Remarks by Larry Irving
Assistant Secretary of Commerce
National Telecommunications and Information Administration
U.S. Department of Commerce
June 15, 1998
I am honored to be here today. I want to add that it has also been a pleasure to get to know Alan Shark, the only other person I've met who is also from Brooklyn, now works in the telecommunications field, and talks as fast as I do!
Alan originally asked me to speak about legislative and regulatory developments relating to wireless services. Because you've spent the morning discussing regulatory developments at the FCC, I'd like to focus more broadly on developments in the wireless industry as a whole and what this means for small businesses, such as SMR operators.
As you well know, the wireless industry is in a state of rapid change and development - what some are calling the "wireless revolution." Mobile communications are accounting for an increasingly high percentage of the telecommunications market. In 1990, the share of the overall market was just 5 percent. The FCC reported last month that more than 20% of all Americans were using some form of mobile telephony at the end of 1997. This represents an increase of over 11 million new wireless subscribers last year alone.
My wife and I are perfect examples of this increasing reliance on wireless technology. Five years ago, we didn't use any wireless devices. Now we use 7 wireless devices between the two of us. We each have a personal PCS, an office cellular phone, a pager, and I use Ricochet to access Internet. I often find it preferable to use Ricochet rather than a phone line for Internet access, particularly during prime evening hours when phone lines are jammed.
Not only are there more and more wireless subscribers, there is also an increasing number of players in the industry. Overall, there are now 50 markets with 5 or more wireless competitors. As a result of this competition and decreasing technology costs, prices fell 6 % for average minutes of use between June 1996 and June 1997 according to one study. Rates for heaviest users of mobile phones have fallen even more significantly, dropping nearly 20% in the last six months.
The key question, then, is how you can best position yourselves in this competitive market. It is clear that the SMR industry has already developed to meet new consumer demands. The SMR 800 MHz service, for example, is no longer just providing dispatch radio service in local markets. Many of you are now providing diverse service offerings, including sophisticated voice and data transmission. Some of you are branching into areas such as alarm monitoring services. Nevertheless, many SMR operators are small businesses and entrepreneurs providing service to other small businesses. Many of you are probably wondering how you are going to succeed in this increasingly competitive climate.
One answer, many of you say, is that you need access to more spectrum. NTIA and the FCC have endeavored to make spectrum available for private use to create more opportunities for wireless services. Towards this end, NTIA has identified spectrum used by government agencies that can be reallocated from federal government to private use. Over the past several years, NTIA has reallocated more than 235 MHz of spectrum, 35 MHz more than Congress requested. We also submitted it on time and under budget! Again, at the direction of Congress, NTIA will be reallocating another 20 MHz that can be auctioned for private use. This spectrum, we hope, has and will continue to be reallocated in productive ways, such as making it available to small wireless operators.
The Administration and the FCC believe that auctions are an efficient way to assign spectrum to those companies that value it the most. At the same time, we are aware that, if allocating spectrum were based solely on the amount of money bid, some critical interests would be ignored. For example, we need to be sure that spectrum is available for public safety uses so that security officers can complete calls in a time of emergency. Local response teams shouldn't have to ask the public to stop using their cellular phones, as they did right after the Oklahoma City bombing, so that the teams could make emergency calls.
We are also interested in creating new opportunities for small businesses. One of the greatest engines of change in the wireless industry are the small entrepreneurs. As a student of the industry, I've noticed that it's the small players that are creating new opportunities, exploiting new markets, and thinking outside the box. I am old enough to remember when TCI, MCI, McCaw, and Turner Broadcasting were small guys fighting for their shot. That's why NTIA and the FCC have taken steps to protect the interests of small businesses, recognizing their valuable role in the industry's development.
Several years ago, for example, NTIA worked with AMTA to promote the concept of using the "Economic Area," or EA, as the relevant licencing area. This concept, I should mention, was developed by one of NTIA's Presidential Management Interns. We thought EAs would be appropriate for small businesses because they covered a smaller area than MTAs ("Metropolitan Trading Area") and were, therefore, more affordable. Through the efforts of AMTA, EAs were, in fact, used as the geographic areas in subsequent auctions and will be used again in the upcoming 220 MHz auction.
The FCC has also tried to encourage the participation of small businesses by providing bidding credits for small bidders in the auction process. The results of the auctions show that small business bidders have, in fact, been significant participants in the auction process. According to the FCC, 53% of all licenses awarded through auctions from 1993 through May 1997 were awarded to small businesses.
Other policies, such as partitioning and disaggregation, make it possible for small businesses to buy spectrum from existing licensees. Through partitioning, a licensee can divide the spectrum along geographic borders to create multiple licenses. Disaggregation allows a licensee to divide the spectrum into smaller spectrum blocks. These measures could provide smaller operators additional possibilities to obtain spectrum, particularly in niche or rural markets.
Despite these efforts, we know that more can, and should, be done to ensure that small entrepreneurs remain competitive players in the wireless arena. When the auction process started five years ago, it was supposed to bring in revenue, but it was also supposed to ensure a fair process. We need to be sure that auctions continue to provide a fair way of allocating spectrum. NTIA hopes to work with AMTA to develop new measures to promote small businesses so that smaller operators can continue to compete successfully.
In order to stay competitive, all wireless providers must also think ahead to the future in this ever-changing market. Nowhere is the maxim "lead, follow, or get out of the way," more applicable than in this industry. Wireless providers must anticipate their customers' needs and think about how to integrate new technologies into their business plans. This is true, not only for small businesses, but also for large companies like Motorola. Some are attributing Motorola's recent financial troubles, for example, to a failure to anticipate how quickly demand would shift over from wireless analog to feature-heavy digital phones.
NTIA has been tracking several trends in the wireless area that are likely to affect all segments of the wireless industry. First, it is clear that data transmission will be the focus of the future. Already, the transmission of data is becoming an increasingly large component of telecommunications. One expert claims that more bandwidth is now being devoted to data than to voice transmissions. Some international circuits - such as circuits between US and Japan - are carrying almost 100% data traffic, if you include fax transmissions. Of course, Internet use is a significant contributor to this tremendous increase in data traffic. According to a report issued by the Department of Commerce in March, traffic over Internet is doubling every 100 days. The number of Internet users, some estimate, will grow to 1 billion worldwide by year 2005.
Wireless is the obvious medium to provide access to Internet in the future. Nearly 80% of today's wireless subscribers also use Internet. These subscribers will want immediate access to Internet, and will look to their mobile phones for that access. Wireless also offers the promise of greater bandwidth to provide rapid access to Internet. Cable modems are not widely available, and phone companies' ISDN service, where it is available, is expensive. Wireless will be the lower-cost alternative because it will avoid the infrastructure costs and deliver data at much higher speeds than traditional analog modem connections.
The next five years will see a radical change in the nature of wireless technology as it develops to include data transmission. If you were at the Supercomm trade show last week, you may have heard a panel of wireless executives talking about the future as "Internet on wings." Instead of sitting at a desk, they anticipate that, in five years, busy executives will be carrying "a personal communication box" that will allow them to hold video conference calls and surf the Internet. This next generation of services (called the "third generation") is still being developed, but it won't be long before Internet, e-mail, and video are all available over a mobile phone. We have been talking about the "information highway" for a while. Soon, we will be witnessing the "information skyway."
Businesses are already turning to wireless technology for combinations of voice and data services. CVS Drug Store, for example, announced last week that it will start using wireless LAN technology in all its 4,100 stores. Each store worker will be using a hand-held mobile computer with a bar code laser scanner and a radio for every day store operations. This will allow them to check the store's inventory, the history of the item, and its price just by scanning the item.
Wireless data transmission can be especially useful to customers with mobile work forces. One auto insurance provider in Ohio reported that it is using two-way wireless data transmission to process claims on-site. The claims representatives can drive over to the accident site and call up a policy-holder's coverage, claim history, and other data right at the scene of the accident. As a result, these claims representatives no longer need to drive back to the office to deal with time-consuming paperwork.
It is likely that your customers, particularly those with mobile work forces, will have similar needs for data transmission. Real estate agents, for example, are increasingly relying on Internet to perform their jobs because houses are now frequently listed on the Web. Their work would be much easier if they could access these listings while they are out in the field. Contractors and technicians also would benefit if they could transmit data to and from their home office while they are on call. The more you think about these needs now, the more likely you will be successful down the road when other wireless operators are offering a multitude of services.
Another significant development in the wireless industry is the "wireless local loop." The "wireless local loop" means that the connection between the switched telephone network and the customer is made through a radio connection. In a typical configuration, an antenna is installed on the customer's home and serves as a fixed wireless connection to the nearest point of switching, such as the telephone company's central office. This technology may be less expensive to install and maintain than wireline connections, and is being deployed in other countries such as China, India, and the United Kingdom. In the U.K., for example, Ionica is currently competing with British Telecom to offer basic telephone service through its wireless local loop.
We hope that wireless operators will soon deploy this technology in the United States and provide a real alternative to traditional telephone service. The "wireless local loop" would serve two important goals of the Clinton Administration: competition and universal service. We expect that, with the ever-rising use of mobile communications, consumers will soon be looking at wireless communications as a direct substitute for their current telephone service. The "wireless local loop" could also provide the solution we need to reach our underserved and rural communities, many of which are still not wired to a traditional phone service.
Finally, another technological development you might be thinking about is the global positioning system, or GPS. GPS is a satellite-based, navigational system frequently used in conjunction with wireless services. I mention this because an increasing number of dispatch businesses -- which are typical SMR customers -- are using GPS systems to manage their vehicles. A taxi cab company in British Columbia, for example, started using a combination of wireless digital and GPS to speed up its dispatch process. It found that the old radio-based, voice system often led to misunderstandings and lost time. Now, it sends job details to taxis or fleet vehicles in a wireless digital format. It has also placed tracking devices on the vehicles so that they can track, through GPS, which vehicle is closest to a new customer call. Using this navigational system with wireless has resulted in substantial savings of time and money for the cab company. Because many SMR customers operate fleet dispatch services, you might think about ways to integrate the GPS technology into your current service package.
I've talked about some exciting technological developments in the industry that could serve your current customers. I also encourage you to think about opportunities for development abroad. Foreign markets are considered to be biggest growth sectors in 21st century, and now is the time to invest in these markets. There has been huge growth in the European Union resulting from those countries opening their markets to competition in the wireless. Spain, for example, showed a 200 percent increase in wireless phone subscribers in 1996. The number of subscribers in that country is expected to triple from 3 million in January 1997 to 9 million by January 2000. Tremendous growth is also expected to occur in Eastern Europe and in Latin America, where many governments are undertaking regulatory reforms to open their telecommunications markets. There are tremendous new opportunities for U.S. participation in global markets. Recently, while meeting with government officials from Turkey, Korea, South Africa and other nations, I have been told that they are looking for American investments and expertise in telecommunications.
The opportunities for wireless services are especially obvious in developing countries, where there are vast rural areas that have yet to be wired. Remember, 80% of the people in the world don't have a phone. In some countries, such as Nepal, it is more likely that a person's first phone call will be made on a mobile phone than on a telephone.
This is not only a market for the big players, such as Motorola or Ericsson. There are real opportunities for smaller commercial trunked radio operators. According to a recent report put out by your sister agency, the International Mobile Telephone Association or IMTA, more than 55 countries have active commercial trunked radio industries. These countries are only now becoming aware of the benefits of trunked radio systems and have a need for group communication systems. IMTA projects that, by the end of this year, there will be more than 600 operators servicing more than 8.3 million subscribers. The highest growth rates are expected to be in such countries as Argentina, Brazil, Mexico, and South Korea.
I know that Alan has been working closely with foreign governments to develop regulations that support the growth of trunked radio systems. NTIA has also been promoting the development of wireless technologies in foreign markets. Along with the US Telecommunications Training Institute (USTTI), we have been providing radio management training to regulators and communications professionals in other parts of the world. Our expectation is that, if there is better spectrum management abroad, domestic wireless operators will also be able to provide services in those countries. We hope that through these efforts, and the efforts of IMTA, we can continue to create lucrative opportunities for SMR operators in foreign markets.
I've identified a few new directions that NTIA believes are particularly significant in the wireless industry. Not all of these may be relevant to your particular businesses. I am also sure that you have identified particular directions for your future growth that are specifically catered to your geographic and business needs. I am simply saying that, as in all competitive markets, it is important that we all look to the future and anticipate new needs and new trends. You were the original pioneers and entrepreneurs in the wireless industry, and NTIA has made it, and will continue to make it, a priority to ensure that small businesses continue as active competitors in the market. Nevertheless, all businesses - whether small or large -- must continually think about new technologies and business opportunities if they are to succeed in this competitive climate.
I hope, in that process, that NTIA can continue to work with you to identify new ways to promote the growth of entrepreneurial businesses and find new opportunities for SMR operators.