ROUHANA CITES ‘DICHOTOMY’ OF FINANCIAL MARKETS FOR TELECOM

Division, Rouhana said, has pitted financial markets that “could not grasp the fact this process was going to take a lot of money and a lot of time to actually make it to a real business versus the real-life demand that exists from customers.” Rouhana said industry faced challenges of investor expectations that at outset were so overblown as to provide financing even to weak business models and now were punishing all aspects of sector.

Until “dichotomy” between dried up financing markets and growing consumer demand is addressed, “we are all going to be stuck in a never-never land,” Rouhana said. “This isn’t going to go on indefinitely because most of these things don’t. I think the pendulum has swung way too far to the negative.” Until capital markets acknowledge CLECs can’t replace “in a few years what it took a hundred years to build,” Rouhana said he wasn’t optimistic about rollout of more broadband networks. Now that company is in Chapter 11, its focus is on getting to profitability as quickly as possible, he said: “The real question for us will be do we have enough critical mass to be able to achieve that quickly. I think we do but it’s not an easy job.” Broader question, he said, is whether local communications business is “a natural monopoly or not.” Rouhana also asked whether there was enough market share that was sustainable enough to allow local competitors to have return on investments connected to high initial costs of building out network. “Is there really an opportunity to compete in a sustained way?” he asked. Because Winstar is facilities-based CLEC, company still is in better position than most to answer that question, he said: “It’s a very open question, really, as to whether there is any strategy that really works in the end.”

Executives of AT&T Wireless, Sprint and WorldCom have outlined rollout plans for coming year, with AT&T putting heaviest emphasis on pursuing residential customers with fixed wireless offerings. WorldCom Broadband Solutions CEO Kerry McKelvey said Tues. that carrier had been offering fixed wireless broadband services to small-to-medium businesses in handful of Tier 2 cities as well as few Tier 1 cities. Carrier opened service this week in Chattanooga and Bakersfield and plans to start in 8 other markets by early fall, he said: “I have to admit right now in terms of our vision we're somewhat myopic… We need to get markets built out. People want the service and we need to get it out there.”

Another offshoot of sharp downturn in telecom sector has been that major equipment vendors are having “to tighten their belt significantly,” McKelvey said. “They're jettisoning a number of businesses that are maybe not quite ripe now and they are having to determine what are going to be the core businesses for us right now, not looking into the future. We're having to continue to struggle to keep vendors healthy and keep vendors in the industry during this time.” WorldCom still sees fixed wireless as “growth” industry. “Many of our clients are going forward,” he said. Anticipation of next-generation equipment has emerged as important theme this week as way to drive down costs and prepare for much larger influxes of subscribers expected next year and beyond.

Sprint has been testing 2nd generation equipment in Seattle area, Sprint Global Markets Group Pres. Len Lauer said. Current equipment can reach 60-80% of homes around tower due to line of site, he said in lunch keynote. Next-generation gear will improve that to 90% of surrounding homes, he said. Because of factors such as esthetics, line of sight and other technical issues, Lauer said that only 50% of sales now resulted in customer installations. “With next-generation, we expect to virtually eliminate such fallout.” Upcoming self-installation customer equipment is expected to reduce installation costs for Sprint as much as 90%, he said. Following Seattle test, next-generation equipment will debut in other markets, which Lauer didn’t name, by end of year.

FCC Wireless Bureau Chief Thomas Sugrue said more limited financial circumstances of companies “sharpens [agency’s] focus” on whether there are regulatory obstacles to industry’s performance or consumer access to services. While regulators can’t influence economic conditions directly, they can make adjustments “around the edges” in limited cases, he said. Wireless Bureau just finished rulemaking on reconsideration in 24 GHz band. “We're sort of debating when to schedule that auction, because in the normal course we might have that later this year,” Sugrue said: “The industry is still in such a state of turmoil that that might not be the best time to throw out a bunch of licenses.” Consideration isn’t just potential auction revenue, but concern that bidding doesn’t become “fire sale” that could result in services’ being deployed in spectrum in less efficient manner, he said.

Asked what comes next for PCS re-auction results following last week’s NextWave ruling, Sugrue said “it’s something we are going to have to look at very quickly.” While he has been recused from NextWave proceeding because his former law firm of Halprin, Temple Goodman & Sugrue had represented carrier, he said he assumed others at agency were studying appeal or settlement options. Such avenues don’t have to be “mutually exclusive,” he said.

Sharon Bertelsen, supervising attorney for MMDS section of Mass Media Bureau, said agency faced 2 issues before another filing window for 2-way ITFS applications was opened: (1) That all mutually exclusive ITFS licenses are subject to auction because they don’t have explicit statutory exemption. Former FCC Chmn. William Kennard had raised issue in letter to Congress in past year asking for clarification on whether there is legislative exemption for ITFS. (2) That decisions must be made on as-yet- unresolved 3rd-generation wireless decisions. -- Mary Greczyn

WCA Show Notebook…

Release of order on secondary markets at FCC still is set for fall, Peter Tenhula, aide to FCC Chmn. Powell, told WCA show this week. “Main issue,” he said, is how Commission interprets Sec. 310(d) of Communications Act, which historically has been given strict reading at agency such as in Intermountain Microwave case. That section of Act involves requirement that licensee seek FCC’s consent before control is transferred to another party, Tenhula said. In broadcast context, Commission allows local market agreements, and permits ITFS operators to lease excess capacity, he said. “We're trying to get a coherent approach to this that allows folks who are not necessarily licensees to have access to the spectrum and a vibrant secondary market,” Tenhula said. Second look also is needed at transfer of control procedures, he said.

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While last week’s U.S. Supreme Court decision in NextWave case has most immediate repercussions for bidders in re-auction such as Verizon Wireless, participants in WCA panels this week have alluded to ripple effect ruling may have on upcoming 3G decisions. U.S. Appeals Court, D.C., said Commission had overstepped bankruptcy law when canceling NextWave’s PCS licenses for nonpayment (CD June 25 p1). “We're in a changing environment, NextWave is part of that changing environment,” said Gerry Salemme, senior vp-external affairs and industry relations at XO Communications. New ICO, which like XO is backed by cellular pioneer Craig McCaw, has petition pending before FCC asking that its mobile satellite services spectrum be available for terrestrial use, as well. Part of what NextWave ruling means is that there are “certain rules we have to abide by and if we start to change them the original policy changes,” Salemme said. Designated entity plan shifted through successive Commissions, partly through court rulings that changed its scope, he said: “You had a lot of ambiguity around that.” As for MSS spectrum, he said, “we need to stay as close to the current rules as we have… but at the same time recognizing there may be new policy objectives that allow you to expand your flexibility to capture new needs.” Former FCC Comr. Harold Furchtgott-Roth said in lunch speech Mon. that “whether your views are favorable or unfavorable to NextWave’s behavior,” the court ruling addressed important property rights for FCC licensees. Decision was “profoundly important for license-holders,” he said, in speech that emphasized need for govt. in general, and FCC in particular, to pay greater attention to property and contract rights.

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If FCC is going to take MMDS and Instructional TV Fixed Service spectrum out of consideration for 3G, representatives of both industry segments said Tues. they want to see it happen before pending further notice. FCC is expected to release shortly proposal that would give additional consideration to bands other than 2.5 GHz occupied by MMDS and ITFS, including lower MDS bands at 2.1 GHz, unlicensed spectrum at 1.9 GHz, and others. Concern is that if decision isn’t made before further notice comes out, move that could take MMDS and ITFS bands out of contention for 3G reallocations could be extended until later this year, Washington attorney Henry Rivera said. Another potential peril to quick resolution for ITFS and MMDS players is if Congress becomes actively involved in debate, he said in Tues. panel discussion. “Legislation eats up resources like litigation,” he said.

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Michael Binder, asst. deputy minister for spectrum information technologies & telecommunications for Industry Canada, reminded FCC Wireless Bureau Chief Thomas Sugrue that Canada was focusing on 1.7 GHz band for 3G services. At WCA show this week, participants have been reiterating calls for FCC to take MMDS and Instructional TV Fixed Services bands “off the table” for next- generation wireless decision, move that would leave alternative bands such as 1.7 GHz now occupied mostly by military in U.S. “Obviously, hint, hint, we are ready, willing and able to go in this band,” Binder said in panel discussion with Sugrue. Broadband access via fixed wireless is important component of national plan released last week by Canada that aims for ubiquitous broadband access by 2004, Binder said.

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Sprint Pres. Global Markets Group Len Lauer told WCA conference Tues. that company planned to bundle fixed wireless offering, Sprint Broadband Direct, with its PCS plans, although he didn’t give details on pricing. In first quarter of this year, 35% of company’s fixed wireless sales included bundled long distance services, he said in keynote.

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WCA 2001 Conference has record-breaking attendance this week, with 2,262 registrations as of Mon. morning, 300 more than last year, which had shattered previous record, Pres. Andrew Kreig said. Among panel participants, FCC has had particularly strong showing this year, including Wireless Bureau Chief Thomas Sugrue, Cable Bureau Chief Ken Ferree, Acting Deputy Chief Economist Jonathan Levy, 8th floor advisers including Comr. Tristani’s aide Adam Krinsky.

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Women’s Wireless Network in inaugural meeting at WCA show honored former Comr. Susan Ness, who quipped she was practicing talking about Commission in “they, not we” sentences. She said, “for example, given the tumultuous D.C. Circuit’s C-block decision Friday, it is clear that they at the Commission have their work cut out for them.” She recounted results of recent Annenberg Public Policy Center report that documented dearth of women in top jobs in media, telecom, e-commerce companies. Some progress has been made in last 3 months, including election of 2 female executives to NCTA board, she said. Ness also cited spate of recent studies, including American Bar Assn. report on limitations women face in legal profession. “What these studies reveal is instructive: The sparse number of women in top leadership positions in technology companies and in the legal profession echoes that of the communications industry,” she said.