YOU ARE AT:Archived ArticlesRESALE'S ROLE TO BE REJUVENATED WITH ONSET OF PCS COMPETITION

RESALE’S ROLE TO BE REJUVENATED WITH ONSET OF PCS COMPETITION

WASHINGTON-Resale could become a powerful force in wireless telephony in the coming years, bringing an odd mix of competition and commerce to facilities-based carriers.

Resale has experienced modest success in the 12-year-old cellular industry, but the infusion of more spectrum (120 megahertz) and new competition may breathe new life into the wireless resale market.

“We think resale will play an important role,” said David Gusky, president of National Wireless Resellers Association.

New digital pocket phone companies-spending billions of dollars on spectrum, microwave user relocation, system construction and marketing-will be under enormous pressure to sign up subscribers.

For AT&T Corp., Sprint Corp. and the Baby Bells, a robust resale market could be a potential competitive threat or a profitable sales channel. But for most others, resale is more likely the road to economic salvation. Few firms have the marketing clout, technical expertise or financial wherewithal to knock heads with such telecom behemoths.

It will be anything but quiet on the wireless front in the future. Fierce competition likely will open the door for wireless resale to flourish. Moreover, women and minorities, whose bright prospects for participation in the telecommunications industry have been diminished as a result of new Supreme Court restrictions on federal affirmative action programs, may find some consolation in wireless resale.

There are about 100 cellular resellers today. The biggest of that bunch-Nationwide Cellular Service Inc.-was recently bought by MCI Communications Corp. for $190 million in a sign of things to come. Nationwide boasts 275,000 subscribers in 10 top U.S. cities, with revenues of $213 million last year.

In January, MCI inked resale pacts with Paging Network Inc. and SkyTel Corp., two of the top paging operators in the United States. Results have been good; the strategy seems to be working.

The No. 2 long-distance telephone firm hasn’t stopped there, however. MCI, has chosen to bypass pricy spectrum auctions dominated to date by AT&T, Sprint and regional Bell telephone firms. Instead, MCI chose to resell wireless services on the strength of its brand name, marketing muscle and advanced long-distance network. As part of that strategy, MCI last week signed reseller agreements with AT&T, GTE Corp., BellSouth Corp. and two other carriers. The company also plans to forge additional alliances to resell cellular and next-generation pocket phone service called personal communications services, or PCS.

Time Warner Inc., the entertainment and cable TV giant, also is having success reselling cellular service in Rochester, N.Y., and wants to expand into PCS through resale.

“We’ve been encouraged by our experience in Rochester,” said Dennis Patrick, chief executive officer of Time Warner Telecommunications and chairman of the Federal Communications Commission from 1987-1989. Patrick said Time Warner snares one of every three new cellular customers.

MCI and Time Warner plan to bundle wireless telephony with other telecommunications services and offer customers one-stop shopping. AT&T and Sprint, which are building out advanced digital wireless networks, also are employing that marketing strategy.

Make no mistake. No one believes MCI or Time Warner will be as big a player in wireless as AT&T, Sprint or the Baby Bells, but they are still worth mentioning in the big picture.

After MCI and Time Warner, there’s a big drop off size-wise in resale. Most cellular resellers are small and, for the most part, have historically antagonistic relationships with carriers. Resellers say lack of competition, owing to the duopoly market structure of the cellular industry, has kept the resale business from realizing its full potential.

Cellular resale is required by law but limited to airtime. Congress and the FCC are being lobbied to let resellers interconnect to wireless networks so they can install their own switches. There is no switched resale in the cellular industry today. Resellers say switched resale would enable them to provide new calling features, billing and other enhancements and, in doing so, bring more competition to the wireless telephony market.

Rep. Joe Barton, R-Texas, chairman of House Commerce subcommittee on oversight and investigations, tried unsuccessfully to get a switched wireless resale amendment included in telecommunications reform legislation. He will hold a hearing next month on competition in the wireless telecommunications industry.

Commercial wireless telephone carriers argue switched wireless resale will chill infrastructure investment and is unnecessary because there will be up to six PCS licensees competing with the two cellular firms for pocket telephone business in each market.

Switches cost a couple of million dollars or so, but the construction of wireless networks and, in the case of PCS, spectrum and microwave licensee relocation, could run into the billions of dollars.

The FCC, which pushed resale to promote competition in the long-distance telephone industry, supports wireless resale but is reluctant to mandate switched resale or force carriers to unbundle their networks for reasons advanced by carriers.

Even if policy-makers decide to let market forces drive wireless resale, big resellers like MCI and Time Warner should have enough leverage with new pocket phone firms to extract steep discounts for purchases of large blocks of telephone numbers and concessions to let them install switches.

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