
15    the basis of that investment.
16              So wireless local loop will look a lot better if
17    we create a stronger and more efficient set of incentives
18    for making those investments.
19              Thank you.
20              (Applause.)
21              MR. AYLWARD:  Gerry Salemme is the next speaker.
22
23    He is now Vice President for External Affairs and Industry
24    Relations for the NextLink Company, which is owned by a
25    variety of people, including Craig McCaw.  He has joined a

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 1    team of his former friends and colleagues at AT&T in that
 2    activity, and he is directing issues and advocacy for
 3    them.
 4              Before joining NextLink, as I mentioned, he was
 5    AT&T's leading Federal regulatory person here in
 6    Washington.  And prior to that, worked for Ed Markey as
 7    his senior telecom policy analyst in the U.S. House of
 8    Representatives Telecom Subcommittee.  He received both
 9    his B.A. and M.A. in economics from Boston College.
10              He told me the other day that he is really not
11    doing wireless stuff.  He is doing wired competition.  And
12    knowing a little bit about Craig McCaw and Gerry, I think
13    if anybody in the room takes that seriously, you should
14    not be doing this kind of business.
15              Gerry.
16                  GERRY SALEMME, VICE PRESIDENT,
17              EXTERNAL AFFAIRS AND INDUSTRY RELATIONS
18                             NEXTLINK
19              MR. SALEMME:  Thank you, David.  I appreciate
20    the invitation to be here today, Joe, Kathy, the rest of
21    the group at NTIA.
22              And I think, as David just said, we are a wired
23    CLEC provider.  We are basically someone who tries to
24    string fiber and connect switches and directly goes to
25    buildings and compete against those incumbent  ILEC's that

                                                             185
 1    Tom Sugrue talked about.
 2              And I want to start by thanking Tom for lowering
 3    expectations.  As you will see, I am totally disorganized,
 4    and I will try to get through this and have a coherent
 5    point at the end.
 6              But we are really a wired company.  But, in my
 7    past, I have worked for McCaw Cellular and Craig McCaw. 
 8    During that time, we actually identified and purchased the
 9    initial rights and helped create that AT&T wireless fixed
10    solution that I think they discuss on the first panel. 
11    That was actually something that Craig McCaw and his team
12    had found prior to the merge with AT&T.  So that is
13    something that we know a little bit about.  I think it
14    demonstrates the bullishness that Craig and the former
15    McCaw team have on fixed wireless solutions.
16              And even though we are currently, at NextLink, a
17    provider of services using wired fiber facilities, we
18    really are technology agnostics, as Craig says.  And we
19    are out every day, looking at every potential spectrum
20    play, every wireless play, so that we can build out our
21    portfolio, so that we can have every possible arrow in
22    quiver to take on those entrenched incumbents in the local
23    exchange market.  And I think those are the type of things
24    that we will continue to do.
25              Beyond that,  we  also have  an  extended  McCaw

                                                             186
 1    family of his investments.  He has two other complete
 2    wireless plays.  One is Nextel, which I think people have
 3    heard a little bit about.  It is an enhanced SMRS
 4    provider, providing digital cellular service.
 5              Currently, right now, it has one unique feature
 6    that distinguishes it and differentiates it in the market
 7    from the traditional digital cellular providers, which are
 8    pretty pervasive right now -- up to five in a market.  It
 9    has a push to talk feature, which allows for a lower-cost
10    conferencing feature, so that you can have people on a
11    conference in a smaller network, and you can conference
12    them.  And it is something that has been used a lot by
13    businesses.
14              We are kind of excited about the fact that
15    technology, if it is good, will find the right market. 
16    And sometimes you do not even know where it is coming
17    from.  One of the things that we have realized with this
18    push to talk that Nextel has is that -- in Beverly Hills,
19    90210, those new little clique of rich kids want to take
20    Nextel phones instead of cellular phones to school. 
21    Because if you are in the right clique, you all get
22    conferenced immediately, and you can have a broadcast
23    message to where the party is, without having to dial
24    everyone's number.
25              And it is just one of those features that we see

                                                             187
 1    as being unique.  And it is one of the reasons we are
 2    bullish on wireless.  No matter what happens, you can use
 3    wireless technology to really find a personal solution, to
 4    find a unique solution.  And ultimately we do believe that
 5    fixed wireless is going to be a solution that is going to
 6    be very strong in the local market.
 7              And I see David Turetsky and Teligent, WinStar,
 8    we really do look at a lot of those wireless technologies
 9    to make it and to help drive competition.  But the real
10    question is, how do you get to the next level?  How do you
11    take the competition beyond where NextLink is right now,
12    which is to a small business market, beyond what is
13    probably the target market of our other CLEC competitors
14    right now?
15              How do we move down to that residential
16    provider?  Which is the real promise of that Telecom Act
17    that Tom just articulated, and Michele and David earlier. 
18    We need to be able to say, how do we get the real spirit
19    of competition in the local market to be pervasive beyond
20    the single target, down to that mass residential market?
21              And that is where it gets more difficult.  That
22    is where it gets a lot harder.  In McCaw's companies, we
23    think that the Teledesic fixed satellite service in the KA
24    band, which we are licensed in the FCC and also recently
25    had  our spectrum  at the  World Radio  Conference just  a

                                                             188
 1    couple of weeks ago approved for 500 megahertz of clear
 2    spectrum, we think that is a digital IP platform service
 3    that can provide broad band service right to the home.
 4              It is a $9 billion investment, 288-satellite
 5    constellation.  But what that constellation, we believe
 6    that we really can provide a broad pipe to the home.  And
 7    to do that on an international basis, to be able to
 8    amortize those costs over that full world market gives
 9    you, I think, an opportunity to be able to say $9 billion
10    is not a lot.  Think of how much money it costs right now
11    to rewire all of the United States and you will see that
12    that can really be a very cost-effective way to enter this
13    market and to provide service, especially in areas where
14    you are never going to get a wire.
15              And if you look at some of the places throughout
16    the world, we believe it is a market that is going to be
17    ripe for entry using a fixed-satellite wireless solution. 
18    So that is one of the things that we are continuing to
19    work on and promote.
20              But the real question is, can you get local
21    competition at all?  I mean I always want to step back and
22    say, is fixed wireless going to work?  Sure, it is going
23    to work.  The technology, the economics dictate that it
24    can work.  The question is not:  Is fixed wireless going
25    to be  a technology that is going  to succeed in the local

                                                             189
 1    market?  The question is:  Is local competition going to
 2    be viable for residents in the United States?  Is the
 3    potential of the Telecom Act going to be realized?
 4              And I just want to step back, before we get into
 5    the specifics of what you need to do to help the fix
 6    wireless local loop strategies become successful, to
 7    really look at where are we in local entry right now.  And
 8    I just want to go through a couple of quick things,
 9    because it gets back to the discussion of the 1996 Telecom
10    Act, the FCC implementation of Section 251, the States,
11    the courts, and where we sit right now, coming up on our
12    second anniversary of the Act.
13              And let me start by saying I cannot be more
14    bullish about NextLink and the potential for us to
15    continue to succeed and add on customers, on net, doing
16    everything we can on our own, occasionally buying an
17    unbundled loop to provide service to a business customer. 
18    It is a market that you can do.  The pricing is right. 
19    The technology is right off the shelf, and it is a matter
20    of logistics and putting it together and just spending
21    enough capital to make it happen.
22              The real question is:  How do you go downstream?
23
24    How do you go down market to meet those residential
25    customers?

                                                             190
 1              I think others have said in the past -- and I
 2    think Tom just said this -- resale to me is a real
 3    questionable strategy.  I have not seen the economics work
 4    out, at a 20 percent discount, to make resale work.  So if
 5    resale does not work, that leaves you the two other
 6    solutions -- the unbundled elements and facilities-based
 7    build.
 8              Unbundled elements can work in some situations. 
 9    I would agree with Tom to a certain extent that, though
10    they should be permitted and I think the Act allows you to
11    bundle them completely, unbundled elements work better in
12    piece parts.  And that if you can get two or three of
13    those unbundled elements, put them together, you are in
14    much better shape than trying to put all of them together
15    and buy that glue from the ILEC's and make that happen.
16              But the real issue here is, how do you provide
17    competition, then, to the local incumbent ILEC if you have
18    basically roadblocks that continue to be in your way?  And
19    most of the roadblocks that we have to navigate are really
20    regulatory roadblocks, not economic and not technology.
21              So, 251.  Tom starts by saying there is
22    absolutely no longer a barrier to entry.  That States can
23    no longer prevent you from entering the market.  Well,
24    technically, that is correct.  I am sure that, if you go
25    back to the Act, that  is the first line of the  Act.  The

                                                             191
 1    reality, though, is that you still have to go get
 2    certified.
 3              You are still often opposed, and there are
 4    intervenors by the ILEC when you do get certified in a
 5    local market.  You are still fighting every day to get a
 6    municipality to let you have a right-of-way, to take them
 7    to court not to pay a franchise fee of 5 or 7 percent when
 8    you are competing against an incumbent local exchange
 9    company that already has its facilities in place and they
10    are not paying and costs for it.
11              So one of the things you really have to look at,
12    and I think we really have to review again, is how we can
13    ensure that we have a streamlined process to be able to
14    enter the market and to make it work quickly.  One of the
15    points Michele made earlier -- number portability -- it is
16    essential for a local exchange competitor to have number
17    portability.  A person wants to keep their own number. 
18    That is even more essential in a local market.
19              If you want to have a wireless competitor or a
20    wired competitor, they have to be able to, transparently
21    to the customer, get that number changed.  We have no idea
22    how that is going to be implemented by the ILEC's right
23    now.  I think the recent filings by some of those
24    incumbent LEC's to delay the implementation of number
25    portability,  some of  the concerns  about what  a dip  is

                                                             192
 1    going to cost you as you get into the number portability
 2    database, really just threatens the ability to get some
 3    local competition underway.
 4              We have reciprocal compensation issues that we
 5    can go through.  Right-of-way issues, I would love to
 6    spend a few minutes on this.  We are trying to build, in
 7    San Francisco -- and you know, the Dunbarton Bridge is
 8    just one of those bridges you have to get across -- it
 9    would be very nice to be able to get across.  It seems
10    that one of the incumbent LEC's -- a big one -- has an
11    agreement with the State of California -- I would say it
12    is an illegal agreement with the State of California --
13    saying that they have the only right to build on that. 
14    And that if I want to get facilities, I have to lease from
15    that incumbent LEC.
16              Well, I can take them court and I can be
17    successful, because clearly the Act says that you cannot
18    have State rules and regulations that prohibit
19    competition.  I do not have enough time to do that and be
20    in the market in 6 months.  Those are the things that
21    happened on a wired and wireless basis.  Because I still
22    need facilities across that bridge, even if I build out a
23    wireless network.
24              So there are those issues.  There are the
25    right-of-way issues that  are just  inherent parts of  the

                                                             193
 1    251 and the Act.  And in the overlay of 271, the threat
 2    that if an ILEC is into the market before it really has
 3    any viable competition, we are going to be even less
 4    successful in being able to get entry in those markets and
 5    get interconnection agreements that work.
 6              But let me just get quickly -- because I already
 7    gave up all my time and I have bored people to death --
 8    what we can do in specific issues with regard to the
 9    wireless world.  And for me, there is an issue like access
10    to a NID.  And I do not know if people have paid any
11    attention to this and I do not know what the panel did
12    this morning.  But I do know that AT&T Wireless has a nice
13    little antenna you put on the side of your house, you
14    string a wire down, similar to what we do with our
15    Teledesic.  If you can come into the NID and not have to
16    drill another hole to pull that wire up, you are in much
17    better shape.
18              That is one of the issues that the FCC has half
19    got right but left half to the States.  Again, it is one
20    of the things that if you want to make it easy, if you
21    want to encourage a wireless provider to easily hook into
22    the customer premise equipment, the inside wiring that is
23    already in the house, access to that NID is very
24    important.  As you get to the unbundled elements, what are
25    you buying?  What is an unbundled element?

                                                             194
 1              I remember once advocating on behalf of AT&T, we
 2    wanted as many unbundled elements broken up as often as
 3    possible.  Now, I try to get a loop and someone tells me
 4    that a line card is separate from the loop.  So now there
 5    are two unbundled elements, you cannot combine them
 6    without paying twice as much.  Now, I do not know what
 7    position I want any more.
 8              But, I will tell you, we have got to make it
 9    easy so that you can get some access to some of those
10    elements -- I think Tom would agree -- that allow a
11    wireless competitor to get in and hook up into the
12    network.
13              The other thing I want to talk about is CMRS
14    flexibility.  The PCS providers, I think, with the help of
15    the FCC in October of 1996, were allowed to use PCS fixed
16    as a primary and as an NPRM, saying, how do they get
17    regulated -- are they CMRS or are they a local exchange
18    company?
19              I think it is very important to have them
20    continue to be classified as CMRS until they reach the
21    definition that is in Section 332 of the Act, which says
22    they are a substantial replacement for the local exchange
23    company throughout the State.  Those words were kind of
24    carefully -- I do not know -- who knows whether words are
25    ever carefully chosen in legislation.

                                                             195
 1              They seemed important at the time.  And they are
 2    words.  They must have some meaning.  So let's make sure
 3    that we use that, so we do not have the added pressure of
 4    having the CMRS services classified with State pricing
 5    regulation and entry barriers they potentially get there.
 6              The last thing is just USF.  And I am not going
 7    to hit the part David -- he already beat that.  I am going
 8    to hit eligibility.  And you have got to have a
 9    technology-neutral solution.  Everyone says that, but then
10    the States get involved and technology-neutral solutions
11    have got to deal with pricing.  Because somebody may have
12    a different price if you buy a wireless service, they have
13    to -- you know, the minutes of use in wireless may be a
14    little different, and they have to also deal with
15    geographic coverage.
16              Some States are asking you to cover such a broad
17    area that a good, economically viable wireless solution
18    that would be a lot more cost effective than any wired
19    technology that could possibly be thought of cannot meet
20    the coverage mechanisms.  And then they become uneconomic.
21
22    So those are a couple of things.
23              And I know I am all over.  But this one story. 
24    I have a friend in Montana who built his house in the
25    middle  of nowhere.   You know,  he has  got money  and he

                                                             196
 1    wants to build a nice house in the middle of nowhere. 
 2    That is great.  So he is trying to get electricity and
 3    phone service.  And the electricity charged him $40,000 to
 4    carry a line out there.  His phone service was $100.
 5              Now, I am very proud of USWest for being able to
 6    get a wire out there for $100.  I am not very proud that I
 7    am paying for his wire in my bill in BellAtlantic. 
 8    Something has got to be done to deal with that issue.  And
 9    that is a broader issue.  But it is something that does
10    actually, I believe, pervert the pricing system in
11    telecommunications, which makes it hard for anybody to
12    make an investment in a wired or a wireless environment.
13              (Applause.)
14              MR. AYLWARD:  Gerry is going to learn that he
15    advances himself faster by not attacking rich people who
16    own ranches in Montana.
17              (Laughter.)
18              MR. AYLWARD:  They will cut you in on the
19    buffalo herds.  It is kind of a neat deal.
20              Rosalind Allen is our last speaker.  She is
21    Deputy Chief of the Wireless Telecom Bureau at the FCC. 
22    She runs the Commercial Wireless/Private Wireless and
23    Enforcement Divisions and generally runs the place.
24              Previously, she served as Chief of the Wireless
25    Bureau's  Commercial  Wireless  Division,  where  she  was

                                                             197
 1    responsible for taking an awful lot of money out of the
 2    pockets of a lot of entrepreneurs in America.  And I hope
 3    you get it all, Rosalind.
 4              (Laughter.)
 5              MR. AYLWARD:  Prior to joining the FCC in 1987,
 6    she practiced telecom and intellectual property law at
 7    Reid, Smith, Shaw & McCloy.  And she holds degrees from
 8    Georgetown Law Center and Vassar College.
 9              Rosalind.
10                 ROSALIND K. ALLEN, DEPUTY CHIEF,
11                WIRELESS TELECOMMUNICATIONS BUREAU,
12                 FEDERAL COMMUNICATIONS COMMISSION
13              MS. ALLEN:  Thanks, David.
14              And thanks to my friends and colleagues at NTIA
15    for inviting me to participate.
16              And let me just be clear, I really do not run
17    the place.  Dan runs the place and Bill runs the place. 
18    But, anyway.
19              I kind of appreciate coming after Gerry,
20    because, in a way, he has kind stolen some of the thoughts
21    of I had.  And I will say, first of all, that these
22    thoughts are my thoughts.  They are not the thoughts of
23    anyone at the Agency or anything like that.  Because some
24    of them may be in the form of a little bit of a bomb
25    thrown out here sort of thing.

                                                             198
 1              But, in a way, I have always looked at wireless
 2    local loop as kind of being a fallacy.  It is an interim
 3    step towards something else.  Are we ever really going to
 4    have a totally wireless local loop?  No, we are not.  I
 5    mean, ultimately, people have made investments in a lot of
 6    things that are out there.  Technology is changing.  So 20
 7    years from now or 30 years from now, we are going to have
 8    something that mingles a lot of different elements.
 9              And wireless local loop, though, is a very good
10    paradigm for what you want.  Because when you think of it,
11    you think of competition that comes quickly at a
12    relatively low cost and with ubiquitous coverage.  So I
13    think it is just a useful thought, but I think it is good
14    to keep the long-term picture in mind.
15              And in that sense, I think that one way we like
16    to look at the wireless industry in general is that we are
17    at the tail end of the 271 process in the wireless world. 
18    In other words, let's look at the whole telecom process --
19    meaning the whole telecom industry -- as a whole, and the
20    RBOC's are over here and they are trying to get into
21    different areas and bundle different things, the wireless
22    folks are over here.  They already can get into all these
23    different things.  And the question is, how does that
24    happen and how do they bundle these things together?  And
25    what  kinds of  ground rules  are consumers  going to  see

                                                             199
 1    develop?
 2              So as we plan out a regulatory scheme for the
 3    wireless world, I think we should try to keep in mind what
 4    we want the wired side to ultimately look like.  Because I
 5    think that is kind of where we are going.
 6              When I talked to David yesterday about what
 7    should I talk about, I kind of threw out some softball
 8    topics, like maybe I can talk about calling party pays or
 9    something like that.  And David was very tough with me. 
10    And he said, no, you have got to talk about the
11    jurisdictional issues.  And that was exactly what I did
12    not want to talk about.  Because as most of you know,
13    these are real hot potatoes at the moment.  And we have
14    got them before us in a number of different contexts.
15              But I think what I will try to do is identify
16    where those issues are going to come up over the next few
17    months.  And just give you some thoughts about identifying
18    the kinds of things that are going to need to be decided. 
19    Because these are kind of difficult decisions.  And they
20    come up in a variety of contexts.  And all of them do have
21    implications for how do you fit the wireless regulatory
22    scheme into the larger competitive picture of the telecom
23    industry, or what do you want the whole telecom world to
24    look like 20 years from now -- or maybe 10 years from now.
25

                                                             200
 1    Let's hope it is sooner than 20 years from now.
 2              One area is obviously interconnection.  Very
 3    much on the minds of everyone.  Because if you do not get
 4    interconnection right, you can never have local
 5    competition.  And that is just a basic fact.
 6              The Eighth Circuit has kind of left our
 7    blueprint for local competition in a bit of limbo at this
 8    point.  And there are some jurisdictional issues to be
 9    pursued here.  I think I can safely say, because I have
10    heard a variety of representatives from other
11    commissioners' offices and the chairman's office say this,
12    that we will be looking at this -- the Commission will be
13    looking at this issue next year in some context --
14    probably the early part of next year.
15              We are going to be very interested in developing
16    a full record on these issues.  And I think you will find
17    that this will kind of be a kind of proceeding that will
18    seek a lot of specific arguments from folks on the
19    jurisdictional theories and also on some of the practical
20    implications of their jurisdictional theories.
21              And let me just leave some food for thought here
22    on the one hand.  And in this sense, I will describe the
23    extremes.  We have got a wide spectrum of views here, but
24    they tend to settle on some extremes.  And one extreme
25    would be  to say, well, you know,  332 really sets up CMRS

                                                             201
 1    as something completely different.  And the Eighth Circuit
 2    has sort of confirmed the view that this is completely
 3    federalized.
 4              And here, again, nothing is always that easy. 
 5    And we are asking people to talk about these
 6    jurisdictional theories, to think about them, to think of
 7    the practical implications of a totally Federal scheme. 
 8    Would this promote the speed of competition?  Would it
 9    impede it because we may have thousands of ratemaking
10    cases that need to be disposed of?
11              So I think we are looking for people to think
12    this through.  On the other extreme, I think perhaps some
13    people -- USTA and some other folks -- may also think
14    wireless has got to be treated exactly like the wire line
15    side for all purposes.  And maybe that is going too far
16    the other way.  Because there are some unique technical
17    characteristics and perhaps some unique competitive
18    characteristics here.
19              This is just defining either end of the spectrum
20    of the kinds of issues we are going to look at.  And I
21    think that all of you should start giving a lot of thought
22    to that right now, because we will be really interested in
23    hearing what you have to say.
24              And this is just kind of a broad comment on the
25    332 scheme  and the  whole "Is  wireless special  or not?"

                                                             202
 1    But, you know, of course wireless is special, but I think
 2    one thing that is kind of interesting to think about --
 3    and this is kind of in a way the seminal question of
 4    anything further we do in interconnection -- is let's say
 5    that the Eighth Circuit decision holds or let's say the
 6    Supreme Court turns down cert or whatever, is it incumbent
 7    upon us to try to push local competition with whatever
 8    tools we have got?
 9              I mean if we are left with 332, should we push
10    that to the max to get local competition?  The other side
11    of the question is, let's assume something different
12    happens.  Or let's assume nothing different happens.  I
13    mean let's assume that the Supreme Court takes this,
14    something gets changed, so that we kind of need to regroup
15    ourselves.  Or let's say, again, the Supreme Court does
16    not take this, the decision does not change at all.
17              Does it really make sense to have -- and here I
18    am maybe taking issue with 332 itself to some extent --
19    but does it really make sense to continue to have a
20    statutory scheme that takes one subset of the wireless
21    world, the cellular PCS folks and the mobile folks, and
22    treat them differently than, let's say, the 18 gigahertz
23    folks or the 28 gigahertz folks or the 39 gigahertz folks,
24    particularly when some of those other folks may actually
25    have a  lot more  potential to  be a  long-term competitor

                                                             203
 1    because of the capacity they have?
 2              I do not know.  I mean ideally I think it would
 3    be nice if we could have a statute that made distinctions
 4    on the basis of your competitive position and not on the
 5    basis of the technology you happen to use.  But that is
 6    not what the statute says right now.  And this is kind of
 7    the dilemma that I think the Commission is going to be
 8    presenting themselves as they look at this whole thing.
 9              We want competition, but what is the value to
10    treating one class of competitors different than someone
11    else who may be similarly situated?
12              So that is enough on interconnection.  Let me
13    move on, because I have a few other things that I want to
14    talk about where 332 will come up.
15              I do not know if any of you have been following
16    this, but we recently got a petition for declaratory
17    ruling from SBC that deals with some practices that are
18    very prevalent around the United States right now.  And
19    these are really class action suits that are being brought
20    the country.  And they look at the billing practices at
21    various carriers.
22              The arguments that are being made are that,
23    really, the little FTC laws of the various States are
24    calling certain billing practices of various wireless
25    carriers fraudulent.    They are  challenging things  like

                                                             204
 1    roaming charges, their hand-off at borders of different
 2    carriers, things of that sort.  They are also challenging
 3    rounding up to the next money -- things of that sort.
 4              And I think it is a very interesting question
 5    for the Commission, because one of the great benefits that
 6    consumers have right now in the wireless world, where they
 7    have five competitors in a market, is that they can choose
 8    and evaluate and compare the different plans.  And they
 9    are really living in the post-271 world here, because they
10    can pick that bundle of services that makes most sense for
11    them at that price.
12              On the other hand, if you kind of get the courts
13    involved in this, you could have a situation where they
14    are ratemaking basically, and they are dictating exactly
15    how these services ought to be provided.  So I think this
16    is a balance of the legitimate consumer protection powers
17    of States that want to ensure that consumers know what
18    they are getting and they are truthful and full
19    disclosures against getting too involved in exactly what
20    kinds of rates and what kinds of services folks are
21    getting.
22              Let me just very quickly touch on a final thing.
23
24    Universal service has come up, and I know it came up this
25    morning.  I will just bring it up again.

                                                             205
 1              I think that perhaps this is an unpopular view
 2    among this audience, but I think that with being a
 3    competitor comes certain responsibilities, as well.  And I
 4    think there are ways to balance those goals.
 5              I read with a lot of interest the other day the
 6    Washington Public Utility Commission decision, where there
 7    is really a move to make it much easier for wireless
 8    carriers to become eligible carriers and get subsidies as
 9    a result of that.  And I think that is a really good move.
10
11    And, frankly, every time -- and it happens very
12    frequently -- I have a lot of wireless folks come in with
13    these great ideas for doing things that will serve kind of
14    underserved or high-cost areas.  I kind of tell them,
15    look, you know, try to be an eligible carrier.  This is
16    great that you are doing this.
17              I recently talked to a company that, as a result
18    of a partitioning and disaggregation deal, is going to
19    provide an extremely high capacity mobile service
20    throughout the Southeastern United States.  That is great.
21
22    They seem to have a lot of the earmarkings of being able
23    to be an eligible carrier.  And I think that it would be
24    great if the Federal Government can work, together with
25    the States, on promoting those types of initiatives.

                                                             206
 1              Because absolutely we want things to be
 2    technology neutral.  And absolutely we want people to be
 3    compensated for their investment.  But, at the same time,
 4    we want people to understand their responsibilities.  If
 5    they want to be a competitor to the local exchange
 6    network, that does involve some responsibilities.
 7              And that is it.  I won't take up your time.
 8              (Applause.)
 9              MR. GATTUSO:  I would propose we go for about 15
10    minutes, followed by a 10-minute break.
11              MR. AYLWARD:  Since we used up most of the time
12    yakking at you, why don't we just not yak anymore and turn
13    it over to any of you that might have any questions.  And
14    if you do not, we will make up some to fill the time.
15              QUESTION:  Ms. Farquhar pointed out some of the
16    need for a comprehensive view of the obstacles to adoption
17    of wireless local loop widespread in the United States,
18    and saying that the docket-type approach, the incremental
19    approach, might not be the best way to do this.  Do you
20    see any impetus over at the Wireless Bureau to take this
21    kind of overarching view of sweeping away the regulatory
22    underbrush?
23              MS. ALLEN:  Well, here I will take off my policy
24    hat a moment and I will put on my practical hat.  Yes, in
25    the sense  of people are doing a lot  of talking and a lot

                                                             207
 1    of thinking within the Commission about a comprehensive
 2    game plan, and one that will get us to the place we want
 3    to be.  But the best way to do that really is through
 4    breaking out the issues and making sure that people
 5    understand the game plan by showing the relationship
 6    between those issues.
 7              But I think, in terms of some kind of a monster
 8    docket that tries to do this in one fell swoop, is
 9    probably not going to be the most productive way to do it.
10
11    So, yes, I think Michele, as a former Chief of the Bureau,
12    knows.  I think that is what she had in mind, and that is
13    really what we want to do.  We are doing a lot of thinking
14    about that right now.
15              And we hope, through the items that come out
16    over the next year from the Wireless Bureau, that that
17    will start to unfold -- how the various pieces of the
18    puzzle start to fit together.
19              MS. FARQUHAR:  Let me just add a side comment on
20    that.  I think it will take the Wireless Bureau and the
21    Common Carrier Bureau working closely together and
22    integrating the pieces more closely than they have in the
23    past.  I think they both Bureaus were so inundated by the
24    work from the Telecom Act, and that they tried as best
25    they  could, and  did, to work  together.   But I  think a

                                                             208
 1    closer level of coordination and input on both sides will
 2    help.
 3              And it is ironic that I think the spectrum
 4    policy is really fueled, some of the movement toward
 5    wireless loop, more than local competition policy has. 
 6    And I think that has got to change.
 7              Tom identified in particular some real barriers
 8    there.  And so did some of the earlier panelists this
 9    morning.  Talking about the exact cost of going out and
10    buying a local loop on the wire line side.
11              MS. ALLEN:  I agree with Michele there.  And I
12    just wanted to say, in terms of what are things, like
13    nowadays, you know, most of the crush, apart from the 271
14    applications that the Common Carrier Bureau has is kind of
15    over at this point.  And we have had an opportunity, over
16    the past few months, to cultivate a very close working
17    relationship with them.
18              And I should also add that Bill Kennard has made
19    very clear that it is a key priority of him to have the
20    Bureaus working in a coordinated fashion with each other
21    and to share their ideas about the same issues, so that we
22    can come to the best of all possible policies when we
23    finally make a decision.
24              So that is very much what is going on.  The
25    Common Carrier  Bureau  has almost  an entirely  brand-new

                                                             209
 1    front office of folks, with a lot of fresh ideas and a lot
 2    of preexisting relationships with folks in the Wireless
 3    Bureau front office.  So we really have done very well
 4    recently in developing that kind of relationship.
 5              MR. AYLWARD:  I will pose one to you, Roz.  I am
 6    sorry, did you have a question?  Go ahead.
 7              QUESTION:  Yes, I have got a question and I want
 8    to follow it up with a similar comment.
 9              We have heard two highly skilled advocates who I
10    think represent different sides of the picture, but it was
11    never made clear who exactly they are advocating for.  But
12    one can assume that they advocated for different sides of
13    the picture.  One side said we should encourage wireless
14    local loop and do all that we can to advocate.  Another
15    one said that we should not focus so much on wireless
16    local loop, because these unbundled network elements, with
17    this ridiculously low TELRIC pricing -- to quote -- that
18    is not my opinion, that was what was implied -- that
19    should take care of all of this business.
20              I would like to put out to the table for
21    comment:  What would be the thoughts about let's not
22    encourage either technology, let's just get the roadblocks
23    out of the way, let the market take it, and see which one
24    is the better technology, or is there a third technology,
25    or fourth or fifth or  sixth, that would provide what  the

                                                             210
 1    markets wants from a cost and technology and efficacy
 2    basis?
 3              MR. AYLWARD:  What do you mean by your question?
 4
 5    Is your question that there should be no barriers, and
 6    anybody who can go set up a telephone system is allowed to
 7    do so?  Or, as Roz said, I do not think there is anybody
 8    in this room who believes if you do not have
 9    interconnection and you do not have it right it will not
10    happen.
11              QUESTION:  No, I am not saying anyone can set it
12    up.  I am saying different people on the panel stated
13    different barriers to entry and gave different solutions,
14    in terms of encourage this technology, encourage that
15    technology.
16              Now, how about --
17              MS. ALLEN:  I do not know, maybe I was not
18    paying as close attention as I should.  But I do not
19    really see that anything that any of these three folks
20    have said is inconsistent with each other.  I think that
21    you are not going to have -- you know, yes, pushing
22    wireless is a very good solution to getting competition in
23    there quickly.  But can you serve residential customers
24    effectively without UNE's?  Probably not.
25              It depends on what you want to do.  And  I think

                                                             211
 1    that the kind of paradigm you express is very much what
 2    the Commission has been doing over the past few years.  We
 3    are getting away from the central manager view of this is
 4    what you ought to provide and you cannot provide this
 5    here, you have got to do that.
 6              So we want to make people kind of as able to
 7    respond to market forces in their business plans as
 8    possible.  And we do not want to get in the way.
 9              So I kind of think what all three of these guys
10    are saying was completely consistent with each other.
11              MR. SUGRUE:  If I could just try to harmonize. 
12    One way you would let the marketplace work, arguably,
13    would be if you think these TELRIC prices are -- and I do
14    not use the word "ridiculous" -- but are low, or too low,
15    in a competitive market, if someone is charging prices
16    that are higher than it would cost you to provide a
17    competing service, either because they are earning
18    monopoly profits or they are inefficient and you can do it
19    better -- you have got a better technology or otherwise --
20    the way the market takes care of that is you can enter and
21    undercut their price.  And that is how prices are driven
22    toward TELRIC or any other economist's theoretical model.
23              One of my concerns is just -- you know, this
24    panel is very experienced.  We all go back a long ways. 
25    We have all probably dealt  with cost studies.  It  almost

                                                             212
 1    drove me out of this business for a while, because it is
 2    so daunting and artificial.  And we have spent a lot of
 3    time in the regulation of telecom moving away from
 4    detailed cost studies.  This is what incentive regulation
 5    and price caps and social contracts and competition is all
 6    about.
 7              And we have sort of now elevated cost studies. 
 8    Cost studies have come back with a vengeance.  I mean they
 9    are driving everything now.  And I would rather see -- I
10    would really like to see facilities-based competition.  I
11    am not speaking on behalf of my clients.  They probably
12    would not.  This is just me speaking.  But what I see is
13    somehow the Commission wanting to sort of jump-start that
14    competitive process.  It is actually sort of pulling the
15    wires off the sparkplugs for what would be long-run
16    competition.  And I think we are sacrificing long-term
17    gain for short-term benefit.
18              MR. AYLWARD:  But it is an absolute fact that
19    you will never have competition unless you have resale. 
20    If you look at the history -- and history is a good thing
21    to look at -- we never would have had long distance
22    competition if Bill McGowan had to get in the business to
23    build an entire national network everywhere before he
24    could really start serving.  You have got to have resale.
25              And I  agree -- I mean I  think, to the extent I

                                                             213
 1    represent any dog in this hunt, it is a facilities-based
 2    carrier.  And I agree with you -- or it is a bunch of
 3    carriers who have not decided to get in the market -- but
 4    you are going to have to have facilities and you are going
 5    to have build up over time.
 6              The cost of capital to get into this market,
 7    almost everybody that is coming in as a junk bond
 8    company -- the new ones.  They are paying 500 basis points
 9    more than the box.  So you have got to be able to build it
10    up over time or nobody is ever going to invest.
11              MR. SUGRUE:  And if I could just reply.  But we
12    never did require AT&T to unbundle its network.  There was
13    resale and there was interconnection to the local
14    exchange.
15              MR. AYLWARD:  We tried.
16              MR. SUGRUE:  I know.  The Commission twice
17    rejected that, once in the mid-eighties and once in
18    Computer 3.  Because it said no, what we want to do is
19    encourage MCI and Sprint and so forth to build their own
20    facilities.  This is the part of the network we think can
21    be competitive.  So I agree with you in part.  But I think
22    we have taken it one step a little too far.  That is just
23    my view.
24              QUESTION:  And I completely agree with what has
25    just been  said.  You  cannot have competition  unless you

                                                             214
 1    have both UNE's and competing facilities that can do it. 
 2    And I think that if we take the significant barriers out
 3    of the way and see, down the road, 5 years down the road,
 4    or 2 years down the road, does the comparative cost of
 5    wireless local loop -- how does that compare with the
 6    comparative cost of putting in physical loop versus the
 7    UNE's, buying an unbundled loop.
 8              And I would venture to guess that shortly we
 9    will see these, quote, quote, ridiculously low unbundled
10    loop prices come down even lower as competing technologies
11    shoot the market price below.  And we will see whether the
12    response is we cannot provide at this price or whether the
13    prices will drop to whatever the market is.  I hope you
14    are right.
15              MR. SALEMME:  Can I just make a point, just
16    because it is my only opportunity to do this so I am going
17    to play off what you said.
18              I think one of the things you said is let's let
19    the marketplace decide which technology, whether it is
20    wireless or wired or UNE's or resale, just let it decide. 
21    I mean that is not going to happen, because we do not have
22    a free market anywhere.  We have an incumbent local
23    exchange company that is monopolist, that controls
24    facilities.  You have to make interconnection agreements
25    with them, without any leverage in what you get.

                                                             215
 1              I can tell you, in some of the interconnection
 2    agreements that I have signed, that there are parts of
 3    them that I get something that says, I have the right to
 4    get reciprocal compensation on IP.  I was forced to sign
 5    something, because I had to get in the service, that said
 6    if that law changes any time, I will pay back money, I
 7    will pay rates that are outrageous.  There are just
 8    different things that you are forced to agree to.
 9              So we do not have a free market, so you cannot
10    do it.  So public policy has to take a position here.  And
11    on spectrum auctions, for instance, it is great to say --
12    and we love auctions and we think that you should have as
13    much flexibility in picking any services you want -- but
14    spectrum auctions were to assign spectrum, not to allocate
15    spectrum to services.
16              So right now, when you have a spectrum auction
17    and you just say you can provide any service with that
18    spectrum, people are all going to take mobility, because
19    that is what the banks want.  That is what is going to get
20    you the cheapest financing.  That is the sure bet.  People
21    are not encouraged to say, let's take more of a winger on
22    this thing economically and do local service.
23              You almost have to get back to having public
24    policy dictate what the real allocation of that spectrum
25    is for, and then only use the auctions for the assignment.

                                                             216
 1    And I think the role for public policy here is to help
 2    make the market competitive.
 3              MR. AYLWARD:  There is another paradigm here,
 4    too.  Which is the FCC did a lot of really good things
 5    with wireless.  From the beginning, it did things quite
 6    differently than wire line.  And it brought in
 7    competition.  It did not regulate rates.  The Congress and
 8    the FCC decided not to regulate rates.  And we are going
 9    in now to digital, all by themselves.  Nobody ordered them
10    to put in digital.
11              So there is an interesting model there of what
12    happens when government does not regulate within market.
13              MR. SALEMME:  And that is exactly what I am
14    saying.  With five of six wireless carriers in a market,
15    we have seen some tremendous competition that because of
16    entrenched positions we are not seeing yet on the local
17    telephone side.  Although there was actually a proposal
18    mentioned by someone -- and I do not remember who -- about
19    something that is on the table now to put regulation back
20    into the rate structure of wireless mobile, with the
21    calling party paying.
22              And my first thought is, as a cellular customer,
23    oh, that is a great thing; I no longer have to pay for
24    incoming calls.  But then I start thinking, well, as a
25    wire  line customer  or  as the  person  making the  call,

                                                             217
 1    especially with LNP, how am I going to know whether the
 2    call is to wireless or wire line, especially as we are
 3    talking now all day about the merging of these
 4    technologies?
 5              And as an amateur economist, I look at it and
 6    go, wait a second, the prices are already dropping down,
 7    and the way these five or six carriers in a market are
 8    going to differentiate themselves, someone is going to
 9    come up with something that is going to make each -- you
10    know, whether I want to pay more for outgoing or incoming
11    or whatever, the market -- let's see how the market
12    settles before we start thinking about putting another
13    piece of regulation back in.
14              MR. AYLWARD:  All right, we are at the end of
15    the panel.  We have resolved all the regulatory issues, so
16    you all enjoy whatever you do next.
17              (Laughter.)
18              MR. AYLWARD:  I am sorry, was there one more
19    question?
20              QUESTION:  I want to bring up the issue of roof
21    rights and inside wiring with regard to those wireless
22    CLEC's, like WinStar.  I have heard from trade reports
23    that many of them are having difficulties with these roof
24    rights, because the prices are getting astronomical, and
25    with inside wiring  also constituting  a major barrier  to

                                                             218
 1    entry into the local loop.
 2              I just want your views on what Federal
 3    policymakers can do to ease those barriers to entry. 
 4    Specifically, Gerry, since you work for NextLink and you
 5    are a CLEC yourself, but a wire line CLEC, but any views
 6    on the wireless side, and Tom as well.
 7              MR. SALEMME:  I think David mentioned in the
 8    beginning that you have Congress that has stepped up and
 9    said that if you put a dish on the roof, you have to be
10    allowed to do that.  But because it is an antenna
11    providing telephony and cable, Congress and the Federal
12    rules have not preempted that.
13              I want to make it as easy for David Turetsky and
14    Teligent to get on those roofs as possible so we can
15    compete.  We have a similar problem getting inside wiring.
16
17    I mean there are times when we need to be inside a
18    building and it is hard to get to the closet that has
19    those facilities to hook up to those customers.
20              So those are the type of barriers that are
21    latent, you know, remnants of the monopoly that are not
22    even controlled necessarily by the ILEC but are just out
23    there, which impede the market from acting as a truly
24    competitive market.  So you just cannot depend on the
25    market alone without  some type of intervention  by public

                                                             219
 1    policy and governments.
 2              I would say that you have got to get a new line
 3    of demarcation.
 4              MR. AYLWARD:  But it is not clear to me at all
 5    that the law does not cover it right now.  I mean if the
 6    FCC wants to interpret the law right now, why is it any
 7    different to get telephone and video and data as opposed
 8    to I Love Lucy?  There is a law that says you get access
 9    to this stuff.
10              MR. SALEMME:  At a reasonable price.
11              And there is a court case, Brooks Fiber brought
12    a case on a wired in I think San Diego.  And that is still
13    being litigated now -- to say that we do have the right to
14    access.  And there are a lot of State laws.  I think there
15    are 28 States that actually have laws in place.  But,
16    again, going through the process of making it happen is
17    just a delay in competition.
18              MR. AYLWARD:  It will not be an issue 5 years
19    from now.  Five years from now, 10 years from now, there
20    is no commercial tenant that would allow its landlord to
21    play the kind of games that some of them are now.  But
22    right now -- and I am not picking on landlords -- right
23    now, some are saying, gee, I just found out I can charge
24    the wireless guy 1,500 to 2,500 bucks a month to put a
25    tower on the  roof.  Here  comes WinStar and they  want to

                                                             220
 1    put a little thing on the roof; well, that is a tower and
 2    I will charge them 1,500 to 2,500 bucks.
 3              There is nothing wrong about that.  The ILEC's
 4    have nothing to do with it.  But, after a while, customers
 5    will demand access and the problem will take care of
 6    itself.  But it is an up-front investment issue today.
 7              MS. FARQUHAR:  And part of my message was why
 8    wait 5 years for that to happen?
 9              MR. AYLWARD:  I agree.
10              MS. FARQUHAR:  We should remove the roadblocks,
11    and identify them and make it a priority right now.  Not
12    so that wireless can be advantaged in any way, but so that
13    it will not be disadvantaged to the extent it is right
14    now.
15              MR. SUGRUE:  And I will just add, speaking a
16    little bit on behalf of my clients, that I am sure while
17    many of the competitors think this is a grand conspiracy
18    between the landlords and the incumbent providers, it is
19    generally not, from the things I have looked at.
20              MR. AYLWARD:  I agree.
21              MR. SUGRUE:  It is the landlord sees it as a
22    profit potential.  And it is rent that the landlord wants
23    to extract in almost the classic sense of the term.
24              MR. AYLWARD:  Since there are no real estate
25    interests, we are all safe saying whatever we want to do.

                                                             221
 1              (Laughter.)
 2              MR. AYLWARD:  Thank you all very much.
 3              MR. GATTUSO:  Thanks to our panelists and our
 4    moderator.  Why don't we get together again in exactly 10
 5    minutes, which would be just before 3:30.
 6              (Recess.)
 7              MR. GATTUSO:  I would actually like to be the
 8    warm-up act here and review where we are at this point in
 9    the program.
10              We're at three-quarters of the way through the
11    day and it actually probably feels like we're near the end
12    and in fact in some ways we are.  In this very short day
13    you may not have realized how much you've learned about
14    wireless loop, but if you recall we started the day
15    talking about the various technologies and in fact there's
16    not a single technology but several technologies,
17    different places in the spectrum, different ways of
18    looking at wireless local loop, understanding what we're
19    dealing with here.
20              We then had a session on universal service,
21    which is really both a way to look at what the potential
22    is for whatever wireless local loop is to serve lots of
23    customers.  That would be the residential customers, rural
24    areas, urban areas that have decaying copper, as we like
25    to say, and really that  very much involves the Government

                                                             222
 1    and Government policies for universal service.
 2              Speaking of Government, that's where we picked
 3    up after lunch, talking about all sorts of regulatory
 4    issues, and now we come to what I call the pay-off panel,
 5    the one that really gets into, I hope, the questions of
 6    whether this is going to be a competitive alternative, if
 7    it's going to be a competitive service, if it's going to
 8    bring competition to telephony markets, and if it's going
 9    to be economical, and that could be in general, or that
10    could be whether it's residential.
11              I'd also point out that as we've gone through
12    the day we've had one Government speaker on every panel. 
13    Earlier we started out having a moderator, Ken Allen, from
14    NTIA's own laboratories in Colorado.  The last two
15    sessions had Jeanine Poltronieri and Ros Allen from the
16    FCC's Wireless Bureau, and I was kind of in a fix for a
17    while on this panel.  I had no Government speaker.
18              I didn't really know what to do, so I called up
19    Dale Hatfield, and I'm so thankful -- Dale, thank you so
20    much.  He said, all right.
21              15 years of consulting -- I'll go back to the
22    FCC just for you.
23              So thank you, Dale, and that does segue really
24    nicely into Dale's biography.  Dale recently rejoined the
25    FCC and Government service after 15 years.

                                                             223
 1              During the time he was away he did have -- he
 2    had founded and operated a telecommunications consulting
 3    firm based on Boulder, Colorado.  He advised on a wide
 4    range of technology, economic, and policy and regulatory
 5    issues.
 6              He also served on the board of directors of a
 7    public station in Denver, KBDI, and before 1982 Dale was
 8    Acting Assistant Secretary of Commerce for Communications
 9    and Information.  In other words, he was head of NTIA for
10    a while.  He's an alumnus of our organization, and also
11    was chief of the Office of Plans and Policy at the FCC.
12              He also held positions at the Office of
13    Telecommunications Policy in the Executive Office of the
14    President.  He's taught courses in telecommunications
15    technology, and has taught a course in telecommunications
16    policy in the interdisciplinary telecommunications program
17    at the University of Colorado at Boulder.
18              He was a founding director of the
19    telecommunications program at the University College,
20    University of Denver.  He holds a BSEE from Case Institute
21    of Technology and an MS in industrial management from
22    Purdue University.
23              Dale, I introduced you to introduce the panel. 
24    Thank you.

              WIRELESS LOCAL LOOP AS A NEW CONTENDER:
                       EFFECT ON COMPETITION
           MODERATOR:  DALE HATFIELD, CHIEF TECHNOLOGIST
                  OFFICE OF PLANS AND POLICY, FCC

 4              MR. HATFIELD:  Thank you very much, Joe.
 5              I really appreciate your introduction, and I'm
 6    really glad we had the chance to moderate this session,
 7    entitled Wireless Local Loop as the New Contender:  Effect
 8    on Competition.
 9              Since I have returned, as Joe indicated, to the
10    public sector I probably should issue the standard
11    disclaimer that any remarks that I will  make here today
12    are strictly my own, and do not necessarily reflect the
13    views of the commission or any of its other staff members.
14
15    However, offering that disclaimer, I will quickly say that
16    I'm not going to say anything of substance anyway.
17              I think it's probably important that we try to
18    stay on schedule, and I will try to help in that way.
19              I will say a little bit, and I think it is fair
20    to say many people are disappointed in what is at least
21    perceived as being the relatively slow pace of development
22    of competition in the division of local services.
23              While I may be a little bit too impatient
24    myself, I do feel -- I would feel an awful lot more
25    confident about the ultimate success of the Communications

                                                             225
 1    Act if competition was developing more quickly on a more
 2    widespread basis.
 3              We can all speculate, I guess, a little bit on
 4    why competition has been slow to develop, and we've heard
 5    some of those reasons perhaps today, but one thing that
 6    seems pretty clear to me is that for facilities-based
 7    competition it's an expensive and time-consuming process
 8    to actually build out a second network on anything like a
 9    ubiquitous basis.  Indeed, I would speculate that there
10    may be some residual economies of scale, or economies of
11    density in the division of wired-based facilities to serve
12    the last mile between the customer and the first point of
13    traffic concentration, at least outside selective areas
14    like downtown urban business districts.
15              The hope, of course, is that the average cost
16    curve, if you look at this you draw your standard average
17    cost curves, of course, the hope is that the wireless
18    technology will have a flatter average cost curve, and
19    therefore maybe even perhaps an absolute cost advantage in
20    the long term, and therefore will facilitate development
21    of competition.
22              The task of our panel, of course, is to explore
23    whether or not wireless local loop providers will be
24    viable competitors in the local telecommunications market,
25    and as Joe indicated, we've asked each speaker to give the

                                                             226
 1    bottom line assessment of his or her feeling, or his
 2    feeling of whether it will indeed be competitive on a
 3    widespread basis.
 4              Having stumbled around here, let me stop and let
 5    me introduce our first speaker, and our first speaker is
 6    David Turetsky.  David is currently vice president for law
 7    and regulatory affairs for Teligent.  In that position,
 8    David is responsible for guiding the company through the
 9    maze of State, Federal, and international law and public
10    policy issues.
11              Before joining Teligent earlier this year, David
12    was Deputy Assistant Attorney General for Civil and
13    Regulatory Affairs in the Antitrust Division of the U.S.
14    Department of Justice.  That's where I met him.
15              Before joining the Antitrust Division he was a
16    litigation partner in a New York law firm, and he received
17    his J.D. from the University of Chicago School of Law.
18              David.
19                  DAVID TURETSKY, VICE PRESIDENT,
20               LAW AND REGULATORY AFFAIRS, TELIGENT
21              MR. TURETSKY:  Thank you very much, and first,
22    before beginning I just want to extend my appreciation
23    just as a citizen to Dale Hatfield for coming back to
24    public service after so many years of fine work on the
25    outside.    Thank you,  Dale.   I  think  the FCC  and the

                                                             227
 1    country will be the better for it.
 2              You all have had a long day.  One of the things
 3    I wanted to do today, instead of just talking about what
 4    wireless local loop might mean to competition, was to
 5    actually try to show you something about the wireless
 6    local loop in operation, and I'm going to try to do that
 7    now.  My finger doesn't work too well.
 8              What's happening now is, we are actually
 9    experiencing the benefits of wireless technology.  There
10    is on the top of this building a set of antennae.  This is
11    a base station for my company, Teligent, and what we are
12    doing is receiving from a number of wireless antennas
13    around the city the signal.
14              We are getting broadband digital microwave, and
15    it's coming into the National Press Club, and it's going
16    down through and connecting to wire and then going to a
17    switch.
18              What you're seeing today is something off of our
19    Web site that we have rigged up.  The signal that you see
20    is going up the wire in the National Press Club, it is
21    being sent 6 miles across the river to Alexandria, it is
22    hitting an antenna there, and it's being sent back 6 miles
23    to us here at the National Press Club.
24              This is digital microwave technology.  It is not
25    something that we're talking about  and hoping to do.   It

                                                             228
 1    is something that you're watching as we speak, and partly
 2    I'm doing this because I want you to understand something
 3    about how this actually works, and that it does work.
 4              What happens is, if you've got an Internet
 5    connection that you want to have voice or video, this will
 6    connect to the building's inside wire.  It will go to an
 7    antenna on the top of the building.  It will be sent over
 8    to a base station, be received there.  It will either be
 9    sent directly to one of our switches through a further
10    microwave relay, or at that point it will connect to fiber
11    and be sent to our switch.
12              So that's the way the network is organized to
13    work, and what I want to do is, I will show you actually a
14    picture of -- this is our older technology, because it's
15    been up here for nearly a year.  It is point-to-point, not
16    point-to-multipoint technology.
17              That's the top of this building, and those are
18    the antennas that are up here.  They receive, as I said,
19    the signal from quite a number of buildings around the
20    city, and they send it out.
21              Most of our antenna, especially in the network
22    as it's being designed now, are actually quite small.  I
23    want to actually hold up a prototype of one of the
24    antennas that we're going to use for point-to-multipoint. 
25    This will  go on  top  of a  building.   This is  customer

                                                             229
 1    premises equipment.  In that sense it will go on top of a 
 2    building, and it can in most instances handle all of the
 3    telephone lines that were able to sign up in that
 4    building,  this  small  antenna.    That's what  point-to-
 5    multipoint will do for us.
 6              As I said, we're using point-to-point technology
 7    for purposes of this demonstration.  We have right now
 8    rigged up in Richardson, Texas, a point-to-multipoint
 9    prototype system that we've been working with, and it's
10    been working quite successfully.
11              In order to get a scale and to see one of the
12    other pieces of point-to-multipoint equipment -- I'll tell
13    you, this is not the technology.  It is moving -- there we
14    go.  That is the point-to-multipoint equipment that we've
15    deployed at Richardson, Texas, and as you can see, the
16    size of the antenna we're using there is about the size of
17    a person's head, and it is quite light.  It is something a
18    person can lift up and put on a post.
19              Our technology uses line-of-sight, and that is
20    going to point to a node much like the one on top of the
21    National Press Club, and we will be able to beam many,
22    many, many building antennas at very, very few nodes, and
23    that is the benefit of point-to-multipoint technology.
24              So again, you're seeing all of this via two
25    links, a link all the way in Alexandria, 6 miles  down and

                                                             230
 1    across the river, and coming 6 miles back, and then
 2    connecting at the base of this building to fiber.
 3              So this is what microwave digital technology can
 4    do, and this is why I think it is going to be a very
 5    important, competitive part of our future, and this can
 6    happen with voice, this can happen with Internet, this can
 7    happen with data.
 8              As you see, it moves very, very quickly.  It is
 9    a broadband technology, and I think it is really what
10    consumers want, and so I want to say that when you think
11    about the future, the future is beginning right now, and
12    it's really right in front of us.
13              So now that I've told you a little bit about our
14    digital wireless broadband technology and you've seen a
15    little bit about our network, I want to talk about what it
16    means for the marketplace.  What is the competitive
17    impact, given the competitive and regulatory landscape as
18    it exists today, 2 years after passage of the
19    Telecommunications Act?
20              Well, one thing I've learned in my 7 months in
21    business is to begin with and focus on what the customer
22    wants.  Focus on the customer.  What is it they want?
23              First, they want a choice.  Residential
24    consumers don't have it, and most small and medium-sized
25    businesses don't, either.  Only  the biggest businesses do

                                                             231
 1    today.
 2              Second, they want this even if they're outside
 3    of the city business district.  Today, only about 3
 4    percent of buildings have fiber connections, and most of
 5    those are obviously in central city business districts.
 6              Third, they want better capabilities broadband
 7    for data, Internet, videoconferencing, et cetera.  There
 8    really is a last model bottleneck, and part of local
 9    competition and trying to give customers what they want is
10    overcoming that local bottleneck.
11              The fourth thing they want is better service. 
12    They want not only big businesses to be treated as if
13    they're number 1 in their phone company's and
14    communications company's eyes.
15              And finally, they want all of this with
16    simplicity and savings, too.
17              And so how are they going to get it?  Well, one
18    thing I've seen, and I think the country has probably seen
19    by now, is it's sure going to be hard to get those
20    benefits from anyone else besides a company who builds its
21    own competing facilities.
22              One key problem with resale or unbundled element
23    strategies is that they depend so heavily and so
24    extensively on the cooperation of the local exchange
25    carrier monopolist.

                                                             232
 1              While many believe that the long distance entry
 2    provisions of the law should have provided adequate
 3    incentives for such cooperation, for a host of reasons
 4    including just the sheer expense and time involved in
 5    creating the necessary systems, it's hard to see how
 6    adopting a competitive strategy heavily dependent on the
 7    monopolist can be or will be anything but problematic, and
 8    then beware of what happens after long distance entry.
 9              Second, another key problem with such strategies
10    is they're  heavily dependent on the activities of
11    regulators.  Regulators must get their pricing right. 
12    They must police these arrangements quickly and
13    extensively.  They must require unbundling of the correct
14    arrangements.  Again, those strategies depend on the
15    regulators getting it right.
16              The third problem is that while resale can allow
17    one-stop shopping, it doesn't provide any better or
18    innovative network services, not services like the ones
19    we're seeing today.  It's possible that unbundled
20    elements, if ever really available, might allow for some
21    innovation.  I certainly grant that.
22              A fourth problem is that the biggest proponents
23    of some of these nonfacility strategies have other
24    interests to balance, or customer bases to protect, which
25    may make them  reluctant to utilize these  strategies with

                                                             233
 1    these various dependencies until there is certainty that
 2    they'll work, because, after all, they're risking making
 3    current customers unhappy.
 4              I'm no saying that these are character issues
 5    with the Bells.   It's expensive.  It's hard to do.  Well-
 6    intentioned people I think have had problems doing it. 
 7    I'm not accusing the long distance carriers of anything,
 8    either.  They've got an entrenched customer base.  I
 9    wouldn't want to put that at risk unless I knew that
10    provisioning and other parts of what's necessary to
11    provide service competently work.  So it's not a matter of
12    good people and bad people on any sides of that debate.
13              By contrast, let's look to see what a
14    facilities-based competitor does.  A facilities-based
15    competitor controls to a much greater extent their own
16    destiny.  Certainly they need the cooperation of the ILEC,
17    but to a much simpler and lesser extent.  Certainly,
18    regulation matters, but regulators will face simpler
19    issues, and are likely to afford some respect to the fact
20    that the competitor is investing millions and maybe
21    billions in a real alternative network and trying to avoid
22    dependency on the ILEC.
23              Certainly, new facilities provide the best
24    opportunities for new and innovative services and
25    attractive  pricing, although we  have to acknowledge that

                                                             234
 1    this innovation will come more slowly to the smallest
 2    customers than to those who use services more
 3    consistently.
 4              Finally, most of the facilities-based
 5    competitors have few or no customers and the incentive,
 6    the only incentive they have is to build a competing high
 7    quality network as quickly as possible, no detours, and
 8    sign up customers.
 9              I might even say that the resale picture may get
10    better once there are multiple facilities choices
11    available, because after a company has signed up as many
12    customers in its own name as it can, whether it's a Bell
13    Company or some other company, perhaps it becomes in its
14    interest to encourage resale to those customers from whom
15    it would not otherwise expect to glean revenue if it has a
16    network in place.
17              It's hard to see how adopting a competitive
18    strategy heavily dependent on existing local networks
19    could create anything but problems, especially to the
20    customers that are seeking real choice, so let me move
21    toward the end of what I want to say.
22              We're looking for facilities-based competitors,
23    and I think wireless is going to be a key part of the
24    answer.  It can be deployed relatively quickly.  Capital
25    is relatively success-based.  That  means you don't have a

                                                             235
 1    cost associated with a building unless you have a
 2    customer.
 3              While you need nodes or base stations, because
 4    of technology innovations like point-to-multipoint you
 5    need far fewer of them, bringing down the cost.
 6              The technology allows you to go far from center
 7    city and provide service quickly and cost-efficiently in
 8    growing suburban areas where there is no fiber, and where
 9    putting it in would involve digging up the streets in
10    many, many jurisdictions with possible sales to far fewer
11    customers than are in the center city.  Wireless today
12    often is broadband as you see in front of you, and as high
13    quality as you also see in front of you.
14              So I think I've now shown you a little bit about
15    how wireless works, a little bit about what it can do,
16    explained why it's economical and why facilities-based
17    alternatives are crucial, and I think you can see why
18    wireless is an enormously important part of our
19    competitive future.
20              Thank you very much.
21              (Applause.)
22              MR. HATFIELD:  Thank you, David.  Our second
23    speaker is Gail Garfield Shwartz, who is vice president,
24    public policy and Government affairs at TCG.  Gail is
25    responsible for TCG's national public policy  and advocacy

                                                             236
 1    efforts.  Before joining that company, Gail was a
 2    commissioner on the New York Public Service Commission and
 3    served as its deputy chairman from 1987 to 1992.
 4              Earlier, she headed an economic consulting firm
 5    here in Washington and she is the author of several books
 6    and numerous articles.  She received her Ph.D in economic
 7    development at Columbia University.
 8              Gail.
 9            DR. GAIL GARFIELD SCHWARTZ, VICE PRESIDENT,
10               PUBLIC POLICY AND GOVERNMENT AFFAIRS,
11                TELEPORT COMMUNICATIONS GROUP (TCG)
12              DR. SCHWARTZ:  Thank you very much, Dale.  I
13    would like to join in welcoming you back into the public
14    sector.  I think it is very good for the country when
15    people go back and forth through the membrane, so to
16    speak.  I think they bring value to both sides when they
17    do it, and the country will be better off for you.
18              I also want to thank my dear colleague and
19    friend, Kathy Brown, and all of her colleagues for
20    inviting me to this session today.
21              I don't have a speech, and unfortunately I was
22    not able to be here for the whole forum, and so I'm very
23    worried about repeating what you've heard ad nauseam, and
24    so I will sort of rush quickly through the first part of
25    my presentation  on the assumption  you have heard  a good

                                                             237
 1    bit about it, and then talk a little bit about what I
 2    think needs to happen.
 3              Let me first tell you what Teleport
 4    Communications Group is in case you don't know.  TCG is
 5    the first, the leading, and the largest facilities-based
 6    competitive local exchange carrier.  We've been in
 7    business for more than 12 years.
 8              We are now operating or will be within a month
 9    or so operating in 66 major markets.  We actually have
10    networks completed and working in 57 major markets at the
11    present moment.  We have nearly 250,000 access lines
12    providing over 6 million voice-grade equivalents -- here's
13    a nice number, over 7 billion minutes of use a year, and
14    we serve upwards of 12,000 buildings, of which about a
15    third are on our own network entirely.
16              We have 8,000-some, 8,680 actually fiber route
17    miles, and we're valued upwards of $8 billion.  I can't
18    keep track of how quickly evaluations change these days.
19              We have many, many digital switches deployed
20    throughout the country, and we offer increasingly switch
21    services through our sonnet rings to all of our countries
22    in all of the cities we operate in, so essentially we
23    started out as a fiberoptics company and we are still
24    predominantly a fiberoptics company, but in October of
25    this year we exercised our option to acquire the remaining

                                                             238
 1    50 percent of Biztel, which is a 38 GHz company, so that
 2    we would also have the wireless capability.
 3              Biztel had licenses in over 200 geographical
 4    areas, including 95 of 100 top markets.  We have perfected
 5    all of those licenses, and we have operating links in all
 6    of the license areas, and including all of the markets in
 7    which TCG operates, and guess what, I forgot to give the
 8    slides to the slide gentleman, and here they are.
 9              (Slide.)
10              DR. SCHWARTZ:  I don't even know if you can see
11    the map, but the blur will give you an idea of where our
12    licenses are.
13              Why do we want a 38 GHz capability?  Well, it
14    enables us to economically connect customers to TCG's
15    fiberoptic networks, to provide network redundancy, to
16    provide direct routing, to provide quick, temporary
17    installations, to provide stand-alone broadband facilities
18    where TCG doesn't have a fiberoptics network.
19              (Slide.)
20              DR. SCHWARTZ:  As others have mentioned, the
21    recent FCC order 97-391 was a big event, because not only
22    did it lift the freeze that had existed on the use of
23    these licenses, but it also removed some uncertainties.
24              But more importantly, it clarified that spectrum
25    could  be used  to  provide point-to-multipoint  services,

                                                             239
 1    which are potentially far more  economical than the point-
 2    to-point services, which is what TCG is now providing, and
 3    it is the point-to-multipoint capability that will allow
 4    us to get more bandwidth for density and to serve more
 5    customers and more buildings in more places in the future,
 6    and thus help accelerate the deployment of competitive
 7    facilities.
 8              Why is point-to-multipoint so superior?  Well,
 9    it uses single base stations with multiple remotes.  The
10    base station capacity is per antenna sector, and is
11    scalable.  That is, antenna sectors can be added.
12              It creates bandwidth on demand at the building
13    or the user level, which is a very important service that
14    TCG offers now on its fiber networks.
15              What are the economies of point-to-multipoint?
16              (Slide.)
17              DR. SCHWARTZ:  A new installation requires only
18    one new radio deployment.  This creates lower installation
19    costs in general.  There's a huge potential to lower roof
20    rent expenditures on an average per-link basis.  It is
21    quicker to install.  There are lower incremental capital
22    costs, and as David pointed out, the capital expenditures
23    for wireless are success-based.  You don't really have to
24    put in the facilities until you have a customer to start
25    paying you back some revenue to pay down the investment.

                                                             240
 1              There's a potential for significant reduction in
 2    average cost per link, and it provides more bits per
 3    hertz, so it's more efficient.
 4              It  also creates  more  opportunities for  down-
 5    market penetration, which I know is something that Kathy
 6    and Larry are very, very interested in.
 7              It creates particularly strong opportunities for
 8    down-market penetration in conjunction with a fiber
 9    network.  The fiber network connectivity already exists,
10    which minimizes network  installation calls, and point-to-
11    multipoint may be immediately installed at common space
12    points, or nodes, so all of our services may be
13    immediately made available.
14              Now, what are some of the issues or problems
15    connected with point-to-multipoint?
16              (Slide.)
17              DR. SCHWARTZ:  Well, unfortunately, geometry
18    hasn't changed, and line-of-sight is still required. 
19    Distance limitations still exist, and  in many cases half-
20    mile spacing of towers or antennas is necessary, so the
21    service requirements to service low density residential
22    areas are still costly.  Also, the technology requires
23    more complex bandwidth management and point-to-point
24    technologies.
25              There are  also some problems  that policymakers

                                                             241
 1    need to address, and I want to focus on those now for a
 2    couple of minutes.
 3              (Slide.)
 4              DR. SCHWARTZ:  One is the problem that TCG and
 5    many other providers have somehow managed to acquire
 6    mismatched channels, and you need channels in pairs, and
 7    so we need a way to pair up channels for providers who
 8    already own partial channels, or parts of pairs.
 9              We need the FCC to continue to existing policy
10    of allocating primary use to terrestrial wireless rather
11    than satellite wireless, and most importantly -- I'm sure
12    you've heard about this, but most importantly, for the
13    immediate ability to utilize the technology, develop it
14    and prove it out, we need everybody, everybody and his
15    sister and brother, to do something about the roof-right
16    problem, because building owners are having a field day
17    extracting rents from wireless providers to obtain roof
18    rights.
19              In many cases cellular companies have already
20    preempted the rights, which makes it difficult for
21    companies like us to get onto a roof, even though they're
22    already on.
23              The prices for roof rights can be astronomical
24    in high density areas, with sophisticated building owners
25    as  much as  $2,000 a month  per roof,  and even  in rural

                                                             242
 1    areas they're seldom less than, say, $200 a month, per
 2    roof.  Furthermore, the building owners are getting more
 3    and more clever about devising ways to make it difficult
 4    to negotiate the roof rights.
 5              For example, many of them are now out-sourcing
 6    the management of their facilities, and they're not only
 7    out-sourcing them, but they're putting them in pieces so
 8    that one consultant will be negotiating the roof rights
 9    and another one will be negotiating the riser access, and
10    yet a third will be negotiating for common space, so that
11    means the poor provider not only has to spend ages and
12    ages negotiating the price, but it has to negotiate with
13    three different sets of folks, which is certainly a
14    counterproductive, anticompetitive and antipublic interest
15    state of affairs.
16              And finally, I think there are a couple of
17    regulatory decisions that need to be thought about.
18              (Slide.)
19              DR. SCHWARTZ:  One of them is that for the LEC
20    itself there need to be reasonably tariffed roof rights at
21    the LEC service wiring centers.  We have situations where
22    tariffs have been filed for connectivity with the LEC's at
23    the serving wire centers, but there's no price in the
24    tariff, so there we are, we have a tariff, but we don't
25    have a price, and we have to negotiate with the ILEC.

                                                             243
 1              A technical issue which is one that we haven't
 2    yet -- at least TCG hasn't done anything about, but which
 3    seems to be a looming issue, is the question of the power
 4    limits, which control the distance that can be served from
 5    any one locus.  We need to have higher power limits so
 6    that we can serve wider areas, and that is within the
 7    purview of the FCC.
 8              Do we see wireless as a substitute for
 9    fiberoptics?  Absolutely not.  TCG continues to build
10    fiber  to  buildings,   in  part  because  the   point-to-
11    multipoint technology is not yet entirely proved, and lack
12    of line-of-sight distance from existing hub points, so we
13    see this as an adjunct and an in-fill primarily to our
14    basic core business.
15              But we also see that it has a lot of potential
16    to take us into communities and create a hub through which
17    we can operate in a new community, but the economics have
18    to be there, and if the revenue stream is not going to
19    support the investment of the equipment, and the purchase
20    of the rights to place the equipment, then there won't be
21    any deployment of this technology into especially low
22    income and rural areas as I know the NTIA would like to
23    see, and as we, too, would like to see in the public
24    interest.
25              I thank you very much for your attention.

                                                             244
 1              (Applause.)
 2              MR. HATFIELD:  Thank you, Gail.
 3              Our third speaker will be Robert Frieden.  Rob
 4    is a professor of telecommunications at Penn State
 5    University, where he teaches courses in management, law,
 6    and economics.  He also provides legal management and
 7    market research services on a consulting basis in a number
 8    of diverse sectors of the telecommunications field.
 9              Rob is really a prolific author.  I have a whole
10    shelf in my office, I think, of Rob's writings, both in
11    terms of books and articles and academic and trade
12    publications.
13              Before he entered the academic life he worked 
14    here in Washington in a number of public policy positions.
15
16    He holds a J.D. from the University of Virginia.
17              Rob.
18           ROB FRIEDEN, PROFESSOR OF TELECOMMUNICATIONS,
19                   PENNSYLVANIA STATE UNIVERSITY
20              MR. FRIEDEN:  Thanks very much, Dale.  The last
21    time we chatted Dale was mentioning to me that he was
22    going to retire and move to a ranch, I believe in New
23    Mexico, Northern New Mexico, and I consulted my RBOC map,
24    and I found out that that's part of the U.S. West
25    territory, so Dale was going to be and may still  become a

                                                             245
 1    candidate for subsidies, lifeline local exchange service
 2    subsidies from his close personal friends at U.S. West.
 3              (Laughter.)
 4              MR. FRIEDEN:  An aside, before I get to my
 5    presentation, in a prior capacity I served as counsel to
 6    the Nation's first private fiberoptic submarine cable
 7    PTAB, and one of the unenviable tasks that I had was to
 8    negotiate the backhaul from the cable head where the
 9    submarine cable makes its landfall in the United States,
10    in New Jersey, and then try to engineer rights of way to
11    Philadelphia, and upwards to New York.
12              We never got to Philadelphia, in part because of
13    a bridge problem, and history repeats itself.  I heard
14    earlier today a problem about access to a bridge.  In this
15    case, they just weren't in the business of granting
16    rights-of-way over the Delaware River.  Apparently that's
17    been changed.
18              I did, however, find out that at least at that
19    time, and this was in the eighties, late eighties, the
20    most expensive piece of real estate was not Times Square,
21    or was not the Ginza, it was a tunnel.  It was a tunnel
22    owned and operated by Amtrak that linked Newark and
23    Midtown Manhattan.  On a foot-by-foot basis, that's the 
24    most expensive piece of real estate.
25              I  don't know  if it  has now  been exceeded  by

                                                             246
 1    World Trade Center footage for roof-top access to
 2    microwave towers, but I learned a lot about the value of
 3    rights-of-way, and again history repeats itself.
 4              Well, the title of my presentation is, Wireless
 5    Telephony at Adolescence, and that's a bit of a misnomer
 6    in the sense that we're having presentations from very
 7    infant new market entrants, but I did my math, and
 8    cellular for one was debuted in around 1984, so we are at
 9    adolescence, or the teen years for at least some of the
10    wireless technologies.
11              In making a presentation of this sort I'm always
12
13    mindful of advice given to me by some platform presenters,
14    and the two pieces of advice that really sort of stuck to
15    me are always, bring a prop, so David, my hat's off to you
16    for bringing a prop of that sort.
17              I have a prop.  It's a cell phone, and it didn't
18    work.  It didn't work for a large percentage of my voyage
19    from State College, Central Pennsylvania.  There are
20    places, even in this day and age, as we speak, where
21    wireless access is a goal and not a reality, and you might
22    expect that in rural New Mexico and what-have-you, but
23    this was part of the Northeast, the congested Northeast,
24    but where I live there are more cows than there are
25    cellular telephone subscribers, so there you have it.

                                                             247
 1              The other advice was to be provocative, so what
 2    I would like to pursue is a real sort of bifurcated,
 3    schizophrenic-type scenario for wireless at adolescence.
 4              (Slide.)
 5              MR. FRIEDEN:  This guy's good.  He anticipated
 6    my slide.
 7              There really are two scenarios, current and
 8    future scenarios for maturing wireless carriers, and that
 9    is one, becoming a functional equivalent of wire line
10    service.  I have heard estimates, I've seen estimates of
11    40-plus percent market penetration by the turn of the
12    century.  There are 53 million wireless subscribers in the
13    United States this year.  Other estimates predict 200
14    million globally as of 1999, and so certainly wireless is
15    a technology that has been embraced, but to what extent?
16              I'm also mindful of marketplace conditions, and
17    it's not sort of, if we build it they will come.  There
18    certainly are marketplace factors to consider.  You
19    remember that phrase, if we build it they will come.  That
20    was from a movie where a farmer, not unlike many of my
21    neighbors in Central Pennsylvania, a farmer somewhere in
22    the Midwest decided that if you reduced crop yield by
23    building a baseball field in the middle of a cornfield,
24    well, long-dead baseball players would come and play
25    baseball with  him, sort of  a suspension of  disbelief in

                                                             248
 1    that movie, Field of Dreams.
 2              But certainly a lot of dreams and a lot of money
 3    has been made in wireless, and we're really at a sort of
 4    critical inflection point, or a sort of point where the
 5    two scenarios that, I'm going to spend, may indeed start
 6    to pull away from each other.
 7              As wireless carriers penetrate markets, just
 8    like in any market conditions, the average return per unit
 9    and margins decline.  Certainly that's been the case in
10    paging, but in the case of paging companies aggressively
11    have pursued market share even as their profit margins and
12    certainly their stock prices have declined.
13              Some carriers, on the other hand, certainly not
14    the paging industry, will continue to strive to maintain
15    wireless as a luxury service, or perceived as a luxury
16    service.  They are perhaps willing to relinquish some
17    market share in exchange for a high margin.
18              We've seen to some extent that latter strategy,
19    and I'm sure this falls into the provocative, or
20    provocation mode of the presentation.  PCS "competitors"
21    for the most part have engaged in what I would consider
22    conscious parallelism.  In other words, they look at
23    incumbent cellular prices and use those prices as an
24    umbrella and price not too far below that.
25              Having said that,  the last bullet here  is that

                                                             249
 1    some price wars have broken out where the perception is
 2    maybe we shouldn't parallel price but should aggressively
 3    price, and some of these price wars have taken place in
 4    Canada, of all places, and that sort of led me to think of
 5    the sort of juxtaposition of Canadians and loquaciousness.
 6
 7    Can you envision a loquacious, talkative Canadian?
 8              But indeed, in Canada some of the most
 9    aggressive pricing opportunities exist, and here's a new
10    acronym, if you collect acronyms.   Maybe you haven't see
11    this one:  AYCE.  A-Y-C-E-, all you can eat.  That's the
12    salad bar, the buffet, and also a close to unlimited
13    usage, and sensitive pricing, but then when you look at
14    AYCE, in many instances they are just large market
15    baskets, large minute baskets, and in large part those 
16    minutes are off-peak, and we know that off-peak is
17    typically 7:00 p.m. to 7:00 a.m.
18              So let's examine quickly the scenario of
19    wireless as a luxury service.
20              (Slide.)
21              MR. FRIEDEN:  When you characterize wireless in
22    that mode, you also run the risk of being characterized as
23    cherry-pickers, or cream-skimmers.  Those words have been
24    bandied about over the years.  Lower than pond scum
25    perhaps might also be a characterization.

                                                             250
 1              On the other hand, the economist, or certainly
 2    the hired gun consultant economist would say, well, that's
 3    rational Ramsey pricing.  You're pricing on the basis of
 4    elasticity of demand, and you're going after the user who
 5    really values the service.
 6              Well, certainly you don't necessarily reach
 7    critical inflection points in mass market, 30, 40 percent
 8    market penetration with this strategy, but you can
 9    maintain relatively high margins.
10              Wireless carriers do compete.  In large part
11    their competition is on value-added services and perhaps
12    finding new niches like CDPD, cellular digital packet
13    data, and Internet access.  They have great opportunities
14    to maintain that high margin but still confer value in
15    part because they have arbitrage or opportunities to still
16    price very highly.
17              If you've got a local calling area of 33
18    counties, as I do, I can evade very, very high intrastate
19    toll calls even though I'm paying a very profitable rate
20    for the carrier.
21              The other scenario would be wireless as
22    functionally equivalent.  That is an econ-antitrust word
23    for a competitor, a full-fledged competitor of wire line
24    services.
25              (Slide.)

                                                             251
 1              MR. FRIEDEN:  That I think is increasingly going
 2    to be the scenario.  At Penn State University, where I
 3    teach, the university grounds are becoming a test bed of
 4    sorts, with Cellular 1, Vanguard and Nortel, and here's
 5    another little interesting scenario of wireless becoming
 6    more versatile and more diversified.
 7              Can you think of farmland or barnyard?  Think of
 8    the concept here of wireless local area networks extending
 9    to the barn and, indeed, there are rather intensive data
10    applications in agriculture measuring butter fat and
11    gallons produced by Bessie, and a good visual -- I've
12    learned, as I teach undergraduates, you try to hook a lot
13    of visuals.
14              Name five cow names.   Now, we can come up with
15    Elsie, right, but name four other cow names, and that will
16    take you away from the rest of the presentation, but there
17    are very creative names for cows, as I have grown to learn
18    that in my 6 years at Penn State.
19              At any rate, for those of us who are not naming
20    cows, the remainder of my couple of minutes are that I
21    think this is really the likely scenario where wireless
22    local loops are cost-competitive.  I was unfortunately in
23    transit, and I was not able to see the presentations on
24    the technology, but one scenario that I think is
25    intriguing, and one very much analogous to what Penn State

                                                             252
 1    is doing, is to sort of broker or link or integrate the
 2    cordless telephone.
 3              Unlimited usage -- we all have them -- with a
 4    home cell, perhaps usage insensitive flat-rated, and then
 5    coupled outside of that single home cell with regular
 6    conventional cellular service.
 7              Penn State is going to in effect give
 8    everybody -- well, anyone who qualifies, those with tenure
 9    or who have cow management responsibilities -- a cell
10    phone, and this cell phone will in effect provide at zero
11    cost the same kind of dialing functionality that you have
12    in your office, the same five-digit dialing, very, very
13    cost-competitive.
14              I was thinking about what that would do for me,
15    and I think, like others, I have to recall how to work the
16    Centrex, which is a technology we're still using, how to
17    camp on  phones,  how to  call forward,  a  lot of  digit-
18    dialing, and interfacing with the wire line system, and I
19    have to go back to square 1 on that.
20              I've learned to presubscribe, I've learned to
21    dial around, I've learned to program my VCR.  Now I have
22    to learn to call-forward, and I think it's doable, but
23    that's going to be the kind of thing that my colleagues
24    are going to have to embrace if you have this wireless
25    that is really the extension of a wire line network.

                                                             253
 1              (Slide.)
 2              MR. FRIEDEN:  The question really gets down, for
 3    some of the wireless carriers, what do they want to be
 4    when they grow up?  If they embrace functional equivalency
 5    I think that they're going to have to assume commensurate
 6    responsibilities, that cocarrier status, that contribution
 7    to the universal service fund.  These are the sort of
 8    flip-sides of qualifying as an eligible carrier for
 9    subsidization, and I note with interest that insofar as
10    intrastate universal service fund responsibilities
11    carriers are in effect embracing an avoidance strategy.
12              We're not the functional equivalent.  We don't
13    have ubiquity, therefore we shouldn't make that
14    contribution to intrastate universal service funding.  Is
15    that the kind of outcome you seek?  Is that the kind of
16    outcome you want to have when you reach maturation, or
17    when the industry reaches maturation, never the functional
18    equivalent and a luxury service?  Well, perhaps not.
19              In a nutshell what we have, I think, is a very
20    viable technology. I think users are pretty much
21    indifferent as between wire line and wireless.  I think
22    wireless access to the Internet and a host of intelligent
23    applications are very creative additional market niches,
24    and really the deal is what the wireless carriers want to
25    be.

                                                             254
 1              Do they want to try to play that high margin
 2    game, or do they want to look at minutes as pretty much
 3    fungible with the wire line network, and it remains to be
 4    seen which scenario will play out.
 5              Thanks very much.
 6              (Applause.)
 7              MR. HATFIELD:  Thank you, Rob.
 8              Our fourth speaker will be Joe McMonagle,
 9    director of strategic planning for SBC Communications,
10    Inc.  For the past 5 years Joe has focused on wireless
11    issues.  He was responsible for developing SBC's PCS
12    strategies for the A&B and DE&F PCS block auctions.
13              He's worked for SBC for 27 years, and holds
14    degrees from Southern Methodist University and Washington
15    University.  Currently Joe is examining SBC's potential
16    participation in the upcoming LMDS auctions.
17              Joe.
18        JOE McMONAGLE, DIRECTOR OF STRATEGIC PLANNING, SBC
19              MR. McMONAGLE:  It's always nice to be the last
20    speaker.  I hope what I have to say is worth your sticking
21    around.
22              At SBC we've spent a lot of time looking at
23    wireless local loop both as an opportunity to extend into
24    new markets, as an opportunity to augment our present
25    copper deployment plans.

                                                             255
 1              In the near future, the next 2 or 3 years, we'll
 2    probably have one of the biggest wireless local loop
 3    deployments in the world in our partnership in South
 4    Africa, and then we've also conducted trials in St. Louis
 5    of this technology, and we've also conducted a few trials
 6    in France, so we have a pretty good background in wireless
 7    local loop, and what I'd like to do in the next few
 8    minutes is share some of our knowledge about wireless
 9    local loop.
10              (Slide.)
11              MR. McMONAGLE:  When you look at and you hear
12    vendors get up and talk about how much does it cost per
13    access line, I always get kind of queasy about that,
14    because there are a lot of variables associated with the
15    design of a wireless local loop network, and I would like
16    to briefly cover a few of them.
17              Market area, for example.  Market area is
18    dictated by, maybe it's the area you want to serve, the
19    market you're focused in on.  There may be some build-out
20    requirements associated with the spectrum license.  It may
21    be coverage area that is dictated by how you intend to
22    market this, what kind of advertising, whether it's
23    television, radio, newspaper.
24              When you look at the market area you also have
25    to consider some  physical things,  like the terrain,  the

                                                             256
 1    demographics.  There's a  whole lot of things that go into
 2    the market area, deployment in terms of impacting the
 3    design of your network.
 4              The next thing is demand, what kind of demand
 5    can you project, what kind of penetration can you assume
 6    you're going to get when you bring this new technology and
 7    you go after this business, the number of users, the
 8    density?  A lot of our speakers have talked about that,
 9    and kind of skirted around that issue, but obviously it's
10    less expensive to serve high dense areas than it would be
11    more rural areas.
12              Another thing that really has a big impact on
13    design of a wireless network is how much you expect
14    customers to use it.   One of the reasons you see wireless
15    local loop used in the foreign countries and not so much
16    in the domestic markets is, basically in the U.S. we use
17    our phone a lot.
18              I think someone -- Lucent said something about
19    1,400 minutes a month kind of usage, somewhere in that
20    area, 1,000 to 1,400 minutes average usage.  The usage on
21    your network has a very big impact on the cost of the
22    network, so when you talk about how much it costs per
23    access line you have to tell me how much you expect the
24    subscriber to use it.
25              And finally,  what kind  of service  set do  you

                                                             257
 1    expect to deploy?  Are you going to emulate POTS?  Are you
 2    going to try to reproduce all the different vertical
 3    services POTS offers, or, like AT&T was talking about, do
 4    you need to have more than POTS?  Is data going to be an
 5    important part of what you want to offer?
 6              The radio technology, there's a lot of standards
 7    out there.  There's PACS, there's DAC, there's CDMA kind
 8    of technologies.  AT&T has their project, Angel, which is
 9    looking at another kind of technology.
10              One of the areas, we seem to have focused more
11    on the PCS licenses and the technologies that that
12    enables, but I think our presenter from Teligent, showing
13    you the LMDS and the broadband technology that's coming
14    along, I think that's really going to have a big impact on
15    our industry in the near future.
16              There's a lot of operational issues.  One of the
17    things that we take for granted is when we lose power at
18    your home that your phone's going to work.  Is it going to
19    work that way with wireless, you know, so there's a
20    battery backup kind of requirement.
21              Operational issues, another one is, a lot of
22    these people that want to get into the business, do they
23    have a force that they could dispatch to the premise?  I
24    mean, that has a big impact on the bottom line, and maybe
25    not so much the cost of the network, but it has  to figure

                                                             258
 1    into their considerations in terms of the technology and
 2    how they want to go about choosing the technology.
 3              Service quality.  There's a lot of different
 4    voice coders, and without trying to get more technical,
 5    the more bits incorporated in the voice coder, maybe the
 6    better quality.  Perhaps you've heard the Sprint PCS
 7    talking about their digital voice and being equivalent to
 8    voice wire line quality, but the technology is really
 9    driven by how much overhead you want to dedicate to the
10    voice quota, and that will have a big impact on your
11    service cost.
12              And finally, the available spectrum.  The price
13    you have to pay in the auction, how much is it going to
14    cost, are you going to have to spend money clearing
15    people?  You know, the available spectrum, like you said
16    earlier, we seem to focus on the PCS spectrum, but the
17    LMDS spectrum, and then the 38 GHz, 24 GHz Teligent has,
18    there's a lot of other spectrum out there that perhaps
19    will provide more meaningful services down the road.
20              When the vendor gives out a price like earlier
21    this morning -- I think one of the vendors talked about,
22    he thought the price was going to be $300 to $600 per
23    access line -- I kind of cringe, because we kind of have
24    to examine what's included.  What has the vendor left out
25    when they talk about those kinds of prices?

                                                             259
 1              The last mile kind of considerations, for
 2    example, is this all he's got included in the price per
 3    access line, or does he include backhaul, and backhaul has
 4    a big impact on the total cost of the network, and taking
 5    that back to the switch and taking it all the way into the
 6    trunking.
 7              So all of these things from a regulatory
 8    standpoint, when you're thinking about cost and access
 9    lines, it's really important that you look at and
10    understand what kind of network we're talking about and
11    what you really want to incorporate into your thinking,
12    because there's a lot of variables associated with this.
13              (Slide.)
14              MR. McMONAGLE:  So what impacts the economics? 
15    Obviously, the regulatory issues.  We talked abut the cost
16    of spectrum, the relocation, the build-out requirements. 
17    That all has a big impact on it.
18              Network design and deployment.  We've talked
19    about how the network design is going to impact the
20    economics of the business case for wireless local loop. 
21    Can we leverage assets?
22              I think one of the things the PCS folks bring to
23    this, like Sprint PCS, for example, is they're deploying a
24    network for high speed mobility, and maybe down the road
25    as they work through the  technical and operational issues

                                                             260
 1    they will be able to use that same network for wireless
 2    local loop, so maybe that's an advantage that they will 
 3    have, or power companies, for example.  They've got right-
 4    of-way, they've got telephone or power poles, things like
 5    that, so can they leverage other assets?
 6              The backhaul I've already mentioned.  When we
 7    look at one of the business cases I'm going to share with
 8    you in a minute, the backhaul really was a big driver. 
 9    Whether you go out and rent or get tariff services from
10    the telephone company to provide the backhaul, or whether
11    you go out and build your own network, this has a big
12    impact on your business case.
13              The service revenues, what is the competitive
14    landscape, and what kind of revenues will you be able to
15    charge as you provide this service, and then there's a lot
16    of operating considerations.
17              So all these things kind of impact the
18    economics.
19              What I'd like to share with you -- 
20              (Slide.)
21              MR. McMONAGLE:  -- and this is kind of a 
22    sensitivity analysis that we've looked at, and this was
23    for a business case in a market in Northeast Texas of
24    about 200,000 population, about 80,000 homes, and we were
25    doing this back about the time when the C band auction was

                                                             261
 1    underway, and we were trying to understand perhaps what
 2    some of these bidders might have in mind in terms of
 3    bidding on the spectrum and what we thought it was worth,
 4    and so we built some basic assumptions.
 5              We tried to approach this as a small company
 6    getting into the business and not as Southwestern Bell
 7    doing the business, and we had some basic assumptions. 
 8    Some of the assumptions included that over 2005 we would
 9    have a penetration of about 30 percent, and that's a
10    pretty aggressive penetration.
11              Basically we were providing POTS, we were
12    providing a limited mobility kind of a service, we were
13    using DECS technology or PACS technology, and it had
14    limited mobility.  It was not a high speed mobility.  It
15    was to replace the wire line service.
16              Our average revenue was about $45 a month on
17    this, and that was a combination of local service and long
18    distance.
19              The thing about wire line service in some of
20    these markets is they're relatively cheap.  Like, in this
21    particular market it's about $12 a month for just your
22    basic service, and then with the vertical services and all
23    it might go up to about $25 a month, but we assumed $48
24    based on bundling some services in there, and what this
25    does, or what this says  is, basically the base case  says

                                                             262
 1    that a value per POP, the 200,000 POTS for our base case
 2    assumptions was $4.6 per POP, so there was a positive NPV
 3    if we can meet our base assumptions.
 4              Then what we tried to do is vary each of our
 5    assumptions by plus or minus 25 percent to understand what
 6    the impact would be.  For example, if we varied the
 7    revenue per sub, which I said was about $48, plus 25
 8    percent, that puts it in the $60 range and increases the
 9    value to about $25 a POP, a very significant increase.
10              But if we reduce that revenue by 25 percent to
11    around $33 per POP, or per subscriber per month, then you
12    can see it actually has a negative value.
13              So we spend a lot of time talking about the
14    capital cost, but the revenue per sub really has a big
15    impact on this thing -- and I see I'm running out of time.
16              The same kind of thing, we looked at penetration
17    plus or minus 20 percent, and all the other things, and
18    you can see the capital really ranks about fourth in terms
19    of what really drives the business case.
20              So we spend a lot of time talking about capital,
21    but it's really all the other business implications that
22    really has the big impact.
23              I have one more slide, and it's kind of
24    repetitive.
25              (Slide.)

                                                             263
 1              MR. McMONAGLE:  For fixed wireless access is
 2    evolving.  I think what is there today meets certain
 3    needs.  I think the LMDS stuff is still -- we need some
 4    experience with that to see how it's really going to work.
 5
 6    It's pretty impressive, what Teligent was doing up here,
 7    but we're just going to see how the acceptance of the
 8    customer is going to develop on that stuff, but there's a
 9    lot going on in fixed wireless access that's going to
10    bring the cost down.
11              But as I showed, it's not just the cost of the
12    technology that really drives the business case.  It's all
13    these other things.
14              I've looked at a lot of business plans, and each
15    plan is different, but basically it's all one of these
16    things where there's a lot of capital requirement for not
17    only the capital for building the network, and capital for
18    acquiring the license, but also funding the losses that
19    you have, because you've got to believe that this business
20    is going to take time to develop.  You're not going to go
21    net income positive in year 1.  It's going to take time,
22    and so you have to have the financial wherewithal to take
23    care of that.
24              No one solution fits all.  What works for
25    Teligent might  not work for us.   What works  for WinStar

                                                             264
 1    might not work for somebody else.  There's a lot of
 2    technology out there, and you just need to look at the
 3    applications.
 4              If you can leverage other resources, then that's
 5    going to bring some cost benefits to you, but basically
 6    the business considerations are driving the decisions, and
 7    these business plans all look very similar, and it's very
 8    risky business.  There are payoffs in the long term, but
 9    you just need to make good decisions.
10              (Applause.)
11              MR. HATFIELD:  Joe, thank you.  I thought that
12    was an awfully important message.  Is there any
13    interaction among the panelists, first, before I turn it
14    to questions from the audience?  David.
15              MR. TURETSKY:  I will just make one point. 
16    We've been hearing a lot about bridges today.  I know
17    Jerry Salemme was talking about a bridge before.  Well, if
18    you can see where local governments have occasionally gone
19    far off in the wrong direction, let me take Jerry
20    Salemme's story and turn it around on this bridge story.
21              Jerry said in San Francisco he couldn't run his
22    wires across a bridge, so he had problems.  They couldn't
23    sell it to him.  They wouldn't charge him, and he couldn't
24    run the wires across the bridge, and he needed to.
25              Well, with our wireless technology we don't need

                                                             265
 1    to run the wires across the bridge.  We can send our
 2    signal, as we just did today, across a river without using
 3    the public right-of-way at all.  We didn't use it on the
 4    top of the building.  It's a privately owned building.  We
 5    didn't use it where the antenna was in Alexandria.
 6              But believe it or not, there are local
 7    governments who, not having sold us anything, say we have
 8    to pay for the use of the right-of-way anyway, and that's
 9    where I think public policy has gone off the track, and if
10    you think of Jerry Salemme's example, well, there are
11    cities out there who not only won't give us the bridge,
12    and we don't want the bridge, but are going to charge us
13    for it anyway.  That's one of the public policy dilemmas
14    here.
15              And I might mention, from what Gail was saying,
16    we have actually negotiated microwave colocation
17    provisions that govern central office access for several
18    Bell Companies that have prices in them and have the
19    methodology and timetables in them.
20              We've done it with PAC Bell, we've done it with
21    SBC, with Bell Atlantic, with Ameritech, and with GTE, and
22    we're as far as I know the only carrier in the country to
23    do that, but we felt if we were going to consider
24    colocation options we wanted to be able to use our
25    spectrum and we needed to be able to evaluate our business

                                                             266
 1    opportunities.
 2              So as Gail said, you need to know the price in
 3    advance so you can make sensible decisions, and we have
 4    broken new ground on that, and I think we've gotten some
 5    good agreements.
 6              DR. SCHWARTZ:  We will try to adopt them,
 7    especially in Missouri.  Are you operating in Missouri?
 8              MR. TURETSKY:  Not yet.
 9              MR. HATFIELD:  Any other comments on the panel? 
10    If not, why don't we take some comments or questions from
11    the audience.
12              VOICE:  I was interested to hear about the
13    merger between a fiberoptic company and a wireless
14    company, and I wonder if the other panelists might have
15    any views about whether that's a trend that we can expect
16    in the future, whether there will be consolidation in the
17    competitive local carrier business, or business
18    arrangements, or some kinds of deals that will make it
19    more clear that it's all the competitive carriers on the
20    one hand competing against the entrenched incumbents on
21    the other, and not the competitive carriers competing
22    against one another.
23              DR. SCHWARTZ:  You're asking for forecasts and
24    prognoses about the types of mergers that will take place?
25              VOICE:   I don't see a lot of Wall Street people

                                                             267
 1    here in the audience, but I'm sort of interested in
 2    whether the panel thinks that this is the sort of thing
 3    that's going to continue, or whether this is unique.  Are
 4    there advantages?
 5              Obviously, your company decided there were
 6    advantages, but is there a general feeling that these
 7    companies which, each has its own sort of unique kind of
 8    technology and its unique frequency band, whether they're
 9    better off staying as a pure play, or whether they're
10    better off in the long run with joint ventures and
11    mergers.
12              MR. TURETSKY:  Let me first start by answering
13    that question with my prior hat.  As Deputy Assistant
14    Attorney General for Antitrust I had occasion to evaluate
15    a number of mergers and see the business plans of a number
16    of competitors.
17              Let me just say that I know that the Department
18    of Justice has as a working assumption, as it evaluates
19    mergers, that when you look at the panoply of CLEC players
20    out there and you look at the IXC's, if you counted them
21    each as one separate company you would be double counting,
22    because very many of those companies I think once they
23    show some success as a facilities-based carrier for some
24    of the reasons I was talking about in my presentation I
25    think become attractive to others.

                                                             268
 1              But I would at the same time say that any
 2    company who banks on that, or has that as part of their
 3    strategy, is nuts.  You better make a go of it.  You
 4    better prove yourself.  You better be on a track to
 5    profitability and the rest, and I know that that is our
 6    business plan.
 7              But certainly the Department of Justice, I think
 8    when it makes assumptions doesn't count, and it looks
 9    years into the future, works on the assumption that only
10    some of the players out there will remain independent, and
11    that a certain number of those today, independent players,
12    will ultimately be affiliated with larger companies, and
13    you've seen some of that.
14              Worldcom has acquired Brooks and MFS, and I
15    don't think we should be shocked to see other things like
16    that happen.
17              MR. FRIEDEN:  Just a sort of technological
18    footnote, when we were confronted with a problem getting
19    over the Benjamin Franklin Bridge we didn't even consider
20    this as PTAD in the late eighties.  We didn't even
21    consider microwave as an option, because we wanted to
22    represent that we were 100-percent fiber.
23              I think a sort of bellwether event has been this
24    migration and perception of integration of microwave
25    wireless   with  wire  line   technologies.    You're  not

                                                             269
 1    disadvantaged in the marketplace, or as to consumer
 2    perception if you run a hybrid of fiber and microwave, and
 3    that probably attests more than anything to the
 4    developments in digitization and in microwave technology.
 5              MR. HATFIELD:  Other questions or comments from
 6    the floor?  Yes, back here.
 7              VOICE:  Do any of you see being able to make a
 8    business case for wireless local loop to residential and
 9    small business in the next few years?
10              I know, for example, Joe, you must have
11    evaluated what it looks like in other regions.  Clearly
12    you're doing it in South Africa.
13              MR. McMONAGLE:  The business case I presented to
14    you was the competitor coming into our market and using
15    the spectrum.  We continue to look at it.  We have thought
16    about it for augmenting our present method of operations,
17    but it really doesn't pan out right now because there's a
18    lot of cost in terms of integrating it into our network
19    and a lot of things like that.
20              I believe -- I think like, for example, if you
21    look at Centennial in Puerto Rico, I sat in a conference
22    last week, CDMA conference, where they're using their high
23    speed mobility network and augmenting that with  wireless
24    local loop terminal in the home, and I think they have
25    sold  about  5,000 of  them,  and basically  their average

                                                             270
 1    revenue is about $80 a month, so they've picked off an
 2    itch that makes a lot of sense to them, and they're very
 3    happy about it.  If that average revenue was $30 a month,
 4    I don't think they would be so happy.
 5              So I think there are niches to look at, but I
 6    just think across the board it has got a ways to go
 7    before -- 
 8              DR. SCHWARTZ:  I think that clearly the first
 9    application of 38 GHz for residential would be for MD use,
10    multiple dwelling units, which are clusters, and often
11    tall, and sometimes in open space, so that some of the
12    barriers to the technology's efficiency and reliability
13    would be minimized, and you need to have a demand set.
14              Everybody up here has been talking about the
15    supply and the technology and the cost reduction, but you
16    have to remember that you have to have a certain level of
17    demand for the service, and if people are -- if TCG were
18    to serve an MDU with 38 gig it would be because it was
19    more economical to do it that way than fiber, but then,
20    what if someone builds a building between us and them? 
21    The whole constellation would change.
22              So it's clearly iffier.  Once you've got fiber
23    in there, you've got it in there.  It's there forever.
24    With wireless, it's there, but it might not be there
25    forever, and what if it rained today?

                                                             271
 1              MR. TURETSKY:  Let me answer that.  I don't care
 2    if it rains today.  I don't care if it snows today.  We
 3    engineer our network for 99.9 percent reliability, and
 4    that takes into account rain and snow, and where there are
 5    rainier environments, then you're going to have your hops
 6    from a building to a node be a little shorter to take
 7    account of that.
 8              So I  think this  reliability is  an old  bug-a-
 9    boo, and it just isn't true, and anybody who thinks  it is
10    true is dealing with a company who is not engineering
11    their network properly, number 1.
12              And number 2, the question about small business
13    and residential, our target market is small business. 
14    It's small and medium-sized business.  It's companies that
15
16    have between 5 and 350 lines, and we're talking about
17    small business, and we're not out to serve the large
18    businesses.
19              As for residential, I think I agree with Gail
20    that multiple dwelling units are going to be the first
21    targets for fixed wireless providers.
22              AT&T has a different strategy.  It's not a
23    broadband strategy.  Their project Angel aims at providing
24    fixed wireless service to homes, but what you're going to
25    see, I think, in fixed wireless technology, just as you've

                                                             272
 1    seen in every other technology that's come down the pike,
 2    is a cost curve that declines, innovation that helps
 3    reduce the cost curve further, and I think it will be
 4    increasingly in the future an option for single family
 5    homes, but today, for a company like mine, it wouldn't be
 6    focused on single family  homes, but it does start quite
 7    small, at small businesses five lines and up.
 8              MR. McMONAGLE:  I think the wireless technology
 9    offers a way to get over the barriers to entry for the
10    customer.  It is all these other business things, though,
11    that you have to work through, your cost deployment, your
12    cost of acquisition, your operational cost.  It is all of
13    these things that really determine the business case, and
14    I'm sure folks are working through that now and trying to
15    come up with solutions.
16              MR. HATFIELD:  Any other questions?  Yes,
17    please.
18              VOICE:  We've talked a lot today about the cost
19    advantages associated with wireless over wire line
20    technology, but I still don't have a sense whether this is
21    something where the fixed wireless is of a 10-percent cost
22    advantage, or is it 60 percent?  I realize that there are
23    a lot of factors that go into that, but just in terms of
24    an estimation of the magnitude.
25              MR. McMONAGLE:  From our standpoint there really

                                                             273
 1    is no cost advantage wire over wire line, just because of
 2    the economies that we establish in terms of our copper
 3    deployment, but you really have to look at what kind of
 4    services you're delivering with the wireless technology
 5    versus the wire line technology, what kind of services it
 6    allows you to provide.
 7              It's kind of a revenue cost kind of thing, and I
 8    think that is the real question, because as I tried to
 9    show, there's just so many variables that you can't come
10    up with one, you know, 10 percent.  You have to look at
11    all those things and kind of throw that into the equation.
12              MR. FRIEDEN:  I will add a couple of variables
13    for South Africa, which I've studied.  That is, you've got
14    benchmarks deliverables as part of the tender,
15    privatization tender, and one way to get a lot of dial
16    tone and a lot of access lines out in quick order is
17    wireless.
18              And, as well, to service areas in the hinterland
19    there may not be an end office or central office with
20    embedded sunk investment, in which case the economics, the
21    finance of wireless looks a lot better because the wire
22    line isn't there, and you can't just build out from the
23    wire line.
24              MR. TURETSKY:  I agree, the cost advantage
25    varies by customer and market, but let me say this,  in no

                                                             274
 1    market, intelligent voice target market for 5 to 350 lines
 2    be offering prices that are at or above the tariffed rates
 3    of the wire line incumbent LEC.  In every case, we will be
 4    offering service at lower prices.
 5              So let me throw down the gauntlet.  Our motto is
 6    simplicity, service, and savings, and that's part of what
 7    we're out there trying to do.
 8              And before I give up the podium I would be
 9    remiss if I didn't really thank NTIA for organizing this
10    and focusing on this new technology.  So often, people
11    confuse the mobile cellular with the fixed wireless, and
12    don't include, as they look into the future, the fixed
13    wireless technologies, and I want to thank Assistant
14    Secretary Irving and Kathy Brown and Joe Gattuso and all
15    those people at NTIA who put this together and focused on
16    this.  Thank you.
17              MR. HATFIELD:  That's a good wrap-up remark.  We
18    need to shut down the panel, and Kathy, do you have some
19    final remarks?
20              (Applause.)
21              MS. BROWN:  Thank you.  I thought this afternoon
22    was an incredibly good discussion.
23              In fact, my brain is pretty saturated, and I
24    suspect yours is, too, so let me just say what I think our
25    follow-up will be.  Rather than stand here and try to give

                                                             275
 1    you an overview of everything we heard today, what we will
 2    do is take the proceedings back and on our Web site you
 3    will see a posting of as many of the presentations as
 4    people will leave with us, as well as the transcript of
 5    the day.
 6              And then I think we're going to try, with the
 7    help of Ann Stauffer -- we got smart, we lawyers and
 8    economists.  We brought an MBA on, and Ann actually keeps
 9    us pretty organized, and pretty on target, and she's told
10    me that she will take what we have and try and summarize
11    it so that you can come back onto the Web site and see
12    some of the points that were made, and perhaps point to
13    some of the speakers.
14              May I also suggest that you communicate with us
15    through our Web site so that if you think there are some
16    follow-up things that we should do, or we might do, that
17    you E-mail us and tell us about that.
18              I want to thank all of the panelists today.  I
19    think we had some really extraordinary folks from
20    industry, academia, and from the Government and policy
21    side here to talk about these issues.  I thought it was a
22    terrific discussion.
23              I want to also give a little advertisement for
24    our next forum.  This was the second.  There will be a
25    third.  Robert, what's the date?  February 4.  We  want to

                                                             276
 1    talk about new cable technologies, and after that we're
 2    going to talk about new satellite technologies, and we're
 3    going to keep talking about how these technologies can be
 4    deployed in this market and how we can ensure that this
 5    becomes an open, competitive market, and so I'm hoping
 6    that you will come back and talk with us again.
 7              Larry, you're here.  Would you like to say
 8    anything?
 9              MR. IRVING:  I just want to say thank you to
10    Kathy and to my colleagues at NTIA for the work they did,
11    and I want to thank the many people, including some old
12    friends.  I thought David Turetsky was going to announce
13    he was going to come back to Government after his comments
14    about Dale Hatfield, and you know, we can get Gail back. 
15    I see Tom and Michelle.  We could do big things this week.
16              But I do want to thank so many people I've
17    worked with, some for more than a decade, for their
18    contributions to this dialogue, and I want to thank all of
19    you for the interactive nature.
20              It's amazing, because I can sit over at my desk
21    top and watch this on my computer, and for parts of the
22    day I had the opportunity to do exactly that.  While you
23    were over here speaking, those of us who were over at
24    NTIA, right across the street, were using the Internet to
25    follow what  was going  on over  here, and  it was  really

                                                             277
 1    powerful, and that is not to encourage those of you who
 2    are thinking about coming September 4 to use that
 3    technology.  We want you to come right back here.
 4              But it really has been an incredibly important
 5    day, and I think we've had some good dialogue and some
 6    good discussion.
 7              I also want to encourage all of you to give us
 8    some ideas about how we can improve on this, do a better
 9    job in the future ones.  February 4 is going to be a good
10    one, but any suggestions you can make about things we
11    could be or should be doing better, we would like to do
12    that.
13              But the most important reason I came up here is
14    I want to thank all of you for your support and your
15    friendship over the last several years, and I also want to
16    wish each and every one of you a happy holiday season. 
17    Whatever you're celebrating, whether it's Christmas,
18    Kwanza, Hanukkah, Feliz Navidad, Bon Natale, I want to
19    wish each and every one of you a very pleasant holiday
20    season, and a great 1998.
21              We look forward to working with you.  Thank you
22    very much, and see you soon.
23              (Applause.)
24              (Whereupon, at 4:50 p.m., the meeting
25    adjourned.)