Welcome to the May 1999 issue of the HELLERSTEIN TELECOM &TECHNOLOGY REVIEW, a monthly free newsletter covering significant industryand regulatory developments in the telecommunications and technology industries.The newsletter is published by Hellerstein & Associates, a telecommunicationsand technology research group that provides its clients with a competitiveedge through market research, competitive intelligence, and regulatoryanalysis of broadband access and competition policy issues.

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 This months issue will focus on some of the insight gained ata recent American Enterprise Institute luncheon speech by Sam Ginn, Chairmanand CEO of Airtouch Communications. Ginn first commented on Airtouch'srecent merger with Vodaphone, then spoke on the growth of wireless as comparedto the Internet, the future of wireless, ie, third generation services,and lastly, offered his views on the public policy issues the US Governmentshould adopt to speed up wireless penetration and growth.

 VODAPHONE MERGER

 Ginn remarked that originally Airtouch wanted to remain independentbut entered into merger discussions with Bell Atlantic after finding thatBell Atlantic was unwilling to expand their wireless joint venture, preferringnot to share control over its wireless properties with Airtouch. He statedthat Bell Atlantic preferred ownership of Airtouch to any joint ventureor marketing arrangement. Ginn remarked that he felt obligated to exploreand later accept Vodaphone's proposal because it offered better value toAirtouch's shareholders. He remarked that the market confirmed his choiceby punishing Bell Atlantic's stock every time it appeared that Bell Atlantichad the upper hand and raising the value of Vodaphone's stock.

 WIRELESS PENETRATION

 Ginn remarked that many people comment on how fast and how quickthe Internet is growing, but these same people fail to realize that wireless has a faster growth rate and higher penetration than the Internet. Ginn stated that wireless currently has over 300 million users and is in 110 countries, while the Internet has only 110 million users (60 million inthe US) and is in only 10 countries. Moreover, he stated that the growth rate of new wireless subscribers is 114% as compared to the growth rate of 108% of new Internet users.

 Ginn acknowledged that US penetration was not as high as Europeanpenetration because of the choice made by the US Government not to mandatethe use of a single wireless standard. As a result, the US has, what hecalled, a hodgepodge of standards driven mostly by TDMA and CDMA. The lackof a single standard he believes has slowed the penetration of wirelessservices and also has not allowed US subscribers to call from one countryto another as is commonly done in Europe. Hellerstein & Associatesstrongly believes that the US Government made the right choice in not mandatinga single standard, as mandating a standard slows innovation and erasesthe incentives necessary for the creation of new services. The surest roadto ensuring vibrant and vigorous competition is to allow the market towork, with the government standing on the sidelines providing guidanceand support when necessary. Sam Ginn, while acknowledging that the US Governmentwas correct in stating that mandating of a standard for all wireless operators results in less innovation, as can been seen in the recent staleness inthe European GSM standard. However, Ginn stated, the US Government hadnot taken in to account the effect that a plethora of standards would haveon penetration rates. Perhaps, if Government officials had weighed thisfactor more heavily their policy goals might have been different.

 As the plethora of wireless standards in the US will continuefor some time in the future, there are several significant steps that Ginnstated could be taken to increase penetration. The lack of a calling partypays (CPP) framework in the US, according to Ginn, is the single most significantreason why the US has lagged behind other countries in penetration levels.As evidence, Ginn used the wide differences between outgoing and incomingcalls (80% outgoing in the US compared to 50% in Europe) as proof of thedamage caused by the lack of a CPP framework. He stated that he saw noreason why the US does not adopt a CPP framework. Hellerstein & Associatesagrees that CPP affects penetration rates, however, the lack of a CPP frameworkis just one of the reasons affecting penetration, the plethora of standardsis another and the lack of digitalization is a third reason; only 27% ofthe US is digital as compared to about 100% of European networks and users.A fourth reason, is the lack of any competitive alternatives to cellularuntil the auctioning of PCS and other spectrum. The need to build out andgain customers as quickly as possible has given impetus to PCS carriersto come up with their own creative solutions to increase penetration. Thesesolutions were extremely attractive pricing plans, first incoming minutefree, free long distance, and free vertical services, such as voice mail.

 Ginn then commented on the policy issues that the US could correctthat would speed up wireless penetration and growth. Ginn stated that thegovernment needed to abandon its wireline mentality, by that he meant thatthe FCC should not impose what he termed "wireline" regulations on wirelesscarriers. In particular he mentioned, truth in billing, CPNI, and numberportability. Ginn stated that regulators should look towards the wirelessindustry as models of competition. Thus they should not try and imposewireline regulatory burdens on the wireless industry, rather they shouldlook to replicating the wireless industry model in other sectors. Thisnotion of looking towards the wireless market as models of competitionis the slogan for Cellular Telecommunication Industry Association.

 Perhaps the most significant issue Ginn mentioned regarded spectrumallocation. Ginn called for the elimination of the spectrum cap, statingthat the cap was an impediment to wireless growth and penetration. Moreover,he stated that spectrum alignment issues were one of the most significantones for Airtouch and had wide reaching effects on the impementation ofuniversal wireless services in the US.

 FUTURE OF WIRELESS

 Ginn then expanded on what he thought would be the future of wireless,particularly wireless data applications. Ginn predicted that in the futurenot only will billions of minutes move from the wireline network to thewireless network, but also wireless devices will become the major input/outputdevice to the Internet. As evidence of this, he pointed to the large numberof European teenagers who can been seen in all cities communicating witheach other through the sending of short text messages. Ginn predicted thatin the future wireless devices will take on a form of point of servicedevice able to continuously download timely information from the Internet. Ginn remarked that he thought that in the future wireless devices wouldreplace the PC as the input/output device of choice. However, Hellerstein& Associates believes that for this vision to become a reality, thewar over third generation services (3G) needs to be resolved and the twowarring factions need to come to some form of agreement that would allowfor a universal global wireless standard. Ginn stated that it was unfortunatethat the US could not negotiate a 3G standard although the US and Europe appear to be getting closer.

Hellerstein & Associates is interested in learning what its readers think of these issues. Please send all comments directly to Judith Hellerstein at Judith@jhellerstein.com. If you would like more information on this topic please e-mail Judith Hellerstein at Judith@jhellerstein.com
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Hellerstein & Associates, www.jhellerstein.com, is a telecommunications and technology research group that provides its clients with a competitive edge through market research, competitive intelligence, and regulatory analysis on market access and competition policy issues. We look forward to hearing from you and will strive to meet all topic requests. Redistribution of this newsletter is encouraged provided it includes this paragraph.

Topics covered in the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW were chosen because of their interest to the work of Hellerstein & Associates. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com.

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