COLUMNIST

The Future Unplugged: I Want My STV

by Bill Frezza

Of all the telecommunications ventures dotting the landscape, one stands out as the most comprehensive and daring attempt yet conceived to grab the high ground in an industry not known for thinking small. The Sprint Telecommunications Venture (STV) is a grand alliance of the number-three long-distance provider heading a consortium of cable colossi including Tele-Communications Inc. (TCI), Cox Communications and Comcast Corp., with the number one Competitive Access Provider (CAP), Teleport Communications Group, thrown in for good measure. Starting with a bang, STV ponied up more than $2 billion in the broadband Personal Communications Services (PCS) auctions, assuring itself the largest nationwide wireless footprint that money can buy.

So much new technology and so many existing and emerging market opportunities have been poured into STV that one shrinks at the prospect of trying to sort it all out. A simple enumeration of the products, services and players could go on for pages. A thorough competitive analysis of the constituent pieces would fill this magazine. Do the numbers add up? Will the underlying technologies be ready? Can the partners really work together? Will consumers buy the integrated services being proposed? It's a tough call.

Let's review some relevant background. Forty-five cents of every dollar the long distance providers earn gets siphoned off by the monopoly local exchange carriers. Merely scaring the RBOCs into lowering their local access charges is worth the billions you would have to spend on demonstration projects to convince them that you're serious. Here's one environment where hyperbole pays.

The cable operators, awash in debt and saddled with an antique one-way distribution plant, are desperately seeking sexy new businesses. They're launching one trial balloon after another as they nervously watch the local telcos threaten to build full-service broadband networks while lobbying Congress for permission to buy the cable companies out.

The CAPs are nibbling at the local telcos, building modern, reliable, all-fiber plants aimed at the heart of the most profitable business markets. This will slowly destabilize the universal service subsidies that keep the telcos fat, dumb and happy. If the CAPs can continue to fly under the radar of greasy politicians and regulators, they have a definite win just putting one foot in front of the other.

The cellular operators are busting at the seams as the mobile phone business continues its meteoric growth. They will soon give up the comfortable duopoly they've held for the last decade, but they're well prepared to bloody any PCS upstart fool enough to start a price war in their territory.

Everyone is watching the Internet, trying to figure out whether it's just another CB fad or the beginning of a trend that could have an enormous impact on the way businesses reach consumers and the way consumers spend their time and their telecom dollars. From whose hide will the time and dollars come?

Ready, Set, Market! So, what has STV decided to focus on? If strategy is about making choices, STV chooses all of the above. Business or consumer, wireline or wireless, data, voice or video, if something or someone is generating communications traffic, STV wants to hook it up. Its mission is to become the nation's preeminent, full-service, local telecommunications company.

STV's path to your front door will take it over next-generation Hybrid Fiber-Coax (HFC) cable TV systems, fiber loop CAP facilities and wireless PC S networks. About the only thing missing is low-earth orbital satellites and copper loops leased from the local telco, though one suspects that even these might be in the mix one day.

To achieve its goal, STV intends to offer every conceivable communications service as an integrated package under one brand name with one monthly bill, one source of customer support and plenty of cross-service tie-ins to reduce churn. Various local and regional infrastructures might be used to deliver these services, some owned by the consortium and some owned by the constituent members, but this would be completely transparent to customers.

Imagine moving into a new home, making one phone call, and saying "I want my STV." Your cable TV gets hooked up, your local and long distance telephone service gets turned on, your mobile/cordless phone gets reprogrammed and your monthly bill gets automatically deducted from your on-line bank account, which you can access over your cable modem via the affiliated @Home Web service. Your phone number follows you everywhere you go, the same cordless phone you use in your kitchen works in your car, and you can cruise the Internet at 10 Mbps. All this not only costs less than purchasing these services separately, but also works with four-nines reliability (99.99 percent uptime).

It is a breathtaking vision. Yet, for all the billions being bandied about, the picture remains maddeningly fuzzy when you try to look at it up close.

Puzzle Pieces On the business side, one has to wonder whether the true interests of all the participants can stay convergent over time. After decades of system aggregation, most cable operators have the look and feel of end-game players. Remember, TCI has already tried to cash out once in its abortive deal with Bell Atlantic. One has to believe that CEO John Malone, the craftiest man in the business, would sell out to the nearest phone company in a heartbeat if he got the right offer. TCI's pragmatic incrementalism, deploying assets only in respo nse to proven demand while weaving grand stories of million unit orders, lies in stark contrast to the "if we build it, they will come" philosophy at Sprint. Rest assured, if the initial take rates for cable-based telephony do not meet required payback thresholds, TCI will do what it does best, which is stand pat with its finger to the wind as it plays games slicing and dicing its different classes of stock.

Cox, in contrast, seems hell-bent to reprise the dive into the future it made in the early '80s, when it jumped into two-way services with its ill-fated INDAX interactive system. Having invested in widespread fiber upgrades in the backbone portions of its one-way networks, Cox believes it can complete systemwide, two-way HFC build-out in as little as three years. Can it solve the ingress and cross-modulation problems that plague HFC architectures, particularly at its aggressive 1,000 homes per node level? (TCI thinks it will have to go down to 300 homes per node to make HFC work.) Maybe. It's easy to get excited talking to Cox, yet one can't help conjuring up the image of Charlie Brown running full speed toward that football held by Lucy. This time for sure!

Comcast lies between these poles, keeping mum and hedging its bets by staying invested in its own cellular properties even as Sprint divests theirs. This could leave it in the curious position of competing with itself, something the Comcast cellular folks seem ghoulishly eager to commence.

Real Soon Now Then there's the question of timing. Given the massive up-front costs required to purchase and clear the spectrum as well as the value of beating competing PCS entrants to market, you might think there would be an imperative to minimize technology risks. Yet surprisingly, STV chose to push the envelope, announcing its intention to pursue a CDMA architecture much like its major competitor, PCS Primeco. Its plan, moreover, is to merge its PCS system with the local cable plant using experimental RAD/RAS remote antenna techniques. I n this approach, down-converted, but not demodulated, off-air signals are piped back over the cable plant to centrally located cellular base stations.

This inherently microcellular approach makes one wonder just how long it will take to build a broad enough metro footprint to attract the mobile user. Will STV instead focus its initial PCS service on low-mobility residential local loop bypass services, offering an extended-area cordless phone bundled with cut-rate long distance? This would certainly go a long way toward dodging some of the thornier problems of dynamic power control and soft hand-off that are still plaguing first-generation CDMA systems.

Again, the answer is no. STV's extensive market research has convinced it that bypass and mobile are not inherently different markets and that to succeed it must do both simultaneously. There's almost a sense of blind faith that if it can get the marketing equation right, its vendors will solve all the technical problems.

So we end up right where we started, with a grand vision resting not on exhaustive engineering, but on a pile of focus group interviews and financial spreadsheets. Having asked consumers the equivalent of that famous marketers question "Would you buy a dog that flies?" STV is now ready to ask the technologists to go out and build one.

Bill Frezza is the President of Wireless Computing Associates and the chairman of the wireless modem standards committee of the PCCA. Bill can be reached at frezza@radiomail.net.

October 15, 1995