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FCC vote ends cell phone industry's adolescence

Get set for a new era in the crazy wireless phone market.

A little noticed regulatory decision in Washington just set the stage for a major shift in who will dominate the nation's wireless phone business and, in turn, how much they may charge customers.

Last week, the Federal Communications Commission voted to do away with a cap limiting how much of the airwaves any one wireless company can control. The cap has limited a company to owning no more than 45 megahertz of spectrum out of about 185 megahertz available to mobile phone companies in any metropolitan area, including Tampa Bay.

The new rule eases the cap by 22 percent or 10 megahertz, to 55 megahertz, before eliminating it totally in 2003.

For starters, the FCC decision allows wireless companies to acquire enough spectrum to improve coverage and upgrade their networks with next-generation technology.

But it also gives the green light for big wireless phone companies to acquire their smaller and once-protected competitors.

The upshot? Say goodbye to the industry's early and entrepreneurial period (late 1980s to 2001), marked by aggressive, young wireless providers and intense price competition.

Say hello to the next industry cycle of fewer, bigger providers and _ as competition cools _ eventually higher prices.

The adolescent rise of the wireless phone business has been phenomenal.

From 1.2-million adventurous subscribers in 1987 (who paid an average of $96.83 a month for less-than-stellar quality service), the industry has grown to more than 123-million subscribers who pay an average monthly local bill that's half the 1987 price. (See table, right.)

Since the tragedy of Sept. 11, the appeal of wireless phones as emergency lifelines has boosted their popularity.

Still, the days of ever-shrinking monthly bills appear to be over.

Ending 12 consecutive years of sharp drops in the average local monthly bill for wireless phone service, a low of $39.43 was hit in 1998. Since then, average monthly local bills have been climbing, in part because consumers are talking more as they've grown increasingly dependent on wireless phones for everyday use.

In the Tampa Bay area, six wireless phone companies vie for your business today. They include Verizon Wireless, AT&T, Sprint PCS, Cingular (a BellSouth/SBC venture), Alltel and Voicestream. (Another provider, Nextel Communications, offers a wireless phone service combined with a two-way radio.)

Remember these days. By 2003 or so, it's very doubtful six companies will be around to pitch their services.

Merger mania won't happen overnight. A struggling economy will slow the pace. Technical compatibility issues will discourage a few potential combinations of providers.

But consolidation is coming.

Led by FCC chairman Michael K. Powell, the federal agency's decision last week to end all ownership caps is a victory for Verizon, Cingular, AT&T and other large mobile carriers. They wanted additional spectrum in order to introduce phones that allow higher-speed wireless Internet access. Such service will gobble huge amounts of the nation's airwaves.

Of the big wireless providers, AT&T and Cingular most desperately need additional airwaves to satisfy customer demand and update their networks.

One of the easiest ways to gain more market share is to buy it. That's why analysts point to Voicestream, owned by Germany's Deutsche Telekom AG, as well as regional player Alltel and Nextel as obvious takeover targets once the ownership caps disappear in 2003.

Until then, big wireless providers are scrambling for spectrum leftovers. Bankrupt NextWave Telecom Inc., for example, owns licenses for a piece of the wireless spectrum that Verizon Wireless and others are eager to acquire.

Analysts say Verizon, the nation's leading wireless carrier, already has bumped up against its ownership ceiling in the two largest wireless markets in the country: Los Angeles and New York City. That would restrict Verizon from adding new customers or new services in those areas.

No wonder the company is considered the likeliest candidate to go shopping for smaller carriers in the wake of the FCC vote.

To prepare for that day, Verizon Wireless wants to split from parent Verizon Communications and complete a $5-billion initial public offering by mid-2002. The wireless business delayed its IPO more than a year due to poor market conditions. Verizon wants to list its common stock on the New York Stock Exchange under the symbol VZW.

The FCC's move to eliminate the caps on wireless market share suggests the feds are satisfied that carriers finally have enough competition in big cities to keep them from becoming monopolists and gouging consumers.

The fed's action also reminds us that the intense price competition in the wireless market makes it hard for companies to become profitable.

A J.D. Power and Associates 2001 survey of the wireless business found that it costs a wireless phone company between $350 and $475 to acquire a new customer. To make a profit on that customer, the wireless provider must hold on to the consumer long enough to cover that acquisition cost.

That's not happening, J.D. Power says. The length of time a typical wireless user stays with a carrier before switching is growing shorter _ from 2.54 years on average in 1999 to 2.40 years in 2001.

The FCC's action will change all that. When the mergers begin, the competition will ease, and the price of service should rise. (Though new technologies may help moderate price increases.)

Enjoy the waning days of a young and restless industry.

_ Robert Trigaux can be reached at trigauxsptimes.com or (727)893-8405.

Cell phone bills rising

After 12 years of technology improvements and increased competition, the average local monthly bill hit a low in 1998. Since then, the average bill has climbed 15 percent.

Year Avg. local

monthly bill

1987 $96.83

1988 $98.02

1989 $89.30

1990 $80.90

1991 $72.74

1992 $68.68

1993 $61.49

1994 $56.21

1995 $51.00

1996 $47.70

1997 $42.78

1998 $39.43

1999 $41.24

2000 $45.27

Source: Cellular Telecommunications & Internet Association

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