CEOs WANT STATE WIRELESS PURVIEW CURBED IN TELECOM ACT REWRITE

While the competition that has emerged from wireless regulations should be a model for telecom policy, Verizon Wireless CEO Denny Strigl said his “fear is that we are moving toward government-managed competition.” At the federal level, “we can say let’s let the mandates that we have work. But the bigger fear for us -- I think this is perhaps the biggest issue in the industry -- is what happens at the state and local level,” he said: “I don’t think the industry has been focused nearly enough on what occurs at the state level.” He cited as an example “discriminatory” state tax policies for wireless operators. Carriers must “make sure that our customers aren’t getting nailed because states and local governments find us a successful, convenient place to raise taxes,” Strigl said.

The proposed consumer bill of rights in Cal. poses a “frightening” prospect, said Nextel CEO Tim Donahue: “From our perspective, this is the single biggest regulatory issue that we face.” Donahue said he would prefer to see Sec. 332 of the Telecom Act revisited to allow federal preemption of state wireless regulation, “versus all these states and all these different agendas where you have a domino effect.” Donahue said the irony is that competition under current rules has meant lower prices for customers: “It’s not like you have an industry that is gouging the customers in terms of pricing.” Alltel CEO Scott Ford said some state and federal regulators are looking at the migration of traffic from wireline to wireless networks and mulling “how do I take my regulations from wireline to wireless.” But he said that wireless service has become cheaper because it hasn’t been governed by state regulations.

T-Mobile USA Chmn. John Stanton said the wireless industry didn’t get the benefit of the “bargain” of the 1996 Act. “There was an understanding as part of that there was going to be federal preemption of cellular,” he said. But Stanton said his community of Medina, Wash., has imposed such strict tower siting rules that he can’t get coverage in his garage. “There is literally no siting allowed in the community of Medina to a degree that coverage is awful throughout a relatively affluent community,” Stanton said: “It is to the point that the next Act needs to address a series of things to really realize the opportunity that is associated with competition. Right now we have the burdens of competition, which we are willing to accept. Yet we have got oppressive taxes, unfair siting arrangements, unfunded mandates. We as an industry have to stand up and do something about it in the legislation that is coming up in the next Congress.”

“I think these are all a lot of great, idealistic thoughts,” Lauer said, but the prospects for a Telecom Act rewrite are low. The chances of getting federal preemption over state wireless regulation will be “hard to pull off,” he said. Lauer noted the wireless industry recently put together a voluntary consumer code of best practices to address service quality issues: “We should do as much as we can on our own and not think we are going to be able to rewrite the Telecom Act.”

On wireless LNP, which took effect in the top 100 markets Nov. 24, several company heads agreed the impact was relatively anticlimactic compared to predictions by some of massive upheaval. “It was way overblown,” Strigl said of the hype preceding the Nov. deadline: “Here’s the real test-- May 24. We have two-thirds of the customer base in the United States today that can move from one carrier to another. The big test is when every customer can do it. And my take is there’s not going to be any last-minute reprieves this time.” FCC rules require wireless LNP in markets outside the top 100 May 24.

An even bigger issue than the deadline is “that we don’t really have intermodal portability,” Stanton said: “Notwithstanding FCC rules, as a practical matter, the vast majority of the landline carriers are doing everything they can do to drag their feet on intermodal porting.” May 24 is an interesting deadline because it brings thousands of independent companies into the wireless LNP process that “are doing everything they can -- including hundreds of waiver requests at the FCC -- to get more time or to be completely exempted from the obligation to port,” Stanton said. Wireline companies are conducting ad campaigns to embrace wireless as part of their industry “and embrace the notion of no regulation,” he said. But these same companies are using regulations to avoid having to address intermodal porting, Stanton said: “It’s an enormous regulatory and political issue.” Intermodal porting should be hitting completion rates of above 90% in a short interval and “it’s simply not happening,” he said.

But Verizon Wireless’s Strigl said he would rather “get the wireless industry fixed first.” The number of intermodal ports that have occurred even among Verizon and Verizon Wireless customers is relatively small, he said. Intermodal porting is an issue, but it’s more important “that we create the right perception about our industry, that we are behind this.”

The heads of the wireless carriers had slightly different views on the impact of industry consolidation in light of the proposed $41-billion merger of AT&T Wireless and Cingular. Now that the FCC has lifted the spectrum cap, “consolidation is a likely outcome as a result of the changed government rules simply because in many cases you have competitors who are inefficient, competitors who aren’t successful,” Stanton said. Consumers ultimately will decide “who’s the winner and who’s the loser.”

Nextel’s Donahue said the coming together of AT&T Wireless and Cingular will likely result in a “better network product.” Wireless has become so pervasive that network coverage has become more important, he said. “As the industry consolidates, you are going to get better networks in my view, which is going to cut down on churn, which is a very positive financial outcome for the industry,” Donahue said. This will mean better products for consumers and “some of the weak sisters are not going to be around anymore,” he said.

But Strigl downplayed the repercussions of consolidation: “I don’t think consolidation has any impact on this business at all.” Consolidation isn’t going to do anything to help the carriers remain after their rivals have found partners, he said. “People talk about maybe we'll see some stabilization of prices,” Strigl said: “But let’s face it, we've got 5 national competitors, 2 or 3 local competitors. The choice remains huge for the consumer.” The impact of having one fewer competitor after AT&T Wireless and Cingular merge is “nothing,” Strigl said.

“Clearly the consumer is the winner in this because we will be able to deliver a much better network product,” said Cingular CEO Stan Sigman. “We will be able to better fund R&D for applications to run on top of 3G.” Other consumer choices, such as VoIP, will change the wireline market so it’s more competitive with wireless, he said.