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The History and Lessons of the Cellular Industry

With 24 years of experience in telecommunications and wireless, Liz Maxfield currently works with CFX, a firm providing engineering, construction, and surveying services. Kevin McKeand is president of TexLink Communications, which provides bundled voice and date services in central Texas. Jeffrey Nelson works in corporate communications for Verizon Wireless.

With 24 years of experience in telecommunications and wireless, Liz Maxfield currently works with CFX, a firm providing engineering, construction, and surveying services. Kevin McKeand is president of TexLink Communications, which provides bundled voice and date services in central Texas. Jeffrey Nelson works in corporate communications for Verizon Wireless. And Mark Desautels serves as vice president of wireless Internet development for the Cellular Telecommunications and Internet Association.

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The panelists at SXSW Interactive discussed several aspects of the history of the cellular industry — and a few lessons they’ve learned over the years. Among the questions explored: Were the innovations that allowed roaming relevant to the advancement of licensed and unlicensed wireless communication? What follows is a partial transcript of the panel discussion.

Liz Maxfield: I am on the steering group of the Austin Wireless Alliance, which was started last year. We are part of the vibrant and growing Austin wireless community. A couple of quick thoughts to set the stage. This is cellular service in 1982, two cities. This is cellular service in 1988. People still thought of it in clumps. The migration from analog to digital voice happened around 1991, and the first all-digital system was up in 1995.

Interoperability is crucial. Interconnection and the integration with the public switch networks was controversial. Truly portable devices really changed things. The Motorola StarTac was the first portable to weigh less than a pound, and that came out in 1999. Digital transmission technology and enhanced data capabilities are also important. The major issues are the same then as they are now.

Kevin McKeand: What’s going on today? Let’s talk about what customers want. They don’t care about TDMA, GSM, or CDMA, they just want it to work fast, at a competitive price, and at high quality. For a large part of the pop, speed of data use is irrelevant. It’s the application that counts. Consider the Blackberry. People love it, but they don’t care about the speed. People want apps that help improve their lifestyles. Local phone service, which is the competitive benchmark, is $35, and they get unlimited minutes. Customers also want landline-quality service. That said, they do want differentiated service offerings. They want carriers to be competitive.

What do the carriers want? They want increase average revenue per user. They also want to offset the decline in the voice revenue. And they are filling that void with data products. At the same time, they need reduced churn and differentiated service offerings that drive penetration and adoption and bridge the technology gaps. It’s hard to get people to send email on their cell phone when they can’t even send an SMS.

Let’s look at subscriptions and subscriber churn. A lot of people look at the percentage. One number we used to look at is 1 divided by the churn rate is the tenure of a customer. Churn is so important. That doesnt even take into account the replacement factor. It’s very important for carriers not to lose customers.

I want to look at three examples of how all this works in the last 15-20 years. Carriers are very competitive trying to win new customers, but I’m going to give three examples in which carriers worked together and actually increased adoption rates. Back in 1986 or 1987, if you wanted to roam, you had to call your carrier, who would call a carrier in the city you were going to, and they would put you into their system. Then they sent you a bill. The carriers got together and formed the North American Cellular Network so your feature set followed you across an SS7 network. There was automatic registration and standard billing records through something we created called CIBER. What happened when we did all that? This is what happened to roaming revenue. Today it’s a billion-dollar business.

Back in 1986 and 1987, fraud prevention was also a big problem. We decided we wanted to build in fraud prevention. We worked with the secret service, and essentially, we shut fraud down. It’s still $100 million a year, but before it was $760 million, so it’s not that big a deal.

Then there’s inter-carrier messaging. It used to be that if you were an AT&T customer, you could only send a text message to other AT&T customers. We started using a standard protocol and utilized cross-carrier messaging gateways. What happened? After we launched this two summers ago, it went from 20,000-30,000 messages a month to 1 million messages a month. Everybody wins.

Jeffrey Nelson: Question No. 1: Two national wireless companies recently announced that one is buying the other. Who’s buying whom? Question No. 2: The No. 1 reason why a wireless customer calls their customer service. Question No. 3: The wireless industry is 20 years old right now. This city is where the first commercial wireless phone call was made in the US. Question No. 4: Calls to 911 from wireless phones are helping first responders, public safety to pinpoint the location of callers. What technology enables that location information. Question 5: American’s use their phones for business and personal use, and a combination of both. What percent uses them for personal use only. Question No. 6: How satisfied are customers of different technologies with their service in five different industries — wireless, local telephone, long-distance telephone, cable TV, and high-speed industry. No. 7: On Nov. 24, 2003, a federal government mandate gave wireless customers something they really wanted in 100 markets. On May 24, 2004, the rest of the country gets it. What is it? No. 8, the bonus question: Come closest in terms of percent — taxes, fees, and the cost of government mandates adds x% to customers’ cellular bills.

No. 1: Cingular is buying AT&T. There’s no half points on this, man. No. 2: 22% call for billing. In fact, this is a huge opportunity for wireless carriers to differentiate themselves. Carriers differentiate on the quality of their network, phone offerings, price. Customer service is one of the next great opportunities. Question 3: The first commercial wireless call was made in Chicago. Liz, were you there? Oct. 15, 1983, Navy Pier. My CEO was there. This call was made in a car because you needed the car battery to run the phone. First Chicago, then Washington. That legacy of building on islands and extending on major highways was based on phone calls costing $2 a minute. That’s also the history of how wireless licenses were provided by the government. No. 4: GPS. E-911 phase two is just rolling out. You need a phone with one of those phones. Also, we’ve got to upgrade our networks and pipes. Privacy is another issue. No. 5: 80% Totally the opposite of 15 years ago. Next question: Here’s the real rank — No. 1 is high-speed Internet, wireless, long-distance telephone, local telephone, and cable TV. Two of the services viewed as least competitive has lowest satisfaction. No. 7: Number portability. Bonus question: 19%.

Mark Desautels: Well, I think we’re almost exhausted after that. I have arole unlike anyone else’s at the CTIA. I have nothing to do with policy, and I have nothing to do with voice. Back in 1998, with screens that had four lines and 12 characters per line, the IT industry wasn’t too impressed. A lot has happened between now and then.

As we near 60% penetration in the United States, the arc begins to reflect the same arc as PCs. 97% of Americans can choose from between three and eight wireless providers. 78% can choose from five or more. In 1993, there were two providers per market. Average bills were $68. Now they’re around $40. Now we have 381 billion minutes of use. Then, there were 11 billion. And data revenues have just now begun to take off.

Until we had digital networks, we couldn’t do much. Now the content companies are getting interested. Over the last year, they’ve really started to look at what they can do over the network. This year, Internet-enabled handsets will surpass PCs. Amidst all this evolution and innovation, who uses cell phones are changing, too.

We don’t expect CMRS and WiFi to be mutually exclusive services. If they’re not integrated, they won’t really be compelling. Widespread, ubiquitous networks are going to be very compelling. If you can’t roam between all of those technologies — roaming is going to be a lot like it was originally. Washington, DC, is one of the cities where 500 kilobit service is available.

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