1
                                                             








                 FEDERAL COMMUNICATIONS COMMISSION

                     PRESENTS EN BANC MEETING

                           ON PCS ISSUES

                      MONDAY, APRIL 11, 1994














































                                                             2
                                                             
    PRESENT:

    Reed E. Hundt, Chairman

    Andrew C. Barrett, Commissioner 


    TASK FORCE MEMBERS:

    Dr. Robert Pepper, Chief 
    Office of Plans and Policy 

    Don Gips, Deputy Chief
    Office of Plans and Policy 

    Tom Stanley, Chief Engineer 
    Office of Plans and Policy 

    Michael Katz, Chief Economist
    Office of Plans and Policy 

    Jerry Vaughn, Deputy Chief
    Common Carrier Bureau

    Ralph Haller, Chief
    Private Radio Bureau

    Nancy Peretsmall



































                                                             3
                                                             
    Panel I - Dr. Robert Pepper

    Tom Stroup
    Personal Communications Industry Association 

    Dave Twyber, President 
    Wireless Systems Group
    Northern Telecom

    David Kerr
    BIS Strategic Decisions

    Mark Lowenstein, Director
    Wireless Mobile Communications
    Yankee Group

    Dan Trampush
    Ernst & Young  
    National Director of Telecom Consulting

    Elliott Hamilton
    Vice president and Director 
    U.S. Wireless Consulting 
    MTA/EMCI

    Dr. C.J. Waylon, Executive Vice President 
    Marketing and Business Development 
    GTE Personal Communications Services

    Stan Besch

    Daniel Kelley     

    Jerry Hausman

    Al Honston

    John Oxendine

    Herbert Wilkins

    Paul Rissman









                                                             4

                       P-R-O-C-E-E-D-I-N-G-S 

              MR. HALLER:  If we could get started, please. 

    If we could have our panelists come on up to the table for

    the first panel.  

              Good morning, and welcome to everyone.  We hope

    that we have an exciting day in store for you with a

    considerable amount of spirited debate before the day is

    over.  

              By way of background, these panel discussions

    are being held by the FCC's PCS Task Force.  The Task

    Force was created by Chairman Hundt in response to over 60

    petitions for reconsideration to the Commission's PCS

    decision last September.  

              The petitions reached nearly every single aspect

    of that decision, including spectrum size, licensing

    areas, treatment of designated entities, and

    interrelationships to other services, such as mobile

    satellite.  

              The Task Force members are Dr. Robert Pepper,

    Chief of the OPP -- Office of Plans and Policy; 

    Don Gips, Deputy Chief, Office of Plans and Policy; 

    Tom Stanley, Chief Engineer; Michael Katz, Chief













                                                             5

    Economist; Jerry Vaughn, Deputy Chief, Common Carrier

    Bureau, and myself, Ralph Haller, Chief of the Private

    Radio Bureau.  

              The function of the Task Force is to examine all

    aspects of the PCS decision and the auction procedures to

    assure consistency and to move the process forward.  

              Contrary to some press reports, we view the task


    force as a way to assure a speedy decision-making process

    and not a delaying factor, but we must carefully consider

    the many, many issues and make sure that the next decision

    by the Commission is a very reasoned and very


    knowledgeable decision.

              In that regard, we've invited a number of

    experts in market forecasts, economics, the financial

    community, spectrum and technical issues.  We've attempted


    to get representation on all sides of each issue, based on

    information that's already been filed in the record. 

              Speaking of filing, we will accept additional

    comments for the record through the close of business on


    April 22nd.  The comments may address specific issues that

    were brought up on this Panel.

              I would ask, if you have already filed a
















                                                             6

    position, that, since we know what that is, you need not

    re-file it, but if you have additional information that

    would help us make our decisions, then we urge you to file


    by close of business on April 22nd. 

              The basic format of today's session is for each

    panelist to have five minutes to present his or her

    position.  For the information of the panelists, there is


    blue and red light in front of me.  When the blue light

    comes on -- could we have the blue light -- when that

    comes on, that's the four-minute mark; then when the red

    light comes on -- that's it -- and you'll also hear a bell


    (ringing of bell).  

              [Laughter]

              Would you hold that bell up so they can see the

    size of it?  We wanted to make sure everyone could hear


    this.  

              VOICE: You finally found a use for your bell.

              MR. HALLER:  That's right.  

              We ask the panelists that, when you hear the


    bell ring, please complete the sentence that you're in, so

    that we can move onto the next panelist.  We have a full

    day and we're going to be not very humorous about
















                                                             7

    extensions of time.

              After the presentations, we will then ask the

    Panel various questions and hopefully get some debate


    among them.

              No questions are going to be permitted directly

    from the audience.  However, we encourage you, if you have

    a question, please write that question down and pass it up


    to us.  We reserve the right to use it or not use it, but

    you may well cause us to ask a question that will be very

    helpful in these proceedings, so by all means feel free to

    pass those questions forward.


              These proceedings are being videotaped.  Copies

    of the videotape can be purchased from the duplicating

    contractor, and the details of that are available at the

    table outside the back door.  We plan to enter a tape in


    the official record of this document, and we also hope to

    have a transcript available to you electronically in the

    very near future. 

              I would also like to express my appreciation to


    the three commissioners for their support of this Task

    Force and the support of today's panel.

              Unfortunately, Commissioner Quello could not be
















                                                             8

    with us today.  He does have a statement, which Chairman

    Hundt will read.  

              Without further delay, I would like to invite


    the Commissioners to offer any comments that they may have

    in these proceedings.  

              Chairman Hundt?

              THE CHAIRMAN:  Thank you very much, Ralph.


              Thank you, to everyone in attendance today and

    everyone who has participated but is not in attendance,

    and in advance to those who will continue to participate

    in our deliberations on PCS.  


              As all of you know, more or less, we will taking

    up a PCS item on an average of once a month for probably

    most of the months that remain in this year because there

    are so many different kinds of PCS items.  I won't detail


    all of them for you they're already well known to you.  

              What I think is important is that we focus on

    the general event that is occurring, and that is that

    United States, through regulation but primarily through


    the private sector, is attempting to enter or to put our

    economy into a new venture, a new sector of our economy, a

    new dimension of mobile telephony and other mobile
















                                                             9

    services. 

              This is very exciting.  We are among the world's

    leaders in this respect.  That's a good thing for us and a


    good thing for the world, and the businesses and other

    entities that are represented here today should claim that

    leadership, and should be telling us how we can so rule as

    to permit them to proceed on.  


              It is, indeed, as Ralph mentioned, because of

    the intensity of comment that we've received in the nature

    of reconsideration and on other upcoming items, that we

    thought it was best for us and best for the public at


    large, if you all were willing to participate in this open

    meeting, or round table.  I am greatly looking forward to

    the views that are expressed here today.

              I suppose it's a little bit like a game show


    where the answers are going to be given before the

    questions are asked.  That's the way Ralph has structured

    it, and I think that that's actually very useful and, very

    literally, it is the case that you all will be providing


    the answers to the questions that are in my mind and in

    Andy's mind and in Jim's mind.  You also are going to help

    us really frame those questions, so we are very, very
















                                                            10

    grateful.  

              I would like to ask Commissioner Barrett if he

    has a statement, and then I will read Commissioner


    Quello's statement.  Jim, unfortunately, is under the

    weather and will not be able to be in attendance, except

    possibly later as the session goes on.  

              In any event, he and his staff will, of course,


    have available to them all of the information that is

    generated today and tomorrow.   

              Do you want to comment? 

              COMMISSIONER BARRETT:  Just briefly, 


    Mr. Chairman.  I think you have pretty much covered my

    point of view.  In looking around the room, I'm so glad

    that you and I don't have to serve with this five people

    to our right, because we'd probably be on the bottom in


    terms of knowledge, I think.

              I think that I, basically, Mr. Chairman, want to

    thank the staff.  I think they've worked long, hard hours,

    and they've done a great deal of work, and there is a


    great deal, obviously, left to be done.  Certainly, my

    interest in this item and in these matters is no minor

    one. 
















                                                            11

              I also want to thank the participants who have

    taken time out of their busy schedule, I think, to further

    educate us.  I jokingly told Dr. Robert Pepper last week,


    out of all the years I've known Roger, I've never known

    Roger to be on a panel.  It's going to be interesting to

    see how Roger works with a Panel.

              I do want to thank all of you for taking time


    out of your busy schedule.  I think that this is part of

    what I constantly hear our chairman talk about, and I

    think if we do this the right way it will, in fact, have

    some economic benefits towards economic development and


    certainly will create new providers. 

              I certainly want to thank you once again for

    coming to educate us, and just really want to thank you,

    even though I may have disagreed with sometime on staff,


    for having done an excellent job, I think, of putting

    forth all of the parameters and all the important issues,

    I think, for the next day and a half that I think are

    important if we are to see this technology deployed and to


    see those, if, in fact, the demand is there, the

    beneficiaries of the action of this Commission and

    certainly under the leadership of this Chairman.  
















                                                            12

              Thank you very kindly, Mr. Chairman.

              CHAIRMAN HUNDT:  Let me read Jim's statement

    without editing it in any respect, I assure you.  We'll


    make it available to you:

              "I wish to welcome the participants to these PCS

    Task Force Panel discussions and thank you in advance for

    your assistance in turning the vision of personal


    communication services into a reality.

              These Panel discussions do not constitute a

    meeting of the FCC.  That is, no decision of the

    Commission will be taken at these meetings.  They are,


    however, important to the Commission's decision-making

    process. 

              The PCS Task Force has been charged with the

    responsibility of assisting the Commission in reviewing


    the issues on reconsideration.  The presentations will be

    entered into the record of Docket No. 90-314, and

    therefore will become part of the basis for this

    Commission's decisions on reconsideration. 


              These Panel discussions are the latest in a

    series of administrative proceedings by which the FCC has

    sought to bring the benefits of a family of advanced lower
















                                                            13

    cost, mobile communication services to the American

    public.

              Following an extensive notice and comment,


    administrative process, which included an en banc hearing,

    a Commission policy statement, seriatim, Notices of

    Proposed Rulemaking in this docket, and corollary

    proceedings and related dockets, and internal cross-bureau


    task forces, the FCC issued our decisions on the multitude

    of regulatory and technical issues engendered by the

    innovative family of mobile communication services, known

    collectively as PCS.


              The Commission acted in a timely and responsible

    manner to establish the regulatory parameters so that

    American entrepreneurs and manufacturers could bring the

    benefits of lower cost, ubiquitous, mobile, next


    generation communications to the public.

              The Commission's decision on interalia and

    appropriate spectrum allocation plan eligibility rules and

    licensing procedure, were driven by the overriding


    objective fulfilling our statutory mandate.  

              The Commission devised an efficient allocation

    plan that drives providers toward the most advanced
















                                                            14

    technologies and provides the building blocks for

    economically viable categories of diverse competitors to

    assemble their spectrum needs, to fit their business


    plans, while providing incentives to associate with

    congressionally-directed new entrants.

              These complex and interrelated issues are now

    the subject of approximately 66 petitions for


    reconsideration.  The Commission is acting responsibly by

    creating the PCS Task Force to assist us in resolving the

    issues on reconsideration and move with all deliberate

    speed to begin the licensing process.


              The Commission's PCS proceedings constitute a

    milestone for U.S. manufacturers and entrepreneurs wishing

    to provide the public with new personal communication

    services and for the American consumer who is always


    seeking more advanced, more efficient, and less expensive

    means of communicating.

              Demand studies suggest that if the FCC licenses

    new PCS providers during 1994, there could be well over 20


    million new subscribers by 1997.  

              The defining and significant feature of these

    new services is that they promise person-to-person rather
















                                                            15

    than location-to-location communications.  They will be

    engineered to the individual user, not to a residence,

    business, automobile, or other similar physical location. 




              The information will be transmitted by  networks

    encompassing elements of wireless, fiber, and satellite

    systems that is technologically transparent to the user.  


              This Commission has learned from the costly

    delays in uneconomic licensing processes used in other

    services.  I am determined to move this process along as

    quickly as possible.  We are striving to create a PCS


    marketplace that is open and competitive, one in which

    customers will be able to choose from among multiple

    service providers to obtain the best rate and service

    possible.  


              New entrants and eligible current communications

    services providers should be allowed to compete to provide

    PCS services.

              I am especially interested in minimizing the


    regulatory burdens on what promises to be a vigorously-

    competitive wireless communications market.

              To assist the FCC in its task, I ask that you
















                                                            16

    address seriously the issues to be explored during the

    next day and one-half.  Do not use this opportunity to

    merely restate your position; rather, engage each other in


    debate.  

              I remain confident that the FCC can resolve the

    few remaining issues on reconsideration expeditiously.  I

    look forward to the day in the near future when the


    American public enjoys the benefits of a robust personal

    communications services marketplace."

              Let me thank Jim for those comments.  Without

    further ado, I turn the proceedings over to you, Ralph.


              MR. HALLER:  We are about to embark on the final

    decisions in one of the most important proceedings this

    Commission will take up, probably in this decade.  We have

    before us the potential of a technology that, in fact,


    will change people's lives, perhaps as important as the

    original development of the telephone or the beginning of

    broadcasting.  

              So what we are doing, we look at as a very, very


    serious matter, but one that is going to improve not only

    the way of life but improve the economy, create jobs, and

    provide much greater universal access.
















                                                            17

              Radio can go where it's difficult to put wires,

    and that's one of our goals here.  

              As we go through the proceedings today, I would


    ask the panelists to keep those basic goals in mind and

    tell us how we can make decisions that will make PCS

    economically viable and provide it in a very speedy manner

    to the American public because that's what we're all about


    here. 

              With that charge, I will turn the first panel

    over to Dr. Robert Pepper, who will be moderator.  Again,

    Dr. Pepper is the Chief of the Office of Plans and Policy. 




              Bob. 

     

                              PANEL I


              DR. PEPPER:  Thank you, Ralph.

              The first panel this morning is going to examine

    questions of demand for PCS services.  We have seven

    panelists, each of whom have been involved in conducting


    studies, looking at several factors.

              The first question that we've asked them to

    address is: What services do you believe will be
















                                                            18

    encompassed by personal communication services?  What are

    the services that you see evolving and being rolled out

    over time? 


              Secondly, what is the overall demand for

    personal communication services, not only in total, for

    all wireless services, but also, if you've identified in

    your studies various segments of the wireless market, how


    do you see that evolving. 

              Also, we would be very interested in hearing

    about how you conducted your studies.  One of the

    interesting questions that we're always confronted with


    is, how do you know about something in advance of knowing

    about it?  When you're rolling out new services, you're

    talking about the future, and it's always difficult to

    predict the future.  


              We're interested in hearing about how you

    conducted the studies that you're going to report on

    today.

              We're very fortunate to have, as I mentioned,


    seven studies and seven experts here presenting to us. 

    The first is Tom Stroup from the Personal Communications

    Industry Association.  
















                                                            19

              He will be followed by Dave Twyber, who is

    President of the Wireless Systems Group, from Northern

    Telecom;


              David Kerr from BIS Strategic Decisions will be

    next; 

              Mark Lowenstein, who is the Director of Wireless

    Mobile Communications will be here.  He's from the Yankee


    Group;  

              Dan Trampush from Ernst & Young.  Dan is the

    National Director of Telecom Consulting; 

              Elliott Hamilton is a substitute for Ann


    Deroskow from EMCI, for those of you have the agenda that

    was out there; and then,

              Dr. C.J. Waylon, from GTE Personal

    Communications Services will wrap up the five-minute


    presentations, and then what we'll do is have questions

    and follow-ups.  

              You will have an opportunity, also, to talk

    amongst yourselves.  


              Tom, why don't you begin.  I think you have some

    charts as well.  

                            TOM STROUP
















                                                            20

           PERSONAL COMMUNICATIONS INDUSTRY ASSOCIATION

              MR. STROUP:  Thank you, Dr. Pepper, Chairman

    Hundt, Members of the Task Force. 


              It is my pleasure to represent the Personal

    Communications Industry Association today and present our

    market demand forecasts for PCS.  

              PCS is a broad range of both existing and new


    services.  Because of the significant cross-elasticity of

    demand between various members of this family, all must be

    considered.  

              For the purpose of our study, PCIA solicited


    information from representatives of the industry who are

    expected to build the networks.  It describes the

    potential size of the market, assuming licensing in 1994.

              Statistical information was calculated using a


    delphi method of removing the high and low responses and

    averaging the remainder.  

              My first chart summarizes the findings.  

              New PCS, while the last entrant will grow


    sharply, 8-1/2 million subscriptions are predicted at the

    end of the first three years of service deployment.  That

    number will grow by more than 250 percent between 1998 and
















                                                            21

    the year 2003, to 31 million subscriptions.

              At the same time, demand for cellular service

    will continue to grow dramatically, a 154 percent increase


    between 1993 and 1998, reaching 52 million subscriptions

    in the year 2003.   

              Cellular will continue to hold by far the

    dominant share of the mobile voice market.  


              ESMR deployment, which will occur before new PCS

    starts to become operational will experience steep initial

    growth, increasing by nearly 250 percent between 1993 and

    1998.  Growth will slow but still be substantial in the


    out years.  

              The graphic on my next chart makes the projected

    growth of the various members of the PCS family a little

    clearer.  The only conclusions to draw is that the


    introduction of new services will greatly expand the

    demand for all forms of PCS.  

              In addition, there is historical evidence that

    the introduction of new spectrum and new service providers


    in the mobile marketplace will have this effect.

              As noted in my next chart, in 1982, the

    Commission doubled the amount of spectrum allocated to
















                                                            22

    paging services.  The result was not bankruptcy for

    established carriers but, on the contrary, it resulted in

    substantially accelerated growth in subscriber numbers.


              Also, significantly, prices dropped dramatically

    during the same time period, a 50 percent reduction in

    consumer pricing between 1987 and 1992 alone.

              I'm glad to hear your comments regarding the


    delay and how this Panel is not intended to delay but

    actually expedite licensing, because there is historical

    evidence of the cost of regulatory delay.  

              Twelve years ago the Commission experienced


    significant delay in licensing cellular telephone service. 

    A 1991 study estimated the cost to the U.S. economy of

    that delay at $86 billion.  The very strong and healthy

    market projections for new PCS documented and PCIA's


    market demand study will not be realized if these new

    services face similar regulatory delay.

              First, delayed deployment of new PCS will

    diminish demand for emerging services.  A study conducted


    by DSS Research quantifies this effect.

              As noted on my next chart, according to that

    study, a delay of just one year, licensing in 1995 rather
















                                                            23

    than in 1994 would result in a 15 percent reduction in new

    PCS's market penetration.  A delay of just two years would

    reduce the total market penetration for new PCS by one-


    third of what was predicted with 1994 licensing. 

              It is significant to point out that DSS

    Research's study indicates that the total market for PCS,

    both existing and emerging forms, will be diminished if


    new PCS services are delayed. 

              As the chart makes clear, the loss of new PCS

    penetration as a result of delay are greater than the

    gains realized by cellular and ESMR.  


              This research is consistent with PCIA's original

    market demand forecast issued in 1992, which showed there

    would be 14 million fewer new PCS subscribers if licensing

    were conducted in 1997 instead of 1994.  This reflects a


    24 percent reduction in our original new PCS growth

    estimates.  

              Delay in licensing new PCS also translates into

    less effective competitors once new services are


    introduced.  

              Cellular carriers are adding new customers to

    their networks at the rate of 14,000 per day.  ESMR is
















                                                            24

    also projected to achieve rapid market penetration as

    these new networks come on line in the coming months. 

    Delay in licensing new PCS will result in substantially


    weaker competitors being forced to challenge more

    formidable and well-established incumbents.

              Delayed deployment also may mean the death toll

    for many potential new PCS entrants.  Each day of delay in


    licensing means a delay in any return on the significant

    investment that new PCS hopefuls have already made in

    these new services.

              Any reduction in the size of the new PCS


    industry also translates into proportionate reductions in

    the benefits these new services are expected to bring to

    the American economy.  

              That means a reduction in revenues generated,


    fewer new high technology jobs, and a loss in the

    productivity gains, which new PCS promises. 

              If I may move to my conclusion -- I'm not sure

    that the lights are working. 


              The increasing uncertainty over the form of the

    broad band PCS rules is a cloud growing over the industry. 

    The delay, or perception of delay, in concluding the PCS
















                                                            25

    proceedings is starting to undermine investor confidence

    in the industry and jeopardizes the ability of the

    industry to raise the capital necessary to acquire


    licenses at auction and build their infrastructure.  

              The wireless telecommunications industry knows

    it is on the brink of the next revolution in

    communications.  We are now at the crucial point in


    determining whether it will be launched quickly and

    successfully or whether delays, for reasons however well

    intentioned, will hamper its start and diminish the

    promised benefits to consumers, the economy, and the


    nation's taxpayers.

              If new PCS growth is to meet the potential shown

    on my last chart, we cannot afford continued licensing

    delay.  


              Today's hearing is an excellent opportunity to

    send a clear message to the industry and to Wall Street

    that uncertainty will be removed expeditiously.

              Thank you.  


              MR. HALLER:  Thank you, Tom.

              Mr. Twyber. 

                            DAVE TWYBER
















                                                            26

                      WIRELESS SYSTEMS GROUP

                         NORTHERN TELECOM

              MR. TWYBER:  Good morning, Mr. Chairman,


    Commissioners, Members of the PCS Task Force, and 

    Dr. Pepper.  

              I'm Dave Twyber, President of Northern Telecom's

    Global Wireless Systems Organization, headquartered in


    Richardson, Texas.

              We believe strongly that there will be

    significant demand for PCS by consumers and businesses

    alike and, as a result, we are fully committed to the


    growth and development of the PCS industry.  

              Northern Telecom is so convinced that PCS will

    fulfill unsatisfied consumer and business needs, that our

    Wireless Systems organization has already invested several


    hundred million dollars in U.S. research and development

    and employs over 1,000 people in PCS and wireless

    activities in the United States.

              Our Wireless organization is expected to at


    least double in the next two years, and we have plans to

    began manufacturing PCS equipment in North Carolina and in

    California as soon as the Commission's rules are
















                                                            27

    finalized. 

              This is a working production PCS handset,

    operating at 1900 megahertz to a base station two blocks


    from here.  Dr. Stanley joined us a couple of weeks ago to

    make real PCS calls under the experimental license that

    MCI and we are using to demonstrate this technology.  I

    just use this as an example that the technology is here,


    the need is here, as Mr. Stroup pointed out, and we are

    ready to start with this new industry.

              We've derived our PCS demand projections from

    primary research, from market trials, and from ongoing


    dialogue with potential licensees and then customers.

              We've added our global experience with wired and

    wireless communication solutions and independent industry

    forecasts like those that will be presented by others on


    this panel. 

              Our studies have shown that there is incredible

    demand for mobility.  Currently, over 16 million people

    use cellular phones for vehicular and public mobility, and


    almost 50 percent of all homes have the convenience of

    cordless phones.

              Yet, our market research shows that over 50
















                                                            28

    percent of businesses which are utilizing existing

    products such as analog, cordless, SMR, paging, and

    cellular, to meet mobility needs in the office, have


    varying degrees of dissatisfaction based on functionality

    or price.  

              We envision PCS initially offering high quality

    voice and data services, then migrating towards higher


    quality multimedia communications and advanced intelligent

    network services for all market segments. 

              Northern Telecom anticipates significant demand

    in all PCS markets, enabled in the report, and order for


    all frequency blocks, in both the 1850, 1990, and 2130 to

    2200 megahertz bands.  We urge the Commission to retain

    the current channelization plan.

              To address the varying applications, Northern


    Telecom will introduce products for licensed PCS in all

    bands and for unlicensed PCS.  

              We believe that there are significant

    opportunities for both licensed and unlicensed PCS.  These


    services are complementary, yet address different

    applications.  

              The licensed band will generally be more
















                                                            29

    conducive and cost-effective for public service offerings

    requiring wide area seamless coverage in a geographic

    area.  This is due to the power differences between the


    two offerings. 

              Licensed PCS will provide both in-building and

    wide area mobility.  

              Northern Telecom believes licensed PCS


    applications in the 10 megahertz channels will take the

    form of innovative, low-power PCS services serving niche

    market segments.  

              Northern Telecom believes the Commission can


    significantly impact the maximization of demand and

    utilization of the very important capabilities PCS will

    provide to consumers by focusing and taking action in the

    following areas.  


              First, rule on the PCS reconsideration issue as

    expeditiously.

              Second: Increase base station power limits for

    licensed PCS.  


              Third:  Retain the current unlicensed PCS

    allocation in the likely loaded spectrum.

              Fourth:  Adopt a complete win form etiquette for
















                                                            30

    unlicensed PCS.

              Fifth:  Allow the industry to adopt standards

    for PCS where they are appropriate; and, 


              Sixth:  Eliminate the current build-out

    requirements for licensed PCS in the 10 megahertz

    channels.

              We have been an active participant in this PCS


    proceeding from its inception to the present, and we will

    continue to assist the Task Force and Commission in this

    important endeavor. 

              DR. PEPPER:  Thank you very much.


              Mr. Kerr.

                            DAVID KERR

                      BIS STRATEGIC DECISIONS

              MR. KERR:  Thank you, Mr. Chairman,


    Commissioners, Members of the Task Force. 

              It is a pleasure to be here this morning to

    contribute to the development of the emerging PCS

    industry.  


              My name is David Kerr.  I'm a senior industry

    analyst with BIS Strategic Decisions.  

              BIS has been involved in tracking mobile and
















                                                            31

    wireless communications, technologies, regulatory

    environment, and the market environment for over 10 years,

    primarily through a range of syndicated information


    services serving North America, Europe, and Asia-Pacific. 



              In the PCS market, our earliest analysis and

    demand studies date back to 1988, from PCN in the U.K. 


    Our demand forecasts for the U.S. have been building over

    the last four or five years.  Our studies have combined

    qualitative research with end-user business and consumer

    segments, focus group studies, end-user case studies.


              Those have been supplemented by quantitative

    research, primarily in the form of telephone interview

    programs over the last four or five years.  

              The final element that feeds into our demand


    studies is trying to bring some realities to the demand,

    based on our continuing discussions with potential service

    providers, equipment vendors, and infrastructure

    suppliers. 


              As we see the market today, PCS does, indeed,

    represent a tremendous opportunity and holds forth the

    vision of a rich and diverse range of products and
















                                                            32

    services to serve the American public.  This vision, of

    course, is best represented by the anywhere, anytime, to

    anything vision.  


              However, in the short-term, there's a

    considerable growth emerging between that vision and the

    realities of first generation PCS.  

              As we see it, PCS will reach an installed base


    of 17 million subscribers after 10 years of operation,

    generating annual service revenues of approximately $6

    billion.  

              While this represents a strong PCS market, it


    does, in our opinion, represent an underachievement

    relative to its total potential.  There are many reasons

    for this.  

              Certainly, one of them in our opinion, is the


    fragment of market structure that is envisaged for PCS,

    one in which inevitably the larger allocation, the MTA

    licenses, will overshadow BTA licenses and the confusion

    created in the marketplace by the multiplicity of


    licenses, added by the fact that we will have different

    standards -- TDMA, CDMA, standards for PCS -- create a

    situation where it may indeed be economically unfeasible
















                                                            33

    to serve the consumer market, particularly in the smaller

    allocations, the 10 megahertz allocations.

              As we see it, first generation PCS will be


    dominated by the winners of the MTA licenses.  Given the

    factors that I just mentioned, it would appear that the

    most economical segments to serve will be the business-

    wide area segment, typically classified as mobile


    professional, rather than trying to serve a mass market

    with revenue expectations, monthly revenue expectations of

    $25 to $30.

              What we envisage in the current format would be


    large players, primarily the regional Bell operating

    companies and the Inter-Exchange carriers, dominating the

    MTA license awards.  The cellular mobile companies,

    inevitably, will win the 10 megahertz allocations.  With


    extreme difficulty, in our opinion, for the small

    minorities and designated entities in achieving funding.

              Given potentially seven licenses, it would be

    very difficult for them: 


              (A) To achieve funding; 

              (B) To meet the build-out requirements.  

              So, in this situation, first generation PCS is
















                                                            34

    likely to focus on serving mobile professionals with

    feature-rich integrated voice and data services, with

    consumer market, mass market demand being delayed for


    several years. 

              Despite these factors, with 17 million

    subscribers projected for year 10, PCS, those remain an

    attractive industry.  However, we believe that that level


    of demand is being inhibited given the current

    environment, and a more rationale approach, creating two

    or three strong competitors would increase the overall

    level of wireless adoption in the U.S.  


              Essentially, as we see it, PCS will capture

    approximately 25 percent of the wireless industry revenue

    by year 10, which is a good performance but understates

    the potential that we see in this market.


              Thank you.

              MR. HALLER:  Thank you. 

              Mr. Lowenstein.  

                          MARK LOWENSTEIN


             DIRECTOR, WIRELESS MOBILE COMMUNICATIONS

                           YANKEE GROUP

              MR. LOWENSTEIN:  Good morning.  Thank you, Mr.
















                                                            35

    Chairman, Commissioner, Members of the Task Force, and

    everybody else who is in overflow rooms and in this room

    listening to these proceedings.


              I'm Mark Lowenstein.  I run the Yankee Group's

    Wireless and Mobile Communications Research Group.  We're

    based in Boston.

              We actually define PCS very broadly and try not


    to segment PCS from the broad base of other wireless and

    mobile communications services perhaps as intricately as

    some of the others in the industry.

              We see PCS as a term encompassing a broad


    variety of wireless and mobile technologies, including

    cellular, paging, ESMR, mobile data; not really wireless

    LAN, actually, but mainly lower speed mobile data, at

    least in the next 10-year time frame, and office wireless


    systems, such as wireless PBX and Centrex, and also

    satellite-based systems.

              Our view is that it's important not to limit the

    definition of PCS to the newly-licensed spectrum but


    rather to recognize that this extra band width will allow

    a broader range of competitive wireless services to be

    offered by both incumbent service providers, such as
















                                                            36

    cellular providers and paging providers today, as well as

    new market entrants. 

              It is also important to recognize, however, how


    PCS might be different.  In order for it to be successful,

    we see that it will have to offer several elements of kind

    of substitutive or complementary capabilities, which we

    basically refer to as value-added over today's suite of


    wireless services that are available.

              So, for example, we'll have to have better

    localized or, let's say, microcellular type coverage in

    the voice arena, and building coverage, and better


    coverage in specific locations, whether they're sports

    stadiums, airports, shopping malls, et cetera.

              In the United States, compared to many other

    parts of the world where I have travelled and seen


    cellular, for example, we don't have very good in-building

    coverage of cellular.

              We also see that some elements of PCS are based

    on portable handsets more than the vehicular type of


    service, for more walk-around/neighborhood type of

    capability than we see today.

              The PCS network will have to be inherently
















                                                            37

    intelligent, featuring sophisticated levels of

    communication between both the wired and the wire line and

    the land line network.  That will be an important element


    of PCS.  

              We'll have to have both voice and data

    capabilities on PCS, and also rates between today's

    prevailing land line prices for regular phone calls and


    cellular prices.  Our research shows that consumers and

    businesses are willing to pay a premium for mobility, but

    the premium they pay for mobility, for instance, on

    cellular today is too great to attract enterprise-wide


    cellular solutions as well as a broad mass market of

    consumers into a mobile service. 

              Pricing plans will have to be flexible, so we

    have increasing pricing, depending on levels of mobility. 


    The further you are away from a base station, for example,

    there will have to be incremental levels of pricing, given

    incremental levels of mobility.

              In terms of how we're forecasting the market,


    our demand is based on several survey mechanisms that we

    use.  In addition to our ongoing discussions with industry

    leaders and primary research that we're doing in that
















                                                            38

    arena, we have the 1993 Mobile Professional Survey that we

    conducted of over 2,000 individuals of both business and

    personal use of wireless technologies and interest in


    wireless technologies, as well as a 10-year-old market

    segmentation scheme that we've developed, called the

    technologically advanced family.

              Some of the key issues that came up from the


    survey: 

              First of all, with wireless technology, it's

    very important to recognize how wireless, whether it's

    cellular, paging, or portable computers, mix individual


    and business use of that technology more than many other

    technology areas or other types of consumer electronics.

              Also, that security was cited by cellular users

    that we talked to as the most important reason for


    purchasing a cellular phone, and that an increasing

    percentage of cellular bills are paid by individuals

    rather than employers, which is an important shift from

    when cellular first began about 10 years ago.


              We also asked noncellular users what it would

    take for them to purchase a cellular -- whether they were

    planning to purchase a cellular phone over the next year. 
















                                                            39



              Of the total nonusers, 13 percent are

    considering a purchase, when 2 percent are definitely


    planning.

              But if you're looking at more specific segments

    of the market, mobile individuals, people who travel away

    from their primarily workplace a fair bit of the time, 35


    percent of them are at least considering a cellular phone

    purchase in the next year.

              Portable PC users, about 30 percent of them are

    considering a cellular phone purchase over the next year.


              There's still significant pent-up demand for

    mobile services that aren't being met right now.  

              Factors driving PCS:  The most frequently

    experienced problem amongst cellular users is being out of


    coverage range; 46 percent experience it at least

    occasionally.  

              Thirty-one percent of noncellular users site

    service costs -- not handset cost but service cost -- as


    the primary reason they haven't purchased cellular phones.

              Our market forecast for PCS at the present time

    is that there will be 25 million PCS subscribers by 1998
















                                                            40

    and falling into the following segments:

              There will be cellular PC end-subscribers which

    we see as users on the existing cellular spectrum, but


    using a PCS type service, such as the Bell Atlantic

    contact line for service, for example, we're defining as a

    PCS service.

              Other elements of PCS will include narrow band


    PCS.  We see 8 million subscribers of narrow band PCS.  

              Enhanced cordless telephony, which we see as the

    basic cordless phones, with enhanced coverage range beyond

    the base station that we see right now, that will be a


    significant element of PCS and we'll actually overlap with

    some of the newly-licensed 2 gigahertz type services that

    we'll see introduced.

              Newly licensed: We see about 2.5 million PCS


    subscribers in the time frame, and the other two principal

    segments, each of about 2 to 2.5 million in the 1998 time

    frame, are PCS mobile data from portable mobile computing

    devices, and something that we call PDA messaging, and


    I'll be happy to explore those segments in more detail in

    the questions.

              DR. PEPPER:  Thank you very much.
















                                                            41

                   Mr. Trampush.  

      

                           DAN TRAMPUSH


              NATIONAL DIRECTOR OF TELECOM CONSULTING

                           ERNST & YOUNG

              MR. TRAMPUSH:  Mr. Chairman, Commissioner, and

    Members of the Task Force, my name if Dan Trampush with


    Ernst & Young.  

              Thank you for inviting me to comment on PCS

    demand in rural areas of the United States.  My comments

    are being made on behalf of the Rural Telephone Coalition,


    which consists of the National Rural Telecom Association,

    the National Telephone Cooperative Association, and the

    Organization for the Advancement and Protection of Small

    Telephone Companies, referred to as OPASCO.


              My purpose will be to discuss the differences

    between the nationwide studies of PCS demand and the work

    we've done on PCS demand in rural areas.  I think there

    are some important observations about rural PCS demand


    that have implications for the Commission's PCS policies.

              First:  In the context of PCS and

    communications, generally, the critical characteristic of
















                                                            42

    rural areas is that there are relatively few people pre-

    iterative geography.  That is, for the purpose of studying

    demand for communication services, rural means low


    population density.  Rural is not a demographic

    definition, although some people think of rural

    incorrectly in demographic terms, such as income level,

    educational attainment, and employment type.


              Second:  People in rural areas tend to use

    communication services at least as intensively as people

    in urban areas.  Communication services are at least a

    partial solution to the relative isolation of rural areas. 


    We see this consistently in studies for long distance

    calling in urban and rural areas.

              Also, we see robust demand for enhanced services

    and feature in rural areas.


              Third:  Given similar types of PCS services and

    PCS prices, the probability of subscription to PCS should

    be no lower in rural than in urban areas.  That is, we

    discern no difference in the intensity of demand for PCS


    among potential customers in urban and rural areas.

              The demand problem in rural areas is a problem

    of density, fewer potential customers per square mile,
















                                                            43

    rather than the probability of subscription or amount of

    usage per customer which are similar to urban areas. 

              Fourth:  These observations lead to several


    implications for PCS demand and rural areas.  

              First, extended range cordless phones will be in

    high demand in rural areas.  A 200-foot range may be fine

    in an urban apartment but not on a several hundred acre


    ranch or farm.  

              Also, the greater distances of travel in rural

    areas will require that PCS provide higher-speed mobility

    than in dense urban areas where there's more foot traffic


    and congestion.

              Also, there are, of course, fewer potential

    customers per square mile than in urban areas, and these

    customers are not evenly distributed.  Undoubtedly, there


    are concentrated pockets of PCS demand in rural areas

    defined by geography and terrain.  Isolated pockets PCS

    demand may be the dominant pattern in mountainous or

    forested areas.


              These demand site implications lead me to make a

    few observations about how best to serve this rural PCS

    demand.  
















                                                            44

              One:  Relatively low customer density suggests

    that there may be greater economies of scope with existing

    communications networks in rural areas.  By encouraging


    rural telephone companies to build out the PCS networks in

    their wireline service areas, rural customers may obtain

    benefits of PCS that would otherwise take years to bring

    to rural America.


              Further, by maximizing the inner-workability of

    rural PCS, cellular, and telephone networks, for example,

    network costs may be reduced in the range of wireless

    services enhanced.  In this context, restrictions on


    ownership of cellular and PCS would be bad for customers

    in rural areas. 

              Also, limitations on transmitter power and

    requirements for population coverage are important drivers


    of costs in rural areas because of the relatively low

    subscriber density.

              Relaxation of such requirements or adoption of

    policies which offset these requirements may bring more


    affordable PCS to rural areas. 

              Bringing PCS to pockets of demand economically

    may also require creative use of technology, such as dual
















                                                            45

    mode, cellular, and PCS phones.

              Also, in order to increase subscribership to

    PCS, thereby reducing the average unit cost, the


    Commission may want to explore flexible ways to integrate

    PCS with wireline telephone systems.

              In summary, there is significant demand per

    rural citizen for the enhanced services promised by PCS. 


    There's just less demand per unit of geography.  The

    demand and supply characteristics for rural PCS suggest

    the need for regulatory policies tailored to rural areas. 

              Thank you. 


              DR. PEPPER:  Thank you very much. 

              Mr. Hamilton. 

     

     


     

     

     

     


                         ELLIOTT HAMILTON

                    VICE PRESIDENT AND DIRECTOR

                 U.S. WIRELESS CONSULTING MTA/EMCI
















                                                            46

              MR. HAMILTON:  Thank you.  My name is Elliott

    Hamilton.  I'm the Vice President and Director of the U.S.

    Wireless Consulting at MTA/EMCI.


              Since 1987, EMCI has consulted to cellular

    paging, SMR, and mobile satellite carriers on the service

    technology demand and service issues.

              More recently, EMCI has consulted to cellular


    carriers, new PCS carriers, and other interested parties

    concerning PCS service definitions, market demands,

    strategic plans, and optimal system design.  

              EMCI recently coauthored this year a 47-volume


    study with Moffitt, Larson, and Johnson, titled, "PCS

    Market Demand and System Engineering".  

              EMCI projects that the total U.S. mobile

    telephone voice market will reach 87 million subscriptions


    by 2004.  Our demand methodology is based on our ongoing

    research, including quarterly surveys of 1,000 consumers;

    focus groups, including quantitative techniques, such as

    conjoint analysis; studies of product diffusion curves


    based on other consumer products; nonlinear trending of

    mobile radio growth in existing mobile markets, and

    analysis of the cross-competitive nature of future markets
















                                                            47

    based upon evolving technologies and consumer preferences.

              Our forecasts are based upon several key

    assumptions and market developments.  These include:


              Licensing of new PCS carriers by the end of

    1994; limited use of PCS as a bypass technology in the

    first five years.

              The forecasts recognized the development of


    unlicensed applications but do not include counts of these

    users. 

              The average monthly bill is assumed to fall

    between $40 and $50 per month. 


              Usage is forecast to be somewhat higher than

    today's average usage levels, due to the impact of lower

    price levels and usage price elasticities.

              Of the 87 million voice subscribers, EMCI


    projects 57 percent to be on cellular systems, 32 percent

    to be on PCS systems, and 12 percent to be on digital SMR

    systems.

              There will be a likely significant overlap in


    the subscriptions, particularly between business purchase,

    mobile services and personal mobile services.

              One area of potential differentiation for new
















                                                            48

    PCS carriers is the marriage of the license and unlicensed

    applications.  EMCI projects that a critical application

    of the unlicensed bands will be wireless PBX.  The


    allocation of frequency for unlicensed applications,

    adjacent to the licensed PCS bands, will create the

    opportunity for multi-mode handsets, permitting both

    private and wireless PBX and public license operations.


              In survey research, EMCI finds that 7 percent of

    existing cellular users were definitely interested in

    having a wireless PBX at their place of work.  This

    demands increases to 10 percent of cellular users if the


    system offered both private in-building wireless PBX and

    access to cellular on the same handset.

              While any technology should be able to offer

    combined wireless PBX, public wireless services, new PCS


    may have a unique advantage with this service concept due

    to the unlicensed bands allocated adjacent to the new PCS

    frequencies.  

              In EMCI's recent study, PCS Market Demand and


    System Engineering, the economics of PCS licenses were

    analyzed in every MTA and BTA market.  

              The highlights of the study are: While virtually
















                                                            49

    all MTA licenses appear voluble, there is tremendous

    variance of economic performance.  The variance is related

    to the distribution and density of demand and local


    network design challenges due to the market's topography.

              Many 20 megahertz BTA licenses appear to be

    viable as a stand-alone, high mobility, PCS business,

    particularly in the large urban markets.  A large majority


    of the 10 megahertz licenses do not appear to be viable

    without substantial support from subsidy from a related

    wireless enterprise.

              In conclusion, the wireless market should


    achieve 87 million voice subscribers by the year 2004.  It

    will be additional messaging and unlicensed users.  Delays

    in licensing PCS will have a negative impact.

              I will continue with the conclusions following


    the discussion.  

              DR. PEPPER:  Thank you very much.

              Dr. Waylon.  

                          DR. C.J. WAYLON


                     EXECUTIVE VICE PRESIDENT

                MARKETING AND BUSINESS DEVELOPMENT

               GTE PERSONAL COMMUNICATIONS SERVICES
















                                                            50

              DR. WAYLON:  I would like to thank the

    Commission for the opportunity to offer comment on such an

    important hearing.  


              I'm Jerry Waylon, and I'm Executive Vice

    President, Marketing and Business Development, for GTE

    Personal Communications.      I'm responsible for GTE's

    new wireless voice and data services, including our


    planning for PCS, using the new 2 gigahertz frequencies,

    as well as the PCS activities using existing cellular

    frequencies.

              Today I would like to discuss PCS demand within


    the context of GTE's extensive marketing field trial of

    PCS using cellular frequencies in Tampa.

              First, some general observations.

              We believe that PCS will attract users wanting


    an improved lifestyle.  PCS offers something new: the

    ability to call a person and not a place.  PCS and

    cellular might be considered part of a family of services,

    encompassing voice, data and imaging applications.  By the


    year 2005, we expect total wireless services, including

    PCS and cellular, to reach some 30 percent of the

    population.
















                                                            51

              This translates into market penetration of

    approximately 70 percent of households.  Our prediction

    falls well within the range that's narrowing of other PCS


    demand forecasts. 

              However, it is important to point out that these

    projections are highly dependent upon the assumption that

    the services truly meet market needs.  In large part,


    achieving these demand predictions will depend on the

    marketing savvy of GTE and its competitors, but it will be

    influenced substantially by the decisions of this

    Commission.  


              GTE completed an extensive market trial late

    last year in which we attempted to establish better

    understanding of these market needs.  For 18 months, our

    Telego trial sold 3,000 customers a wireless phone which


    operated as an enhanced cordless phone around the home and

    as a cellular home when using the local cellular system

    beyond this coverage.  Importantly, the phones maintained

    the same telephone number regardless of the location.


              In conducting the trial, we encountered several

    significant hurdles.

              First: We found that residential market segment
















                                                            52

    users typically view cellular as costly and complex. 

    Customers mainly want to be in touch from the local

    playgrounds, school, grocery store, or while traveling


    between home and these locations, and they want to receive

    the calls on the same phone number in these circumstances.

              Second: The Telegos telephone needed to be

    simple and user-friendly.  To meet this need, we generate


    a dial tone at the handset, simulating a cordless

    telephone.  We also enhanced the information displayed at

    the handset to tell the user when they were in the home

    zone and when they were in other zones where they might be


    charged a per-minute usage charge.  

              Third:  Telego pricing needs to be simple and

    uncomplicated.  Our experience indicates that the PCS

    market is very price-elastic and demand is influenced more


    by price than by any other variable.  

              Although each of the elements I have described

    need to be present to attract customers, price ultimately

    will be the major factor in determining market


    penetration. 

              The results of our trial are very encouraging

    and certainly support our 30 percent penetration estimate,
















                                                            53

    but let me emphasize again this estimate assumes that the

    key elements of the service are understood, addressed, and

    brought into line with the customer's expectations.  


              Ultimately, then, the issue before the

    Commission is not whether the inherent demand for PCS

    exists -- it does; rather, how can the FCC bring PCS to

    the public in the most time-efficient and cost-efficient


    manner without impeding the ability of any supplier to

    anticipate and meet those customer expectations.

              Obviously, the Commission should leave to

    individual companies the marketing, sales, and technology


    challenges.  However, the FCC can do a great deal to speed

    innovation and deployment by establishing uniform rules

    and equal opportunities for all of the wireless

    participants. 


              No company should be constrained in its ability

    to anticipate market needs and to try to meet them in a

    timely fashion.  In this regard, the Commission is to be

    commended for taking an important first step in the


    regulatory parody decision.

              GTE looks forward to equal regulatory treatment

    of cellular, ESMR, and PCS-providers, all of whom serve a
















                                                            54

    single, very large market. 

              Finally, the FCC has the opportunity to review

    important market structure issues which will affect the


    technology deployment and service pricing aspects so

    critical to serving its PCS market.  

              We believe that the 2 30 megahertz licenses,

    defined by the Rand-Minally MTAs, are without question the


    most valuable.  30 megahertz, in our opinion, is very

    generous.  In fact, 30 megahertz is so generous it may

    encourage some license winners to deploy spectrally-

    inefficient technologies.


              Finally, the MTA coverage both offers generously

    large geographic service area, which is both consistent

    with competing with the communities of interest and with

    the much smaller MSAs and RSAs that the cellular carriers


    and ESMR providers have.   

              By contrast, we believe that the 10 megahertz

    licenses will be considerably lower in value.  Indeed,

    perhaps of no value, in many smaller markets.  The much


    smaller bandwidth will make it difficult to achieve a user

    base to cover fixed costs.  While the BTA geography offers

    the advantage of being larger than cellular MSAs and RSAs,
















                                                            55

    it may be too small to permit effective competition

    against significantly larger 30 megahertz licensees. 

              These differences between a 10 and 30 megahertz


    license are important, especially as they affect the

    provider's ability to meet the features and prices

    demanded by the marketplace.  

              We, therefore, encourage the Commission to


    review its present PCS market structure and the

    recommendations submitted by GTE, the Cellular

    Telecommunications Industry Association, and others.

              All service providers must have the same


    flexibility and opportunity to respond to the customer

    needs.  Uniform 20 megahertz allocations will best provide

    this opportunity and will ensure that the Commission's

    objectives for providing consumers timely and cost-


    efficient PCS are met.  

              Thank you.  

              DR. PEPPER:  Thank you very much.  

                         PANEL DISCUSSION


              DR. PEPPER:  One of the things that I think we

    are hearing among the presenters is that there is a lot of

    agreement but there are also some wide variances in terms
















                                                            56

    of predicted demand for these services, ranging from --

    well, they all seem fairly high -- about a third of the

    persons -- 70 percent of the households -- we have 87


    million voice customers; and then I think at one point --

    Tom didn't talk about it, but in an earlier study

    submitted by PCIA, 167 million PCS subscribers.

              Could you maybe talk a little bit about where


    you see the differences in the demand or why there are

    these differences, and is it the result of different

    definitions of PCS? 

              We also heard from Mr. Lowenstein that PCS is


    not a distinct market from the wireless market more

    generally, and yet we're hearing slightly different things

    from different panelists.  

              Mark, you might want to start.  


              MR. LOWENSTEIN:  By that comment, I really meant

    that we see that there are currently PCS services

    available in the marketplace today.  I think one can argue

    that elements of certain cellular services that are


    available, such as I mentioned the Bell Atlantic Contact

    Line service, for example, we would characterize as PCS. 

    We would characterize some enhanced paging services that
















                                                            57

    are available today, as some of what is envisioned for

    some of the narrow band PCS services that are being

    proposed, and some of the new spectrum that's been


    allocated for narrow band PCS. 

              We see that PCS is really kind of a

    complementary set of solutions for a lot of the existing

    wireless services that we are seeing out there today.


              We had forecast that there would be 25 million

    PCS subscribers by 1998, and not all of 

    those -- that is not the total wireless universe.  So, for

    example, we see approximately 15 percent of the cellular


    subscriber base that we forecast to be 32 million by 1998;

    15 percent of those will be using what we would

    characterize, for example, as a PCS type service.  That's

    more microcellular in nature, more follow-me in nature, as


    has been described, for instance, by Mr. Waylon, of the

    Telego type service.

              Now some of those services could be offered over

    the cellular spectrum, some of them could be offered over


    the newly-licensed PCS spectrum at 2 gigahertz.  

              Also, it's important to recognize that there are

    elements of PCS that I think are very difficult to
















                                                            58

    predict, such as the more data-oriented PCS services that

    not a lot of us have really focussed on in the discussion

    so far.  


              So, for example, if the market for PDAs -- or

    Personal Intelligent Communicators -- takes off, and they

    have wireless communications capabilities, they are going

    to require a network infrastructure over which to send the


    myriad wireless messages that the applications are being

    developed for.

              We see that there are a lot of kind of

    overlapping and complementary issues, and that's part of


    the way we forecast the market.  

              We do have, of the 25 million number that we

    posited for 1998, a specific segment that is newly-

    licensed, voice-oriented PCS at 2 gig, which is about 2.6


    million in 1998.  

              DR. PEPPER:  So about 10 percent of what you're

    predicting is the total market? 

              MR. LOWENSTEIN:  Of the total PCS market --


              DR. PEPPER:  The total PCS market.

              MR. LOWENSTEIN:  -- is voice-oriented PCS

    services at 2 gigahertz.  
















                                                            59

              DR. PEPPER:  Mr. Kerr, would you agree with

    that?  

              MR. KERR:  Overall, we see new PCS taking about


    a 25 percent market share, going at year 10, assuming a

    start date of '95, taking us to the year 2004. 

              I think the real critical issue is there's a gap

    emerging between the technology vision of anywhere,


    anytime, to anything, personal number, accessible at all

    times, and the realities of what the consumer market are

    willing to pay for.

              A lot of our research has shown that the


    consumers want wireless pots.  They don't want a lot of

    bells and whistles and, more importantly, they're not

    willing to pay for a lot of bells and whistles, at least

    initially.  Part of the issue is, if I may, a customer on


    cellular today, for example, I'm typically not receiving a

    lot of calls because I'm scared to death to give my number

    out because my bill's going to shoot through the roof,

    which is just a fact of life of cellular today, or


    wireless today, not to pick on the cellular industry. 

              But the consumer market is not receiving a lot

    of calls; they're not giving their phone numbers out, and
















                                                            60

    so essentially, if we look to the future, what they want

    is a more cost-effective, wireless voice solution.  

              They're likely to adopt PCS for their


    convenience to make outgoing calls.  The ability to

    receive calls is important.  Don't get me wrong.  That is

    a feature that they want, but most consumers that we spoke

    to are not envisaging receiving lots of calls.  If you're


    not receiving lots of calls, you're not aware that you

    have a need for advance call screening, call management,

    default to voice mail, and so on. 

              So we have this gap between high envision of


    intelligent network services and the consumer market,

    which wants a cheap voice service, and somewhere in

    between there new service providers have to find a way to

    profitably serve a segment with reasonable revenue lines


    while developing the consumer market awareness and, over

    time, second generation PCS, then we'll see demand for

    some of these advanced features.

              So I think it's important to focus in on the


    pricing, positioning, and marketing factors for PCS and

    not get too carried away with the technology side of the

    equation. 
















                                                            61

              DR. PEPPER:  So you're really seeing about

    within 10 years 2-1/2 million customers for PCS voice

    services, and you're looking at what projections for the


    cellular market for similar services at that time? 

              MR. KERR:  If we look out over that time frame,

    cellular will have a total of 30 million subscribers. 

    Paging will be running in the 20 to 21 million range.


              And there is a lot of substitution or far gone

    growth in both cellular and paging, at least initially, so

    in the year 2004 cellular is still the largest market,

    with approximately a 60 percent share of revenues, PCS


    takes about 25 percent of revenues, and the balance, in

    our definition, coming from paging services.

              Now I have not addressed the unlicensed market

    opportunity, which we see as a discrete opportunity, at


    least initially.  

              BIS is in the process of completing a demand

    study for the unlicensed industry on behalf of you, Tom,

    and that will be completed shortly.  So this is just the


    licensed PCS market that we're addressing.  

              DR. PEPPER:  Does anybody want to comment on

    what Mr. Kerr said?  
















                                                            62

              Yes.  

              MR. TWYBER:  I agree it's a matter of

    definition.  Really, the only two markets that are defined


    now that you can go and ask intelligent questions about

    are cellular-like services and cordless-like services. 

    All of the other anticipated and projected applications,

    it's very difficult to go out and find out an educated


    consumer base that could help you with those market

    forecasts.  

              If you just look at those two, cellular-like

    services at 2 gigahertz, I think we show the same kind of


    numbers with others here.  We're looking at about 8-1/2

    million subscribers in 1998 versus 33 or so in the

    cellular industry at that time, so 20, 25 percent of

    cellular-like, high mobility, wide coverage subscribers


    will be at 2 gig. 

              On the unlicensed side, where you can actually

    go and ask questions about how cordlessness would benefit

    users in offices and hospitals, and so on, we found a


    similar kind of number, about 9 million subscribers, by

    1998, on about 8 percent of the PBXes in the U.S., we

    would find about 9 million subscribers.
















                                                            63

              So on top of that are all of the potential

    applications, and wireless access, wireless plots, PDAs,

    data, and so on.  


              But, just given those two sets of numbers, on

    the well understood markets, I think it's a tremendous

    opportunity. 

              MR. HALLER:  Could I expand on that a little


    bit.

              You draw a big distinction between licensed and

    unlicensed services.  I'm curious.  Do you think that it

    would be economically feasible for someone on the


    unlicensed spectrum to provide a full feature PCS kind of

    service without having to have the same kinds of build-out

    as a license, the same obligations?  

              Is it really possible to provide a competitive


    service on the unlicensed or is it truly complementary to

    the license?

              MR. TWYBER:  I think it's largely complementary. 

    I mean, you could envision an unlicensed service where the


    provider -- somebody put unlicensed PCS in their hospital,

    for example, or in their office building; was able to use

    that spectrum without anything more than the coordination
















                                                            64

    that you're expecting, and yet their users, their

    employees, could use that terminal home for cordless

    applications, perhaps with some converter boxes and wire


    and things. 

              I don't think it's immediately obvious how you

    could provide a public kind of service with that

    technology, but you could certainly provide more than just


    residential cordless or office cordless. 

              DR. PEPPER:  Are there other questions from

    people?

              THE CHAIRMAN:  Could I ask a question? 


              DR. PEPPER:  Sure. 

              THE CHAIRMAN:  This is just to focus my

    understanding a little bit.  

              Mr. Hamilton, you said in your submission, and I


    think you had time before the bell or say orally, that you

    project the total U.S. mobile telephone voice market will

    reach 87 million subscriptions by the year 2004.  

              MR. HAMILTON:  That's correct.


              THE CHAIRMAN:  That number included cellular SMR

    and PCS.  Is that correct?

              MR. HAMILTON:  That's correct.
















                                                            65

              THE CHAIRMAN:  I think it was you, Mr. Kerr, who

    said that PCS represents a market that you would predict

    would support 17 million subscribers by the year 2004.  Do


    I have that right? 

              MR. KERR:  Correct. 

              THE CHAIRMAN:  Now, just let me see if I have

    this right.


              Mr. Hamilton, you said that 32 percent of your

    87 million, which my math says is 29 million, would be the

    PCS market. 

              MR. HAMILTON:  Yes.


              THE CHAIRMAN:  Is that the right number to

    compare to your 17 million, Mr. Kerr? 

              MR. KERR:  Or 17 million is on a total base of

    68 million users, including cellular paging and PCS.


              THE CHAIRMAN:  Is it right to understand, you

    and Mr. Hamilton to be saying separately, 29 million PCS,

    17 million PCS?  

              MR. KERR:  Correct. 


              THE CHAIRMAN:  Could both of you please comment

    on the reasons for the difference? 

              MR. HAMILTON:  Well, I would just like to add
















                                                            66

    that we see PCS having some unique advantages, which I

    would like to remark on.  One of them will be the MTA

    license definitions.  We believe the wide area -- starting


    out with a very wide area license -- will give them an

    advantage over some of the other industries, starting out. 



              There's no need to aggregate a lot of licenses,


    like the cellular industry is still doing, trying to get

    that area needed, that consumers want, without having to

    do all of the roaming which we have seen to be a negative

    with the cellular industry.


              We also see the unlicensed PCS bands as really,

    again, being a real positive for the PCS.  I agree with

    Dave Twyber, as far as we see it's a complementary

    service.  


              We see the unlicensed and licensed operators

    getting together, having a marriage of services, and that

    will really be a critical difference between the cellular

    industry, the SMR industry, and even the paging industry.


              THE CHAIRMAN:  Do I understand you to be saying

    these are perceptions of the future for PCS that you

    believe Mr. Kerr does not share, and that accounts for the
















                                                            67

    12 million extra subscribers in your prediction?

              MR. HAMILTON:  I can't comment on his.

              THE CHAIRMAN:  Are you saying you don't know why


    he's at 17 million? 

              MR. HAMILTON:  Yes.  I mean, I absolutely don't

    know.  

              THE CHAIRMAN:  Do you know why you're at 17


    million and he's at 29 million?  

              MR. KERR:  I know why I'm at 17 million. 

              [Laughter] 

              I guess our view of PCS, actually, the


    opportunity there has diminished over time as the market

    has developed.  A large reason for our increased

    conservatism on PCS relates to the fact that we do not see

    how all of the allocations can be filled in all markets.


              Further, with such a potentially crowded

    environment, particularly in the top 10, 15 MTAs, it's

    going to be a very tough market to make money in.  At the

    end of a day, despite looking at the range of services and


    the public good, people do not commit capital and deploy

    networks and run services if they're not going to get a

    return on that investment.
















                                                            68

              Part of our conservatism stems from the fact

    that we see a tremendous concentration in the top 10 or 15

    MTAs, which will be hotly contested.  Outside of that, we


    think it will be very difficult to raise capital in many

    markets.  

              Some potential service providers who do not win

    the 30 meg allocations, are likely to sit back and wait


    until an inevitable consolidation happens and pick up the

    spectrum at cutaway prices.

              So what we see as a staged development,

    ultimately, we still think there's a tremendous


    opportunity for PCS, but what we see as an extension of a

    timeline.  Because the market in which you have

    potentially seven allocations competing for a set of

    customers; on one hand you have consumers who have not


    demonstrated a willingness to pay significant premiums for

    enhanced features.  

              On the other hand, you have the business market

    segment who everybody is going to be trying to focus on


    because of their highly monthly billings; it leads to a

    situation where the rate of adoption and the rate of

    inexpensive consumer market services will be slowed down. 
















                                                            69



              That's the reasons behind our more conservative

    forecasts. 


              THE CHAIRMAN:  Do you -- and understand, please,

    I realize that both of these are a lot more than zero and

    both represent tremendous economic growth for our country,

    but still an interesting difference, unless you both agree


    that it's not interesting and can explain that to me as

    well.  

              If I could follow up on this, Mr. Kerr.  You

    say:  "In its current format, PCS will not realize its


    full potential on a timely basis."  I'm reading from your

    written submission.  "And most importantly, the public

    will not be best served with the diverse range of cost-

    effective products and services."


              Would it be correct for me to infer that you, in

    effect, are saying that you might be closer to the 29

    million projection if there were a different format?

              MR. KERR:  That is correct.  In fact, our


    baseline scenario we had drawn for PCS, and in an

    environment with two, or at most three, strong MTA

    competitors, would suggest a market potential up in the 30
















                                                            70

    million range -- 30 plus million. 

              At the end of a day do I believe that PCS can

    attain 29, 30 million subscribers?  Absolutely.  My debate


    is when they will achieve that.  

              THE CHAIRMAN:  Well, I suppose everyone would

    agree the sooner the better.  That's a fair statement,

    isn't it?


              MR. KERR:  That is a fair standard, and the

    issue I guess, therefore, is what mix of regulatory and

    technological environments will get us there at a timely

    fashion.  


              THE CHAIRMAN:  Just to close this loop, has he

    given you any better insight on his 17 million?  Did you

    want to comment on that?  

              MR. HAMILTON:  No, I really wouldn't want to


    comment on his forecast.  I guess I just want to emphasize

    that of all the forecasts we've been hearing, even though

    there may be great ranges, as you mentioned, they are very

    higher -- greater than zero.


              I think that is really due to of the cellular,

    SMR, PCS, and even narrow band paging, they'll all have

    some equal capabilities, so there really will be a real
















                                                            71

    fight, and I think what's more clear is how big the

    numbers are versus which industries are going to get

    which, and that will be left to the competitive market.


              I do agree with some of the other comments, in

    that if you look at where the subscribers will have to

    come from to meet any of these demand projections, it will

    have to be on the consumer side.  Our research has shown


    that 70 percent of the new cellular users are

    predominately personal users, and even 50 percent of the

    paging users today are using the pagers for personal use.

              Some of the other -- I think GTE has said that


    they have found price elasticities being the key, and we

    also see that.  These consumers, they'll have a choice

    between a lot of different technologies to serve their

    basic needs, whether it be in a two-way paging or whether


    it be in a PCS or cellular or digital SMR. 

              THE CHAIRMAN:  Did you agree -- just as my last

    question -- do you agree with Mr. Kerr's statement that in

    its current format PCS will not realize its full potential


    on a timely basis? 

              MR. HAMILTON:  No.  Again, if PCS is licensed in

    1994 -- the end of '94 -- that'll be a key point.  As far
















                                                            72

    as the seven licenses, we see it very rapidly

    consolidating between three and four.  We don't see seven

    being out there on the market for long.  So even thought


    there might be seven licensed, our predictions are based

    on three to four PCS providers in each market.

              THE CHAIRMAN:  So you think that he's right,

    that that's the way to maximize the potential, but you


    think it will --

              MR. HAMILTON:  It will happen.  

              THE CHAIRMAN: -- it will reduce to that quickly,

    anyhow?


              MR. HAMILTON:  Yes.  

              MR. LOWENSTEIN:  Can I add something here? 

              THE CHAIRMAN:  Sure.  

              MR. LOWENSTEIN:  As the third kind of


    consultant, or market research-type on the panel here --

              THE CHAIRMAN:  I haven't run your calculation

    yet.  17, 29, and what number do you have?  

              MR. LOWENSTEIN:  The one point that I think is a


    little bit, a demarcation between these two speakers is, I

    think one is looking at ESMR as part of the mix and the

    other isn't, and I'm not remembering which one is and
















                                                            73

    which one isn't. 

              I think that is a fairly key issue, particularly

    in terms of the business market opportunity.  Business


    customers are largely unserved by wireless services right

    now, or the types of wireless services that they would

    like, as Mr. Twyber mentioned in his testimony.  

              I think that the longer there is a delay in the


    allocation of licenses for PCS, the more of an opportunity

    it creates for digital SMR services, such as those being

    proposed by MCI Nextel to come in and offer enterprise-

    wide solutions that integrate voice data as well as paging


    technologies.

              I also think the one issue that hasn't been

    addressed today, and I think it's interesting to

    potentially explore, is the non-2 gigahertz PCS type


    services but extended range wireless services that will be

    offered by enhanced cordless phones. 

              There's a lot of development work taking place

    by those who are manufacturing cordless phones right now


    that will significantly expand the range of today's

    cordless devices from 100 or 200 yards, out into the 1 to

    3 mile range, from a home base station.
















                                                            74

              Clearly, even if that's not of the 2 gigahertz

    band, which it probably won't be, that has a significant

    potential for taking a part of what is the forecast for


    newly-licensed PCS as part of basically an enhanced

    cordless telephony service that has rates closer to land

    line rates and has a fairly broad appeal to consumers who

    are already very much used to.  As we mentioned, 50


    percent of households have cordless phones right now.  

              They're used to that form factor, they're used

    to the structure, et cetera.  So I think it's important to

    recognize that as well. 


              I think we're all in general agreement here as

    to the size of the wireless opportunity.  If you look out

    in the 5- to 10-year time frame, I think all of our

    numbers kind of converge upon somewhere around 30 to 40


    percent of individuals having a wireless service and a

    fair approximation in terms of number of households, I

    think, where the disagreement is is in terms of where it

    will come from.


              DR. PEPPER:  You've predicted, if I read this

    correctly, by '98 about 2.5 million new PCS voice

    customers?  
















                                                            75

              MR. LOWENSTEIN:  Yes.  Just on the newly-

    licensed PCS.

              DR. PEPPER:  All right.  Then about 15 percent


    of the forecast base of 32 million from cellular.

              I guess one of the questions is: there seems to

    be distinctions being made between cellular and PCS and

    advanced paging services, extended cordless phone.  Are


    those correct market segmentations going forward, to

    maintain?  To what extent will cellular operators be able

    to provide and provide a full range?  To what extent would

    a 30 megahertz PCS provider be able to provide the full


    range of services?

              One of the implications from what we're hearing,

    is that once a cellular operator has a customer, it

    appears that your assumption is that that customer is


    locked in, that they cannot move or be moved to one of the

    other new service providers?  

              MR. LOWENSTEIN:  Well, we think that the

    cellular companies are extremely well positioned to offer


    PCS-like services over the existing cellular spectrum, as

    the complementary set of services to what will emerge in

    the 2 gigahertz band.  
















                                                            76

              As they digitize their network, as they put in

    more microcells, particularly some of the B side carriers,

    for example, that R-BOX subsidiaries, have already


    increasing levels of intelligence land line network to

    connect to and offer that fall and retype services,

    they're very well positioned to offer much of what we see

    as a PCS type of services. 


              That's not to say that they're not interested in

    and will not bid for some of the licenses in the 2

    gigahertz band, but we think that, given that market is

    not yet a certainty and it's a new market, that they will


    be continuing to deploy network infrastructure to

    facilitate competitive services over the cellular spectrum

    that are very much PCS-like in nature.  That's one of the

    reasons why we have forecasted and segmented the market in


    the way we have. 

              MR. HALLER:  I'd like to get some expansion on

    that, if I could.  Again, since we didn't give directions

    on how you had to present your charts, it's a little


    difficult to compare two people, but I'll just give you an

    example.

              I know that there's disagreement here, but I'm
















                                                            77

    curious as to why both of you feel that way.  

              Mr. Stroup, you indicate that in the year 2003

    that cellular will have about 17.4 percent penetration,


    whereas PCS is only going to be about 10.4, so it's not

    double but it's still highly balanced towards the cellular

    side.

              Mr. Hamilton, you have similar projections. 


    Yours is 32 percent for PCS and 56 percent cellular.

              Others may have similar projections, but those

    are the two I happened to pick out.  Why is that?  I know,

    Mr. Lowenstein, you've indicated that cellular is already


    in there, they're well positioned.

              Are there things the Commission should be doing

    to assure that PCS, when it comes on line, is going to be

    an aggressive competitor to cellular?  Anything we can do


    to make that balance a little different than 2:1, at the

    year 2003 or 2004?

              Tom, do you want to start?  

              MR. STROUP:  Sure, I'll jump in.  I think a


    major factor that has to be considered, and that may

    explain some of the discrepancies that you've heard, is

    definitional.  We deal with six services in our study.
















                                                            78

              I think that one factor that has to be

    considered is the year of licensing, and that may explain

    the difference between 17 and 28 or 29 or ours of 31.  The


    longer the Commission delays in getting onto licensing,

    the greater the advantage the incumbents have, whether

    they are cellular carriers or ESMR carriers.

              That's a very important factor, and that's a


    primary reason why cellular will continue to have a

    dominant market share, or a major market share, is that

    they are out there operating, adding 14,000 customers per

    day. 


              I think it's extremely important that the

    Commission fashion rules that allow the new entrants to be

    able to provide a competitive service, but that they be

    able to do so quickly, because one of the comments that's


    already been made is that this is seen as opportunity

    that's slipping away.  And that's absolutely right.  

              We can debate the market structure, the number

    of licensees, the size of the spectrum grants for the next


    two years, and not have any better idea of what the right

    answer is.  

              I think the advocates of each position have made
















                                                            79

    their points quite clear.  The record is full of all of

    the arguments.  I don't think that we're going to hear

    anything new, but it will be irrelevant if it takes two


    years to be able to answer those questions, because the

    opportunity will have slipped away.

              DR. PEPPER:  I don't think anybody has suggested

    that it's going to take two years to answer those


    questions.  In fact, we're moving quite rapidly.  The

    purpose of this hearing -- these sets of round tables

    today and tomorrow -- is so that we can more efficiently

    collect information from the competing parties who usually


    come in on one on ones and do it much more efficiently so

    it can move much more rapidly.          THE CHAIRMAN: 

    Could I ask you, and you only need to take two minutes to

    answer this.  


              "In its current format, PCS will not realize its

    full potential on a timely basis."  That's Mr. Kerr's

    statement.  Do you agree with that?  

              MR. STROUP:  No.  I believe that the market will


    make corrections.  I believe that if the Commission allows

    companies to aggregate the spectrum, that if there are

    inefficiencies that are made or incorrect decisions that
















                                                            80

    are made in the allocation, it will be corrected. 

              I don't think that there is a system that will

    work well in the urban markets and in the rural markets. 


    I don't think that there are areas of the country where I

    grew up where there are going to be seven new PCS

    licensees, in addition to two cellular and an ESMR

    license.


              However, in New York City, that may be a

    completely different situation.  I think rather than

    continuing to debate that issue, the market will correct

    for any inefficiencies that occur in the licensing


    process.

              THE CHAIRMAN:  Let me see if I have this right. 

    What you're saying is, it may well be that Mr. Kerr is

    exactly right, but it doesn't really matter?


              MR. STROUP:   I think that, again, if we let the

    debate go on, it won't.

              But, most importantly, we've found a couple of

    things, one is that the customer, the buyer, when we did


    our real market trial, and sold services to them, was

    interested in the value of what they got, and pricing did

    influence their buy decision substantially.
















                                                            81

              We -- we, in a four month period, penetrated 15

    percent of our target market, and we clearly were able to

    influence that a great, great deal.  So I think that we


    need to make sure we understand that the assessment of

    demand, very quantified, depends upon a set of

    assumptions, and we -- we're none of us are clairvoyant

    enough to know 10 years downstream what the real


    application will be.

              We see cellular, and PCS, and wireless data, and

    imaging, and other kinds of things all coming together,

    and being part of personal communications.


              We think the marketing will determine that more

    than will some of these other factors, although they're

    important, and they have -- they have to create an equal

    opportunity for the service provider to do it, ultimately,


    what the customer says, if it's met, we'll allow the

    penetration to be pretty much controlled, to be whatever

    depth we want it to be.

              MR. PEPPER:  Can we pursue this pricing question


    ,for a moment.  You talked about the importance of pricing

    and price sensitivity is really critical here.

              Could you pursue that in terms of the entry, the
















                                                            82

    -- the cost of the handset, and also then in terms of the

    monthly service charge, and the extent to which it goes

    back to a question asked earlier that the incumbent


    cellular operators have been able -- or, in your mind, are

    they being able to lock in customers, instead of migrating

    them or moving them to a new PCS service, as it's priced

    more aggressively, and if they can maintain and keep their


    customer base by lowering price, then, you know, what does

    that tell us today about the price of cellular service

    today.

              MR. WAYLAND:  Well, I think you can get in to a


    commodity offering and lower price, and certainly that is

    the strategy that some may choose to use.  That's not, I

    believe, the best strategy for providers to provide, to

    use.


              Providers should look to the market needs in

    developing a new an unfulfilled and under-fulfilled market

    need, and develop offerings to satisfy them, and charge

    the fair amount that the customer is willing to pay for


    that.

              What we found in our telego trial was that the

    customer doesn't want to put up that large one time cost
















                                                            83

    for the phone.  They don't want to sign a one year term

    agreement.  They don't want a large entry cost, but they

    are willing to pay some numbers of dollars per month as


    perceived as equal to the value of what we provided them.

              And we found what they were willing to pay, in

    our trials, was something under cellular monthly revenues,

    but certainly greater than what they pay today for the


    local exchange services, so there's a substantial amount

    of per-customer per-month revenues.

              And we could influence that a great deal by

    putting features, and characteristics, and functions into


    the offering that met their real needs.

              MR. PEPPER:  Mr. Lowenstein, or Mr. Hulak, Mr.

    Hamilton, in terms of your market research study, what

    have you found on pricing service?


              MR. LOWENSTEIN:  I would agree with what Mr.

    Wayland said with one thing, a very important caveat.  Any

    wireless service that includes some sort of a wireless

    capability from inside the home, a cordless type


    capability inside the home, or near the home, that one

    could normally approximate with today's cordless phone or

    enhanced cordless phone, consumers are not willing to pay
















                                                            84

    more than traditional land line rates for that type of

    service.

              So, for example, we conducted the survey, and


    found that 33 percent of the respondents were either very

    or somewhat interested in the type of follow me type

    services where the terminal cost would be between $2 and

    $300, which we think is a fairly reasonable entry point


    for the type of premium levels of mobility that would be

    accessible from a follow me type service, and then in

    terms of the usage charges, they would be charged land

    line rates when they're in or around the home, they would


    be charged 25 land line, plus 25 percent when they're in

    kind of the neighborhood, a kind of five mile radius of

    their home or their office, and then when they're in a

    higher speed or wider -- wider levels of mobility, more


    approximating a cellular type services -- service, it

    would be a 50 percent land line, plus 50 percent.

              All of those rates for the wireless elements of

    that and for the mobility elements of that are about half


    of what today's cellular rates are.  The average cellular

    call today, at peak time, you know, during the day, is

    approximately twice the equivalent cost of a land line
















                                                            85

    call.

              We think that PCS prices will have -- will have

    to settle in somewhere between typical land line prices


    and today's cellular prices to be attractive to that next

    wave of potential users.

              MR. PEPPER:  Is it he next wave?  So you're

    looking at attracting customers today who are not


    customers for wireless services like cellular, as opposed

    to trying to move people from a cellular to a new -- a new

    service provider?

              MR. LOWENSTEIN:  Well, mainly  -- mainly, yes. 


    There will be some of the -- some migration, as well, to a

    more follow me type service because of the fact that

    that's not undertaken by cellular, but it is both -- it is

    the consumer market, but also the -- the business market,


    to the extent that companies implement a wide solution 

    such as the type of solution Mr. Twyver mentioned,

    something that might be hanging on from the wireless PBX

    base, for example.


              So a business, an employee, can take their

    terminal, and they use it in their office, but then they

    can use it also when they leave the office, and connect on
















                                                            86

    to another -- to a wireless network and use it in their

    home, or while they're commuting to and from work, for

    example.


              MR. PEPPER:  If a provider can offer that, maybe

    I'm missing something.  I don't understand then why more

    customers wouldn't migrate from today's cellular service

    to a new service provider if cellular did not provide that


    kind of follow me service.  The enterprise service, you're

    saying that they will be able to?

              MR. LOWENSTEIN:  Yes, but -- but these services

    I'm talking about right now aren't really offered by


    cellular.

              MR. PEPPER:  No, I understand that.  Therefore,

    if they're desireable, why -- why will cellular maintain

    at least, depending upon which projection, at least a two


    to one penetration over any of the new entrants for the

    foreseeable future if the new entrants are going to

    provide the new kinds of services that you're talking

    about, as well as lower pricing, which we've heard is


    terribly important?

              MR. LOWENSTEIN:  Because of the installed base,

    and because of the fact that a lot of users are business
















                                                            87

    users, and there's a little bit less price sensitivity in

    the business model than a consumer model, which is the

    next wave of adopters that we're looking at in terms of


    the new services, and also because of the fact that the

    cellular providers will probably lower their prices, as

    well, in response to their potential competitive service

    offerings of the new -- of the new entrants of the market


    and the new services.  We do forecast that cellular prices

    will fall over time.  They have already, and they will

    continue to do so.

              MR. PEPPER:  Is the installed base issue, the


    customers' investment in their own equipment, I assume,

    what you're talking about?

              MR. LOWENSTEIN:  Yes, and rate plans, and the

    fact that businesses are -- are starting to adopt cellular


    type solutions a little bit more aggressive for their

    employees.

              MR. PEPPER:  So what you're saying is that there

    is a real head start advantage for cellular today with the


    customer -- their existing customer base?

              MR. LOWENSTEIN:  There definitely is somewhat of

    a head start advantage for -- for cellular providers,
















                                                            88

    absolutely.

              MR. PEPPER:  Can anybody quantify that, 

    Mr. Hamilton?


              MR. HAMILTON:  Well, as far as the -- talking

    about the installer base, and what that means to the

    competitive environment, it's much harder for the PCS

    providers to take away a customer from a -- if they're


    already on a system, cellular SMR paging, than competing

    for that customer as a new customer.

              It's not only related to price, it's related to

    things  brand loyalty and education about the product. 


    PCS is going to be growing out, and the consumers, it may

    be in a very confusing environment in the future.  

              There will be, from all directions,

    advertisements about these new mobile services, however


    they're defined and promoted, and they're going to have to

    try to educate the consumer about what's different about

    their service and the services they already have.

              And I think that also goes back to the delay


    issue.  Why is that so important?  It's because if growth

    in the cellular and other mobile industries were very low

    or moderate at this time, delay will not mean as much, but
















                                                            89

    if you look at it over the past two years, both the

    cellular and paging industries have met with phenomenal

    growth.  I mean, more growth in that two years in the


    cellular industry than in the previous seven years.

              So when we look at our demand forecasts, we see

    that -- if we look at demand as, you know, the traditional

    S curve, are you in the beginning, rising steep, or in the


    mature markets.  The growth that we've seen over the next 

    -- this last two years, have meant that we will reach that

    maturity at sooner levels, and that really impacts any

    delay that a new service provider has of getting into the


    market.

              MR. KATZ:  This is a, I think, very powerful

    argument in favor of the FCC moving as fast as possible,

    and you would agree with that, also?


              Let me ask you if you also envision what Mr.

    Hulak was talking about, because I think, and you also Mr.

    Stroup, and that is the sort of devolution from seven to

    three to four entities.  Does that process have in it any


    potential for delay or do you think not?

              MR. HAMILTON:  We think the -- whatever the

    market structure or the FCC provides, as long as it allows
















                                                            90

    again for aggregation and no restrictions upon what you

    can do with your license, that consolidation will happen

    quickly.


              MR. KATZ:  But do you think that the necessity

    to move through that consolidation is and element of delay

    that we should try to avoid, or, by contrast, do you feel

    that that's not the sort of delaying process that you


    would be concerned about?

              MR. HAMILTON:  I would be concerned about it.  I

    wouldn't -- if it meant delaying the licenses and trying

    to get a better scheme, in order to prevent some


    consolidation, no, then I'm against it.  Go ahead with the

    licensing as it is in the market.

              MR. STROUP:  If I could comment on this delay

    issue.  I think that there was a widely held belief in the


    industry, approximately six months ago, that auctions

    would be commencing this summer.  And, now, based on

    discussions that have taken place, the expectation, it's

    probably going to take place later this year or maybe even


    into 1995, and that's the delay that's being discussed.

              I'm delighted to hear the comments that have

    been made on planning now to move them forward quickly. 
















                                                            91

    But bearing into the expectations of approximately six

    months ago, there -- there already is delay that is

    occurring.


              MR. HALLER:  I would like to ask each of you to

    respond simply to a question.  If we make no changes in

    the decision -- if the commission makes no changes in the

    decisions that were made previously, we avoid a recon


    cycle.  

              If we make changes, then we wind up with another

    with another pleading cycle.  Now, which is better, to try

    to make other decisions, assuming that there are some in


    the last decision that were incorrect, or could be changed

    for the better, or is it better simply to affirm the

    previous decision, given it wasn't an illegal decision,

    you know, it could be affirmed, just as it was.


              What is the better choice, to go forward, and

    affirm the last decision, or to try to refine it, and risk

    another pleading cycle?  Let's start on this side.

              MR. TRAMPUSH:  In terms of no changes in the


    decision -- I'm representing the rural telephone

    companies. No changes would basically preclude that

    segment of the industry's participation in the new
















                                                            92

    technology.  The main rural companies that are interested

    in pioneering their own PCS serving area, and, in fact,

    they may be the only ones interested in providing that


    service.

              MR. VAUGHAN:  Excuse me again.  You're saying we

    should make the changes?

              MR. TRAMPUSH:  I think you should make changes,


    yes, Mr. Vaughan, and the nature of the changes would

    include examining cellular ownership restrictions.  There

    are many small companies that own more than 20 percent of

    rural cellular partnerships that have no control


    whatsoever over those partnerships, they're more of an

    investment.

              So if you want to foster competition between

    rural and PCS, one way to do that would be to look at


    relaxing those ownership restrictions.

              Another important thing to look at, which has

    been added here by the coalition is to allow partitioning

    of licenses.  Small companies can't afford to buy BTAs and


    MTAs, yet they are interested in serving the wire line

    territories.  That would also speed deployment of the

    service to rural areas quicker than it would under BTA and
















                                                            93

    MTA through a licensing scheme.

              The third area to look at would be the build-out

    restrictions in the rural areas if partitioning is allowed


    to make the economics work, so the service can be provided

    to customers as soon as possible.

              MR. VAUGHAN:  Simply affirm the current

    decision.


              MR. WAYLAND:  We believe a re-look at this is

    certainly in order.  I believe that it's very, very

    important that the commission carefully examine the nature

    of meeting the consumers' needs, and time to meet those


    needs is part of it, but to be able --

              MR. VAUGHAN:  You're suggesting that, right now,

    the way the commission's order is written, that if the

    commission has to fix this, we need a full year to do so


    is because if the commission makes a major change, we're

    going to go back in to the recon again, and that's what

    you're saying.  It's better for this commission to take

    another full year before it acts, based on what you've


    read in that order?

              MR. WAYLAND:  Yes.  I think it's much better to

    do the right thing than to do something that isn't
















                                                            94

    quickly.

              MR. LOWENSTEIN:  Our view is -- is not

    necessarily advocating that you make a change, or not


    advocating that you make a change, but -- but more to the

    point of view that a six month to one year delay in PCS is

    not the end of the world.  

              I think it's more important that this -- that


    this market be done right.  I think it's important to

    visit the cellular experience, and recognize that there

    were errors made in the way the cellular market is rolled

    out, and the fact that we have no national cellular


    network right now, and are real patchwork in services, and

    that one can't use their phone when they travel from

    Boston to Washington without going through all sorts of

    complex registration procedures, which consumers are


    absolutely not going to want to have to go through with

    their PCS phones.

              I think it's important to recognize that those

    mistakes can't afford to be made again, if the market


    forecasts that has been made today by all of us in the

    industry are going to be realized.

              MR. HULAK:  In terms of the issue of affirming
















                                                            95

    the current issue or going into recon, although the

    current poor scheme is not the best, we are aware of the

    limitations on PCS demand if we continue to get cellular


    and all the other wireless players time to prepare for it. 

              So, in an imperfect situation, I guess we would

    affirm the decision, let the market forces correct.  Our

    forecast reflects the fact that market forces were


    correct, but that it will lead to confusion, which will

    limit the short-term out-take PCS.

              MR. VAUGHAN:  I'm sorry.  Your answer is take

    the year or not take the year?


              MR. HULAK:  Not take the year.

              MR. PEPPER:  What happens if it was six months? 

    The question is, what is in fact, what is delay?

              MR. HULAK:  If we take -- if we say a year to


    reconsider, and then we'll go to the auction process, then

    that takes us beyond a year, and the question will become

    how long will it take to get through the auction process.

              MR. PEPPER:  I guess the question then is, when


    do you -- when do you see it important that the auction

    process begin, and don't say as soon as possible.

              MR. HULAK:  Delays of a matter of a couple of
















                                                            96

    months, while creating some of these, and giving the trade

    press something to write about, I don't think are going to

    be substantive.


              If we're talking delays of more than a year,

    then we're further undermining the confidence in the

    market and the ability to re-establish.

              MR. PEPPER:  So you're saying if we can begin


    the auction process around the end of the year, that's

    different than having to begin an auction process in the

    summer of '95?

              MR. HULAK:  Psychologically, I think that the


    impact of the delaying licensing into summer of '95 would

    be significant.

              MR. PEPPER:  But, psychologically, beginning at

    the end of '94, beginning of '95 is significantly


    different?

              MR. HULAK:  Pretty much everyone is expecting

    the licenses to be delayed until the end of '94, and, we,

    quite frankly, --


              MR. PEPPER:   What you're saying is that if we

    start at the end of '94, it's not a delay by definition?

              UNIDENTIFIED SPEAKER:  It's already at six
















                                                            97

    months if we talk it up.

              UNIDENTIFIED SPEAKER:  We've lost the six

    months.


              MR. HULAK:  Right.  You know, it depends how you

    define it.  It's like calling it a deficit, you know.

              MR. PEPPER:  Mr. Twyver.

              MR. TWYVER:  We think that the commission can


    generally affirm the decisions they've been making, have

    taken, especially with spectrum and the allocations of

    licensing.  

              We believe a couple technical corrections have


    to be made in terms of power level, to allow PCS to be

    cost effective competitor to the user of cellular, and we

    believe width etiquette would have to be corrected.  Other

    than that, I think it's very good the way it is, and the


    sooner we have the options the better.

              MR. PEPPER:  I guess one of the questions,

    again, more for the general counsel's office is how the

    implication that those kind of tweaks or minor adjustments


    do not trigger a new recon of pleading cycle, whereas, you

    know, other adjustments do.

              MR. TWYVER:  They were part of the original
















                                                            98

    proposed rule making, so presumably they could be fixed

    without recon.  I don't know what the legal implications

    are.


              MR. STROUP:  I concur that there are technical

    rules that should be changed.  Beyond that, I would

    suggest affirming the decision, and I would also note the

    commission consider the incentives of the people that are


    urging you to take the time.

              MR. PEPPER:  Mr. Barrett, any questions?

              MR.  BARRETT:  Yes.  Mr. Wayland, one of the

    problems you have is that we -- we were watching this in


    our offices, and I just ran in there because you had

    talked about doing this the right way.  What do you call

    the right way?

              MR. WAYLAND:  I think it's very important that


    we recognize that the cellular providers today are going

    to continue to evolve the offerings that they make to the

    consumer to serve what those evolving needs are.

              I've heard a lot of discussion today about


    cellular carriers having to drop price, and lose

    customers, and that they would retain a status quo in

    their offerings, and I don't believe that to be the case.
















                                                            99

              No one is currently in any bettered position to

    serve the wireless needs of the customer in their

    locations than the cellular carriers, but they need to


    have the opportunity to do that, and to evolve to serve

    those needs in a fair and equitable way with any others

    who come into the market place.

              MR. BARRETT:  Let me ask you this, have you


    achieved those goals that you just described, or would you

    be suggesting that we probably -- I think it was in

    reference to what you asked here maybe a year, two years,

    whatever it was, and do it the right way, would you have


    been still suggesting that?

              MR. WAYLAND:  I'm sorry.  Could you ask again --

              MR. BARRETT:  Is it the configurations you have

    difficulties with, or is it in-service or out of service


    problems you have?

              MR. WAYLAND:  Well, for example, the -- the

    bandwidth of the allocations, we believe, as I said in --

    in my testimony, that 20 mega-hertz represents a very good


    bandwidth to be provided for all users.  We believe that -

    -         MR. BARRETT:  Is that in addition to the mega-

    hertz, the amount that the cellular user is already -- how
















                                                           100

    many you all have?

              MR. WAYLAND:  The cellular carriers today have

    in the order of 25 mega-hertz.  However, --


              MR. BARRETT:  You ought to be able to get one of

    the 20s and have 45?

              MR. WAYLAND:  I didn't say that.  I do believe

    that the cellular carriers ought to have the opportunity


    to be freed up from some of these restrictions on 10

    percent and 20 percent ownership, but I do also believe

    that the best interests of the consumer is served by

    allowing the best provider to have the opportunity to


    serve that customer need.

              MR. BARRETT:  Would they also be better served

    if they had somebody to compete against the cellular in

    terms of pricing and quality of service?


              MR. WAYLAND:  Absolutely.  We are very much pro-

    competitive, and I believe the cellular industry in

    general is pro-competitive.

              MR. BARRETT:  And I accept that as your


    description.  Then let me ask you this, you, with your

    already present 25, would also want an additional 20, and

    other people would have 20, and you would have 45?
















                                                           101

              MR. WAYLAND:  No.  I believe it's important for

    us to take a look at what we really have right now,

    Commissioner.  We have 25 mega-hertz, as a cellular


    provider, in selected locations, and the assignments are

    on the basis of SMAs and RSAs --

              MR. BARRETT:  I understand.

              MR. WAYLAND:  Smaller than the BTAs or MTAs.  We


    also have implemented the voice solutions with analog

    technology, which is what was available at the time.

              We are -- we need to evolve to digital

    technology in order to be able to get anywhere near the


    kind of capacity that someone could get in even a 10, let

    alone a 20 mega-hertz new spectrum allocation, which would

    be implemented as digital to start with.

              So looking at those things, I that think we need


    to free the -- the -- all the players up, to compete for

    the market segment on the basis of marketing and sales,

    and technology innovation on an equal footing and an equal

    basis.


              MR. BARRETT:  Well, what would be your

    perception or your description, rather, of an equal basis

    where we would not have to wait a year, four years, or
















                                                           102

    whatever?

              MR. WAYLAND:  Well, I can't address how much

    time it would take, but I -- I -- I've always


    underestimated the time it takes to do these things.  I

    would like to think --        MR. BARRETT:  So your four

    years could be two years?

              MR. WAYLAND:  I would like to think that the


    commission could take the necessary steps within the next

    six, plus, maybe 12 months.  I'm not in a position to

    estimate it very specifically, though, in terms of number

    of months.


              MR. BARRETT:  Mr. Twyver, you talked about the

    allocations that we've already made are okay.

              MR. TWYVER:  Yes.

              MR. BARRETT:  Under those allocations, why do


    you think Mr. Wayland wants to change those allocations

    and --

              MR. TWYVER:  Well, some of my best customers are

    cellular operators --


              MR. BARRETT:  Some of my best friends are, too.

              MR. TWYVER:  I think that just to be clear here,

    that cellular operators have a tremendous advantage in
















                                                           103

    this coming competition.  They've got an install base,

    they've got quite wide coverage, they've made their

    investments, they didn't have to pay for their spectrum,


    they got the brand name, the marketing, administrative

    systems all set up.  

              There is nothing that we're talking about doing

    with PCS that can't be done at 800 mega-hertz in a


    cellular spectrum.  

              I absolutely believe that the cellular operators

    will be very aggressive and innovative in the services and

    the pricing that they bring to the market, and they'll be


    worthy competition of the new folks.

              I think it's even more important, therefore, to

    make sure that the new entrants have a level playing

    field, have the spectrum, the 30 meg, and the MTAs that


    they need to avoid the incumbent microwave users

    initially, and build up the capacity to match the cellular

    operators, have the power and the transmitted -- have the

    transmitters they need to get the same coverage at lower


    propagation to engage and so on and so forth.

              I think the challenge here is going to be to

    create this level playing field, to allow the new entrants
















                                                           104

    to overcome the starting advantage that the cellular

    operators have, in order to get anything like a third or

    40 percent of the market that we see happening in the next


    year.

              MR. BARRETT:  So you don't see any problems with

    the present allocation in terms of technical feasibility

    or other impossibility of -- not impossibility, any


    disadvantage, if I may, in attracting capital?

              MR. TWYVER:  No.  It's clearly a compromise, but

    everything is.  The 30 meg MTAs --

              MR. BARRETT:  Our decision was a compromise?


              MR. TWYVER:  Well, you'll have to talk, sir, but

    it appeared that it was.  

              The 30 meg MTAs are attractive enough to attract

    capital, are big enough to allow current technologies to


    get a start, and avoid the incumbent microwave users for a

    period of time, and are big enough to allow businesses to

    build out broad and diverse services in those MTAs.

              So I think the 10 meg chunks are attractive for


    an innovative new players.  They are attractive for low

    power local services, for wireless local loops, and for

    data access.
















                                                           105

              MR. BARRETT:  Are the 10s that significant

    standing alone, only able to aggregate three of the 10s?

              MR. TWYVER:  I think, as others have said here,


    market forces --

              MR. BARRETT:  No, no, no.  I'm asking what do

    you think.

              MR. TWYVER:  In terms of the technical --


              MR. BARRETT:  You said they were okay

    technically and otherwise, and then you also referred to

    the tri-caper.  Would they be that at the four 10s, or

    remain by  themselves, or only if one was usable aggregate


    three of the 10?

              MR. TWYVER:  I think aggregation is a powerful

    market force, and I think --

              MR. BARRETT:  I understand that.  But my


    question is, whether or not you accept them standing

    alone, or are they only powerful and attractive if you're

    -- with the ability to aggregate three of the four 10s?

              MR. WAYLAND:  They're valuable alone.  They're


    potentially more valuable in some markets with

    aggregation.

              MR. BARRETT:  Let me ask you this, if they're
















                                                           106

    valuable alone, without the ability to aggregate, are

    there difficulties with manufacturers providing the 20 in

    the lower band, or the one 10 standing alone?


              MR. WAYLAND:  Aggregating a 10 with a 20, or 10

    with a 30, poses technical challenges that are really cost

    challenges, that probably won't be met for five years or

    more.


              MR. BARRETT:  Do you want to finish, Mr.

    Wayland, and then I want to ask Tom a question.

              MR. WAYLAND:  Well, as I said in my written

    testimony, there are certainly -- the technology issues,


    and we haven't addressed those very thoroughly this

    morning, there is another panel to do that.

              MR. BARRETT:  I do understand that.

              MR. WAYLAND:  But there certainly is a reason to


    think that the 10 mega-hertz allocations are substantially

    disadvantaged as compared to the 30 mega-hertz MBAs, which

    are at the lower end of the bank.

              It's -- I think it's very, very important,


    though, that we continue to not just be focused upon the

    specific details of assumptions that lead to projections,

    and assumptions about --
















                                                           107

              MR. BARRETT:  Tell me, what does that mean,

    assumptions that lead to projections.

              MR. WAYLAND:  The assumptions that we use in


    projecting the market share that one provider or another

    provider will have in the future.

              MR. BARRETT:  All right.  But that should not be

    government's role.  We shouldn't be involved in whether or


    not there's demand.  We ought to do what we ought to do in

    terms of allocating in the most reasonable and timely

    fashion whether this technology will be deployed, and let

    you determine whether or not there is a market out there. 


    You either make money or you lose your money.

              My concern is, under -- under what circumstances

    can we provide the best allocations that we can bring to

    the public the kind of services that you all suggest that


    you can bring, voice video, imaging, or data transmission.

              MR. WAYLAND:  Yes, sir, and I agree entirely

    with the statement that you made about leaving those to --

    those things to  --


              MR. BARRETT:  I'm not in the market myself,

    obviously, and I'm not sure, you know, you're speaking --

              MR. WAYLAND:  But I believe some of the comments
















                                                           108

    that have been made concerning not delaying have been

    driven more by these abilities to capture immediate market

    share, and comparing that with traditional assumptions of


    applications, rather than looking to the future and what

    the opportunities are.

              Personal communications, in our view, represents

    a whole collection of services, and not just voice.  It's


    a range of voice, different kinds of applications that

    support voice needs, in different regions and different

    areas, it's faded its imaging, its paging.  It's the

    merging of those, and we must have sufficient bandwidth in


    the hands of the people who can do it in order to be able

    to.

              MR. BARRETT:  Let me ask the question that I

    asked Mr. Twyver, and, that is, that if, in fact, you have


    four 10s there, and one has the ability to aggregate three

    of the 10s to make it a 30, is that 10 capable of

    providing the voice data?  

              Obviously, it's capable of providing voice, but


    is it capable of providing video and imaging or data

    services in a -- in a quality way?

              MR. WAYLAND:  Technology has two very, very
















                                                           109

    important factors.  Technologically, one can do that. 

    Assuming that you can clear the bands, you can do that. 

    The cost associated with doing that --


              MR. BARRETT:  A quality -- a quality

    transmission can be provided by the 10.

              MR. WAYLAND:  Yes, absolutely so.  The cost of

    doing that is going to be determined, to a very great


    extent, on the size of the market that supports the unit

    cost of the devices that are sold, and that's going to be

    the fundamental difference between doing there and doing

    it somewhere else.


              If the somewhere else has an attractive feature,

    such as frequency adjacency and pre-existing technology.

              MR. BARRETT:  Let me ask one other question, and

    I've taken too much of your time, Bob.  You see no


    technical difficulties in the aggregation of three of

    those 10s, and then having that 10 stand alone in terms of

    quality transmission, be it voice, they are -- obviously,

    won't have that much problem transmitting voice, but


    clearly data and imaging may be a different ball game.  

              You see no technical problems from a

    manufacture's standpoint?
















                                                           110

              MR. WAYLAND:  I'm not a manufacturer.  From the

    standpoint of a service provider who uses technology,

    though, I do not see a problem with that, with the


    critical assumption that the incumbent user, the microwave

    users, can be timely cleared.

              MR. BARRETT:  Thank you very much.  I'm sorry

    for all the --


              MR. PEPPER:  Oh, no, that's okay.

              MR. BARRETT:  Mr. Wayland, I heard him on the

    television, and I had to jump up and run in here.  Thank

    you.


              MR. PEPPER:  Mr. Twyver, you are a manufacturer.

              MR. TWYVER:  That's right.

              MR. PEPPER:  Could you comment on Dr. Wayland's

    last response?


              MR. TWYVER:  There is no technical problem in

    providing any of these services at 2100 mega-hertz versus

    19.

              MR. PEPPER:  At what cost and over what period


    of time?

              MR. TWYVER:  There is two cost issues.  One is,

    because it's a slightly higher frequency, the technology
















                                                           111

    is slightly tougher, and propagation is slightly shorter,

    but the driving factor will always be the volume of

    production that you produce, that you can get to meet that


    market, so that's going to be manufacture for any of these

    applications.

              MR. PEPPER:  Well, in terms of aggregation which

    you said you see as a way out of, you know, a box, what


    happens in terms of product development if, in some

    markets, you've had the aggregation of three 10s to a 30,

    as we're talking about, and in other markets it's only

    two, and in other markets is a 10 stand alone?


              MR. TWYVER:  That's absolutely no problem.  As

    you know, the cellular spectrum now is divided in half,

    with a couple of extended chunks.  Cellular equipment is

    agile across those frequencies.  I don't see any problem,


    technical problem at all, in accommodating any combination

    of 10s, and 20s, and 30s, and that type of thing.

              MR. PEPPER:  We talked a lot about -- or you

    talked a lot about the 30s and the 10s.  Nobody has


    mentioned the 20 mega-hertz block in the lower band.

              Could you -- somebody address the demand for

    that, and what you see as occurring with that band, or
















                                                           112

    with that block, the C block.  Mr. Lowenstein or --

              MR. LOWENSTEIN:  We -- we see that there is some

    demand, but with the forecast that we have developed for


    PCS is focused mainly on broad band, on the broad band

    part of the spectrum and the license spectrum.

              Although we see a lot of demand, particularly on

    some of the surveys we conducted for data and messengering


    oriented services, some of which will be served by the

    paging market place --

              MR. PEPPER:  You're talking about the 900 mega-

    hertz.  I'm talking about the 20 mega-hertz C block, the


    two 30s.  Mr. Hulak?

              MR. HULAK:  I guess looking at it from a point

    of view of who will bid on what blocks, there is no doubt

    that everybody's first priority in a virgin market, and by


    a virgin market, I mean one where you don't have any

    wireless interest today, no exclusions applied, everyone

    is going to go for the A and B blocks, those that decide

    they're going to bid for it.


              The 10 mega-hertz allocations, the existing

    cellular companies will get them, regardless of whether

    they're going to turn short-term -- or be short-term
















                                                           113

    returns or not.  

              The C block, therefore, would appear to be a

    default position for some of the larger carriers buying in


    on a minority share.  Realistically, I can see a

    fragmented picture where in some markets --

              MR. PEPPER:  Is the 20 at risk of being

    orphaned, because it's not 30?  I mean, what -- in terms


    of that lower band, in terms of some of the markets you're

    talking about.

              MR. HULAK:  Yes.  It's not so much that it's 

    because it's not 30, it's because it's surrounded by so


    much else, you know, other allocations.  It creates a very

    confused environment in the market place.  

              At some point people are going to have to place

    their bets as to where they want to go, and we know that


    the larger players will go to the A and B blocks, the

    cellulars are simply -- they're going to bid on the --

    cellular companies will bid on the 10 mega-hertz.

              So, the question is, if everybody gets their


    wish list, that leaves a very small community of interest

    for the C block.

              MR. PEPPER:  I guess the question is, when you
















                                                           114

    leave the current plan alone, and just to move forward,

    what do you see happening to that C block?  Is it going to

    be bypassed, there's not going to be competition for it,


    is it going to receive any capital for build out?

              MR. HULAK:  Yes and no.  In certain markets,

    yes, it will, it will receive capital, and there will be

    competition for it.  Pretty much if you look at the top


    MBAs, everyone is eyeing those markets very greedily, so -

    -people in New York and LA and Chicago.  

              So we would expect that all the allocations

    would be filled in those types of markets.  You go down


    into some of the smaller markets, I think it could well be

    bypassed.

              MR. PEPPER:  Mr. Lowenstein, you had indicated

    that we should take time to fix, you know, any


    difficulties or problems that you see in the allocation

    plan.  Was that the kind of thing you were thinking of or

    are you thinking of --

              MR. LOWENSTEIN:  No.  I misunderstood the


    question you asked just a moment ago.  Now that I'm

    focused on it, I think actually that, although there will

    be a lot of emphasis on the A and the B blocks, because
















                                                           115

    those are the most attractive, I think that there is still

    significant potential for the C block.

              There will be players who would very much like


    to be part of the PCS game that might not be winners of

    the A and B block spectrum, but will still have to try to

    find a way to play, and outside of the top 10 or 20

    markets that we are focused on, there are a tremendous


    demand in many secondary markets, and, as Mr. Wayland had

    mentioned, there is plenty of potential to offer a very

    robust service with that amount of spectrum, so we see

    that -- we see the C block being very active.


              What we see is more likely tends to be orphaned,

    so to speak, would be some of the 10 mega-hertz licenses

    as stand alones, non-aggregated on parts of the spectrum.

              In terms of the comment of, if we need to wait


    for a few months, or maybe even up to a year to do it

    properly, I think one of the important points to

    recognize, in one of our survey data reports, and I think

    if you really look at some of the results of the PCS


    trials that have been run by the folks at GTE or Bell

    Atlantic or Pactel is that the willingness to pay a

    premium for mobility really comes as some sort of a follow
















                                                           116

    me service where there are not the kind of islands of

    coverage that might be limited by CT-2 type service, which

    is a possibility of one of the types of PCS services that


    we're seeing.  

              We see one of the key frustrations among

    cellular users is the fact that they have areas where they

    are covered by cellular areas, where they're not, either


    because of lack of coverage from a geography standpoint,

    or because of the way cellular licenses are handed out,

    and there aren't normally frequencies from one cellular

    region to another.


              So we really see that the most important thing

    to recognize -- among the most important things to

    recognize with PCS is to not make sure we don't create

    islands of coverage, because that will be very


    frustrating, particularly to consumers, and we don't also

    have just islands of service, and that we also try to

    focus on the --what would have the greatest potential for

    creating a general purpose device that would support both


    voice and data, so we don't have what we call the anti-

    group, and obviously a mobile device glut, that the

    average traveller had to carry around a cellular phone, a
















                                                           117

    pager, a portable computer, an electronic organizer, and a

    PDA.  

         We want some sort of a form factor that will perhaps


    enable an aggregation of devices.

              MR. PEPPER:  Mr. Vaughan, did you want to --

              MR. VAUGHAN:  Actually, I wanted to ask a

    question about rural service, and coming back to Mr.


    Twyver.  Do people view PCS as the best vehicle for

    providing wireless service to rural communities, or are

    the economics there for doing that, or is NSS service or

    some other service a better way of doing it?


              MR. TWYVER:  Potentially, PC wireless technology

    could be used in between wired service and better type

    service where PCS type of solution would reach traditional

    customers at a lower cost than the other type service.  It


    could be used to completely expand the universality of the

    basic.

              MR. PEPPER:  What about the satellite services. 

    We're hearing a lot and reading a lot these days about


    satellites providing service to low density areas, and you

    made the point earlier that it's not a demographic, it's

    the density issue.
















                                                           118

              MR. TWYVER:  Potentially, Dr. Pepper, it extends

    the material like the original service.  Well, the

    handsets are $3,000, so it depends on which service and


    what application.  There's certainly applications, but you

    won't see them broadcast on direct tv.

              MR. PEPPER:  Can you make the statement that 800

    mega-hertz cellular is basically throughout all the PCS


    type of services right now?

              MR. TWYVER:  It's meeting a lot of the needs

    here.  I think there is a lot of other applications in

    rural -- rural America.


              MR. PEPPER:  It's capable, but it's --

              MR. TWYVER:  I think other applications are

    being provided by cellular that would be provided by

    another competitive entry.


              MR. PEPPER:  Nothing would prevent cellular from

    providing --

              MR. TWYVER:  No, I don't think so.

              MR. PEPPER:  I just have one question for you. 


    In terms of your statistics, if you got perhaps 51, now

    we're talking below that, would cellular spectrum fully

    meet the needs and the demands, in your studies, that came
















                                                           119

    up with 87,000,000, 27,000,000, what have you, dropped

    below.  

              I understand Los Angeles and I understand


    Chicago and New York.  Once you get below that, would the

    existing 50 mega-hertz cellular, and numerous channels of

    EMSR, would that provide enough -- more than enough

    spectrum for you to go for them, or are you supposed to be


    above that?

              MR. LOWENSTEIN:  For those in the top 50

    markets, more than enough spectrum.  It's not a question

    of spectrum.  It's a question of pricing the systems.


              MR. TWYVER:  And it's a question of how to use

    that spectrum.  I mean, we had mentioned major new

    services using the two ban spectrum.  It would be a shame

    to prevent those devices and those services from these


    being deployed in -- in less dense areas, because it was

    the wrong frequency.

              MR. LOWENSTEIN:  I certainly believe that the

    800 mega-hertz channels available in the existing spectrum


    is sufficient to serve those needs, as they're understood

    today, with visual technology implemented as they're

    understood by the prognosticators who base future on the
















                                                           120

    present and the fact.

              But I think it's very important that we look

    forward to saying what about imaging, what about all the


    other features that data capabilities, the applications

    that people will want a decade from now is a huge amount

    of time with the rapid movement of technology.

              And I believe that it would be risky to say that


    there would be sufficient spectrum to do all the things

    that one might want to do, even below the 50, the top 50. 

              That's a long ways down the list, and I

    recognize that, but I still believe that there -- those


    frequencies would be put to good use for market needs at

    some point in time, maybe not as early in the larger

    market.

              MR. PEPPER:  We have about 10 minutes or eight


    minutes left, and I want to give people an opportunity for

    very short thoughts that you may have as a result of the

    discussion, so why don't we start around the room, and

    let's get another question.  Tom, did you have a follow


    up.

              MR. WAYLAND:  I just had a follow up on the 20

    mega-hertz question.  I heard the responses, in effect,
















                                                           121

    really addressed the geographic area as not the magnitude

    spectrum.

              Let's suppose that were something like the MTA


    level mark.  Would two 30s and a 20 be a stable

    arrangement, would that go largely unused in, say, outside

    the first, say, your top 50 markets.  Could you comment on

    that particular arrangement?


              MR. LOWENSTEIN:  I would suppose some of the

    unit cost arguments that have been used for beyond the top

    50 markets.  I think it's important to recognize that the

    top 50 markets -- beyond the top 50 markets, it would


    devote a much smaller market than that.

              For example, it would be difficult to justify in

    the unit spaces a micro cellular type of network where you

    have micro cells every 200 meters, like would be supported


    very easily, for example, by one or more providers in a

    New York or Los Angeles or whatever.  So I think those

    come down to some of the geography and demographic issues. 




              I recognize that beyond the top 50, there is not

    the same population density that people would tend to use

    a vehicle base service a little bit more readily than in a
















                                                           122

    densely populated urban area, for example, and that those

    markets might be very well served by a -- would be better

    served by a wide area type service such as a cellular


    service such as a ESMR service, and perhaps some niche

    type PCS services that are, for example, data oriented, or

    enhanced paging oriented, for example.

              MR. PEPPER:  I'll start on this end here with


    Mr. Trampush.

              MR. TRAMPUSH:  Well, I think I had an

    opportunity to make most of the points I wanted to make,

    but I do want to reiterate that equal opportunity for all


    of the participants in the market represents the right

    thing to do to serve the consumer, and to get services

    into the consumers hands in a timely and a cost efficient

    fashion.


              There are many providers of wireless services

    today who are very, very well positioned to do that, and

    anything which would inhibit their ability to do it would

    not serve the interests of the public.


              We -- we believe there is an opportunity here to

    do some of the things that people have talked about over

    the last few years about the evolution fm wireless to
















                                                           123

    serve all sorts of needs that only our imagination can

    understand, and I would like to be part of that, with the

    commission's making the opportunity available as this --


    the ultimate result of this hearing, and the ultimate

    licenses and allocations evolve.

              MR. PEPPER:  Mr. Hamilton.

              MR. HAMILTON:  Let me reaffirm that I believe


    that the licensing process should not be delayed due to

    revisions of the current rules.

              The FCC should not guarantee success in the

    market place by guaranteeing, through our knowledge today,


    what will succeed.  They should allow the chance for

    success.

              Our own companies have been -- have been

    something with a lot of entrepreneurial type of


    individuals, smaller individuals, who want to -- who wants

    that chance to be in the market place.  They're not asking

    for a guarantee of success.  They are looking for that

    chance, and I believe the entrepreneurial spirit in the


    United States will overcome what -- if there's any

    obstacles that the FCC licensing process has now has.

              MR. PEPPER:  Mr. Twyver.
















                                                           124

              MR. TWYVER:  Yes.  Just a brief comment.  I

    would hope that seven years from now, we're looking back,

    and services are deployed beyond our imagination, and


    we're not -- we're not doing studies or debating or

    considering how we did this in rural America.  It's

    already happened.  That's all I have to say.

              MR. PEPPER:  Mr. Lowenstein.


              MR. LOWENSTEIN:  In the ideal world, we wouldn't

    have a debate, and we'd beginning the spectrum options

    tomorrow, and I think at the same time it's important to

    recognize that this must be done -- that this must be done


    right in the interests of the people who would be

    potential users of the service, particularly those who are

    not currently wireless users who would like to be wireless

    users.  


              For instance, lower prices for their service

    because of the high -- relatively high price of cellular

    has perhaps kept them away to date, the worry of being out

    of coverage range, the fact that we have islands of


    coverage being a fairly significant concern.

              I think it's an environment where we have many

    new competitors in the market place is a very positive
















                                                           125

    one.  If you look at England, for example, and the mercury

    one to one PCM service that's been developed, it's not

    only created demands for their own service, but it's


    stimulated demands for all its types of wireless service

    and all the wireless providers such as in London from the

    instruction of that type of service.

              But, it's also, at the same time, important to


    recognize the strengths of the incumbents in terms of

    having built wireless market in the first 10 years,

    particulary in the cellular arena, and the fact that they

    have bought a very sophisticated network has been


    deployed, and it's getting more sophisticated all the

    time, and that they will, too, be able to participate in

    the PCS, as well.

              MR. PEPPER:  Thank you.  Mr. Hulak.


              MR. HULAK:  PCS represents a strong opportunity,

    despite some of the potential barriers and obstacles that

    have been raised today.  Seventeen million subscribers and

    $6 billion in service revenues is still a healthy market.


              In the ideal world, perhaps things should have

    been done differently with respect to -- the realities

    are, there are only two or three strong vehicles survive
















                                                           126

    at the end of the day, in our opinion.

              That said, it's better, we think, to keep this

    market off and get it rolling.  Those who really want to


    delay, I suggest, need to question why they want to delay.

              So, reluctantly, I say we should move forward

    with the currently licensing fee.

              MR. PEPPER:  Mr. Twyver.


              MR. TWYVER:  I think it's obvious with 5,000,000

    new cellular subscribers last year and cellular tariffs

    that the consumers are ready.  It's obvious the potential

    licensees are ready by their efforts in discussions with


    you and planning for the licenses.

              The products are ready.  Northern telecom

    recommends that the present order be reaffirmed with some

    minor technical corrections and we get on with the


    licensing.

              MR. PEPPER:  Mr. Stroup.

              MR. STROUP:  We certainly covered more than just

    demand forecastS in our session today, and one point that


    you made is that we are dealing with an auction

    environment.  

              Companies will have the opportunity to evaluate
















                                                           127

    whether they're going to bid on a 10, 20 mega-hertz system

    and adjust their prices accordingly.  Capital investment

    for a 20 or a 10 is likely to be less than for a 30 mega-


    hertz system.

              I think all of the forecasts you've heard today

    has shown that the industry has tremendous potential. 

    From the industry prospective, we're already shown six


    months behind schedule.  

              I think that it would be not only a shame but

    have tremendous impact on the competitiveness of the

    industry going forward if we were to delay it another six


    months.

              So I guess my urging to the commission would be

    to continue to move forward.  As I noted earlier, I'm

    delighted to hear that this is intended to expedite the


    process.  Thank you.

              MR. PEPPER:  Thank you.  I think that -- thank

    all the panelists, because it's been very informative.  We

    have aired a lot of issues beyond just demand, because, of


    course, demand is based upon a lot of assumptions, we had

    to delve into some of those assumptions.

              I think it's quite correct, and I think
















                                                           128

    everybody here would agree, and the commissioners would

    agree that moving as rapidly as possible is in the

    public's interests, but getting it right is in the


    public's interests, as well.

              I guess personally I'm not clear why the

    industry thought that we'd actually be holding, you know,

    the auctions this summer.  I don't see anything that we're


    doing is delaying the roll out of the service.

              I think the expectation for the service are

    quite substantial.  I think that whether it's 17,000,000

    or 29,000,000, at the end of the day we're going to have


    millions and millions of new customers for a new billion

    dollar industry that's going to be based primarily upon

    U.S. engineering and technology.

              I think that this afternoon we're going to hear


    from a panel of economists who will talk about competitive

    questions.  We're also going to hear from a panel of

    investors from Wall Street investment bankers, a big Wall

    Street firm, in terms of the importance of what we do in


    terms of attracting capital, so that we can have a rapid

    roll out in the market place.

              We've been focusing a little bit, I think, too
















                                                           129

    much here about the internal FCC processes, and one month,

    one direction or another, strikes me as what we've been

    looking at internally is that the big costs are not going


    to be for -- spectrum big costs are going to be investing

    in infrastructure.  

              The big question of timing are going to be how

    fast the companies can attract capital, how fast the


    companies can deploy networks, how fast companies can

    clear incumbents, and many of those issues -- on many of

    those issues, the industries are moving forward quite

    quickly.


              Ralph, do you want to say anything?

              MR. HALLER:  Yes.  I'll just conclude this

    session.  I would also offer that, in the course of the

    discussions up here, I would urge you not to draw any --


    any real conclusions as to anything as far as delay, or

    anything like that.  

              We've often asked questions or to draw out

    people's detailed views.  As I started out this session,


    it is the intent of this task force, and I -- we've also

    heard from the commissioners, it is our intent to move

    forward as expeditiously as possible.
















                                                           130

              I don't think there is anything we're going to

    do, as far as the delay in auction and licencing process. 

    We are with our goal of moving forward, and getting PCS

    out there and competitively absolutely quickly as we

    possibly can.

              With that, I will remind you, we reconvene at

    1:00, and we have a full afternoon, so we'll see you back

    here at 1:00.

              (Thereupon, at 12:00 o'clock, p.m., a lunch

              recess was taken.)

          *         *         *         *         *

     

     

     

     

     

     

     

     

     

     














                                               131



         MR. HALLER:  I recognize that an hour was

 short time for lunch, but we have a considerable

mount of ground to cover this afternoon so we want

o get started right away.

         For those of you that looked at the

chedule and said four hours is an awfully long

ime without a break, we actually will be probably

reaking somewhere between 2:30 and 2:45 and then

esuming the second panel this afternoon at 3:00.

         So there will be a little break in

here.  It is not quite as bad as you might have

hought it would be.

         I can see our panelists are -- okay.

his afternoon our first panel will deal with the

conomic issues associated with PCS, and then the

econd panel this afternoon will look at financial

erspectives on PCS.

         The first panel will be moderated -- or

ctually your program is incorrect.  Dr. Pepper

ill also moderate the first panel this afternoon.

ob?

         MR. PEPPER:  Thank you.  There has been



























                                               132



ne other change.  There has been one additional

hange.  Unfortunately because of a death of a very

lose friend, Tom Hasewood (phonetic) is not able

o join us this afternoon.

         So we have a very distinguished panel of

hree instead of a very distinguished panel of four

conomists.

         Dan Kelley, who had been at the

ommission and then MCI is now with Hatfield

ssociates.

         Stan Besen who has been with the

ommission and then with Rann Corporation

phonetic), and is now with Charles River

ssociates.

         And Jerry Hausman who is with MIT.

         We are going to have a slightly different

ormat for the first panel this afternoon.  We are

oing to dispense with the opening five-minute

resentation and begin to get right into answering

uestions.

         But each of the panelists was asked to

ddress four questions.  And what we would like to



























                                               133



o is start with the first and focus on that one

irectly before we move onto the other.

         The four questions are -- there is really

asically two questions:  What market structure

ill promote investment, innovation, and efficient

ricing?  And the second is how can the Commission

romote such a market structure?

         And then there are some subsidiary

uestions to that.  So if we could begin perhaps

ith Professor Hausman on the market structure

uestion, what market structure will promote

nvestment, innovation, efficient pricing in terms

f variables such as the number of competitors, the

ost drivers, and the market structure, demand side

actors and so on.

         And then Professor Katz will help in the

uestioning.

         MR. HAUSMAN:  I give my oral exam today.

         MR. PEPPER:  That's right.

         MR. HAUSMAN:  We will start with in terms

f what market structure.  To my way of thinking

he FCC has already done the most important thing.



























                                               134



nd that is decided to hold an auction so that the

arket is going to get to decide this rather than

y administrative fiat, or as I sometimes refer to

ast FCC actions, by the great handicapper general

n the sky who should decide what the rules are.

         So to the greatest extent possible I

ertainly hope that the minimal amount of screwing

round with the market via the auction will need to

ake place and that the market and bidding process

ill determine the market structure.

         In terms of the particular questions, the

irst was the number of the competitors.  I said --

r I believe that the absolute number of

ompetitors is not of great importance so long as

he market structure does not permit the exercise

f market power.

         Either unilaterally by a single firm

ithholding output or by a coordinated interaction

mong firms.

         So what I mean by this is this morning

he question was asked should the Commission be

orried about aggregation, you know, should we be



























                                               135



orried about absolutely getting it right the first

ime.

         And to my way of thinking, it is unlikely

hat anyone has enough knowledge to get it right

he first time.  But so long as aggregation within

he limits of making sure that market power is not

xercised can take place, then the market should be

llowed to sort it out.

         So I guess it is my view that the

ommission should not be sitting back and saying

ow many competitors should we be aiming for at the

nd of the process, but instead -- I put forward

he plan before that I believe that starting off

ith six 20s megahertz would allow this type of

ggregation to take place.

         I think a more important factor than the

umber of competitors gets to the second point

hough in Professor Katz' question, and that is

hat are the cost drivers of the market structure.

         I think the important factor here is you

ant to make sure that firms can participate who

ill potentially have a low cost basis to provide



























                                               136



CS because so long as you have competition, low

osts are going to lead to low prices which benefit

onsumers and leads to greater output.

         So in particular the OPP of Dr. Pepper's,

r. Ried (phonetic) put out a report about a year

nd a half ago and was talking about economies of

cope and identified the identified the cable

ompanies, the LEX, and the cellular companies all

s having important economies of scope.

         I agree with him.  And to the extent that

hat will give them a lower cost basis we certainly

ant to do everything we can to make sure they

articipate because they'll have lower costs and

hat will lead to lower prices.

         So therefore I sometimes have heard it

aid that in fact those people have too much of a

isadvantage, and somehow they need to be

andicapped or it won't be fair for the new

articipants.

         I just agree -- I disagree by a hundred

nd eighty degrees.  I couldn't disagree more.

hat you want is to allow everybody to come in,



























                                               137



dvantages, no advantages, and whatever.  And so

ong as you have competition people with lower

osts should be able to offer lower price

ervices.

         From what we heard this morning, there is

 fairly high demand elasticity that comes out of

he survey.  This will be especially important then

or building up PCS demand and making it a

uccessful group of services.

         Then the last thing that Professor Katz

sked was about demand side factors.  And this

s -- the other factor of course besides cost you

hould take account of is this old saying by George

ernard Shaw that you can teach a parrot to be an

conomist by teaching it to say supply and demand.

         So I have just done the supply or the

ost factors.  Now I'm going to move onto the

emand factors which is the last part of the

uestion.

         Here I think that what we want to do

gain is to make sure that firms can participate

hich can offer differentiated services which



























                                               138



onsumers will value.

         There was some talk this morning about

o-called niche offerings.  And to an economist I

ake that to mean differentiated product

fferings.

         The reason that economists are in favor

f this type of activity is that new or different

ypes of services will lead to an outward shift of

he demand curve and this will also lead to greater

enefit to consumers and greater output.

         So I really see the cost drivers and the

emand side factors to be much more important than

he -- not the absolute number of competitors.

         What we want is to be able to have people

ho -- excuse me -- companies that come in who will

e able to offer low cost, slash, low price

ervices and also have companies that can offer

ifferentiated products which consumers may value

nd consumers may not be being offered them given

urrent technology.

         MR. PEPPER:  Thank you.  Stan.

         MR. BESEN:  Let me say at the outset that



























                                               139



 think the most important thing that will come out

f this proceeding almost no matter what

ecisions -- almost without regard to the

articulars of the decision the Commission

ltimately takes is that there will be a

ignificant change in the structure of the mobile

elecommunication market in the next few years.

         The change is partly the result of

echnological change, partly the result of

egulatory developments.

         But the entry of the SMR and probably

ost importantly the entry of some number of

ompetitors as a result of this proceeding are

oing to change the structure of this industry

arkedly and presumably forever.

         I agree with Jerry that the Commission

as done one very important thing here, the

doption of the auction mechanism for allocating

icenses to begin with which is certainly a step in

he right direction, an important change that

conomists as you know have been advocating for

any years.



























                                               140



         I think it is an equally important aspect

f this proceeding that the Commission has done

hat should not go unrecognized, and that is the

road way in which PCS services have been defined

s a critically important aspect of the

ommission's decision.

         Whereas in the past the spectrum

llocation plans would have defined the services

hat licensees could offer with great particularly

nd leading to considerable difficulties or

arriers to reallocations in the face of changes in

echnology or demands.

         The Commission has allowed the licensees

nder this -- in this proceeding to offer in the

nd whatever services turn out to be least costly

o provide or most desired by consumers.  That is

n incredibly important improvement in what the --

ver past Commission spectrum allocation policies.

         Now, this flexibility in use is I think

s as I said critically important, but it has a

ort of corollary proposition which is that because

here is going to be considerable flexibility in



























                                               141



he way spectrum is going to be used and because

hese services are not well-defined, no one

ncluding the Commission can know with any

articularity precisely -- the precise market

tructure and the precise identity of the firms

hat are likely to be best able to serve consumer

eeds.

         As a consequence within, I would argue, a

ery, very wide parameters transfers of spectrum,

ombinations, and something that wasn't really

alked about this morning, subdivisions of spectrum

ught to be permitted and encouraged to the -- and

imited only to the extent that they raise issues

f anti-competitive concerns.

         And I would argue -- and we have

resented evidence and calculations in this

roceeding that make the point the parameters are

n fact quite wide, and that any of a wide variety

f market structures is consist with a relatively

n-concentrated market for personal communications

ervices.  And this would be true even if one takes

nto account just PCS.  And the argument is further



























                                               142



trengthened by the entry of the SMR.

         Now, the question -- the issue over what

hould the Commission do under these circumstances,

hat sort of market structure should it try to

romote.  It is tempting to say that it ought to

aximize the number of firms that provide the

ervices.  And some people from time to time come

lose to saying that.

         I think that would be an incorrect

osition to pursue because there are going to be

conomies of scale or scope of the kind that Jerry

as already eluded to, and simply because some

irms just turn out to be better than others at

roviding services, and therefore may end up with

rowing shares of the market.

         Those kinds of market structures that in

act involve more than the largest possible --

xcuse me -- end up with fewer than the largest

ossible number of firms, those market structures

hould not be discouraged unless in fact they lead

o concentration that leads to concerns about

ompetition.



























                                               143



         And I would argue that the range -- the

arameters, the range of possibilities within which

he Commission can operate is really quite large.

         Let me just stop here.

         MR. KELLEY:  I'm going to start first by

iscussing the question and then try to talk about

nswering the question a little bit.

         What market structure will promote

nvestment, innovation, and efficient pricing?  And

y first point is is that is exactly -- that

nvestment, innovation, and efficient pricing are

he goals the Commission should adopt, so we are

sking the right question here.

         My basic answer to that is that a market

tructure that is as competitive as possible given

ngineering costs and demand factors is the one

hat is going to maximize those goals of

nvestment, innovation, and efficient pricing.

         But prior to that, I think the key

uestion for the Commission -- and I was very

leased with the discussion this morning -- the key

uestion -- the key point here is you can't have



























                                               144



ny investment, innovation, or pricing efficient or

therwise unless the spectrum gets out in the

arket and people start using it.

         So I was very pleased with the discourse

his morning which indicated that the reason we are

eeting for today is to accelerate this process

ecause it is a way to sort out the issues and the

econsiderations so we can move more quickly to get

he spectrum allocated.  And that is the number one

oal that I see.

         My second comment on the question is we

re asking what market structure will promote

nvestment, innovation, and efficient pricing.  We

ave to talk about what kind of markets are we

nterested in.  There isn't just one market to

orry about.

         It seems to me there are at least three

ind of markets we ought to be worried about when

e are making decisions about the structure of

CS.

         There is the local telephone market.  PCS

as been discussed as an entry point into a market



























                                               145



hat is 80, 90 billion dollars, that it might be

he first point of entry into bringing some real

ompetition to the local exchange market.

         So we should be worried about that.  We

hould be thinking about that when we were making

hese PCS allocations decisions.

         The second kind of market we are worried

bout is -- let's call it the existing cellular

obile radio market which right now consists of the

wo cellular incumbents in each local market and

SMR on the horizon.

         The third kind of market we are going to

alk about, and we heard a little bit about this

his morning is I guess what some people have

eferred to as PCS light.  That the PCS spectrum

ight go to providers who want to give businesses

ireless lands to have wireless tails behind PBXs

r to suppliers who might want to provide something

ike mobile phone booths, CT two top applications

hich may not have the full power range of existing

ellular and mobile radio applications.

         Depending on which of those three you are



























                                               146



orried about you get a different answer as to what

he right structure is, I think.

         A fractured industry with lots of small

ompetitors might promote competition within the

CS light arena which I talked about.

         But it may be that you need a smaller

umber of larger competitors to allow PCS to be

ffective in meeting the goals of bring competition

o the local telephone market or bringing

ompetition to the existing cellular and mobile

arrier.  So there is a trade-off there.

         I would say you are better off licensing

 situation in which carriers can come in and be

ffective in the wireless loop market, if you want

o call it a market, or be effective in cellular

obile from the beginning because so those carriers

ill also have the incentive given enough spectrum

nd given the band and given the cost

haracteristics and the technology to provide the

ther services that people are talking about as

ell.

         Two final points, the nationwide



























                                               147



tructure of the industry matters -- and I think we

ill probably get to this under Number 2 as well,

ut I think the Commission should be looking at

rying to increase diversity within the nationwide

tructure of wireless market to bring new players

n, to bring players that might have new approaches

o the cellular business, new approaches to the

ireless business.

         Finally on the issue of economies of

cale and scope which goes the questions that

r. Katz asked, I agree with Dr. Hausman that

ellular carriers may bring economies of scope to

CS.  Cable companies may do that as well.  The

ECs may do that as well.  Existing paging

ompanies might do that.  Long distance carriers

ight do that.

         There are a lot of companies that can

ring economies of scale.  There are a lot of

ompanies that can bring marketing expertise to

CS.

         If you look at who is marketing PCS right

ow, it is not necessarily the cellular companies



























                                               148



irectly, it is all the little guys who are selling

he telephones out there.

         I know in the cellular market in which I

ive you see very little advertising from the

nderlying carriers.  And you see a lot of

dvertising for cellular from the guys who are

elling the phones.  So even those guys can bring

ome economies to the market if you will.

         The key point I want to make is that

ellular is already on the market.  We heard that

his morning.  The cellular carriers have the

apability to provide the services we are talking

bout PCS providing.

         They are upgrading their networks.  They

re digitalizing.  There is more capacity coming to

hem as they do that.  So they are already in the

arket.

         And those kinds of economies can -- are

eing and will be realized.  So I'll stop there.

         MR. KATZ:  I would like to ask one

uestion in the risk of making it sound like it is

n oral exam.



























                                               149



         And that is particularly with Stan and

erry talking about relying on the market to get

hings right rather than the Commission trying to

o that.  And I want to ask the following question,

nd this is the part where it will sound like an

ral exam:   Is whether either of you or all three

f you would be concerned about the Commission's

otentially issuing too many licenses if -- and

his is where I want to separate things out -- if

ou could just keep having more licenses of a given

ize?

         Now, obviously as a practical matter if

ou have more licenses there is less spectrum per

icense.  But since we are economists we can assume

e have enough spectrum to deal with this problem.

         Would you be concerned if somehow too

any licenses were issued that that would lead to

roblems, or do you think that the market could

ort that out?  Certainly other people have raised

hose concerns.

         MR. HAUSMAN:  Well, I'll get to this

ext.  I think if you started passing out at lot of



























                                               150



ive megahertz licenses or perhaps even 10

egahertz licenses that could create a problem.  Of

ourse I'm on record as saying I think 20 megahertz

s the place to go.

         In that situation I don't think the

ommission could pass out or allow it to be bid --

hich is really the way to think about it -- too

any licenses.  Because of course we know that

nder free entry we get the best of all possible

orlds unless you just have overwhelming economies

f scale.

         And nobody has argued, even tried to

rgue that this is a natural monopoly situation

here we have overwhelming economies of scale.

         So I think in that situation if there

ere no limitations on spectrum we would end up in

ree entry like 95 percent of the other industries

re in the U.S.

         And the whole problem I see here is that

he FCC has only a certain amount of spectrum to be

sed.  But, you know, within that frame work, I'm

eally not worried.  The market will decide.



























                                               151



         If a possible goal of the U.S. Government

ere to maximize the amount of money they got from

he auction process then there would be different

onsiderations.  But it is my understanding that

hat was not one of the goals of Congress.

         And so to the extent that you are not

rying to maximize the amount from the auction, I

on't think that you can make too many licenses

vailable.

         MR. BESEN:  I'm not sure I understand.

ere you asking the question given the amount of

pectrum would it make -- would we care if there

ere too many licensees or would we just care in

eneral whether too much spectrum was provided?

         MR. KATZ:  No, I'm asking you whether

here is a such thing as having too many licenses.

uppose it turns out we could have as many 40

egahertz licenses as we wanted.  Would you be in

avor of restricting the number or say we should

ust have as many as people want to buy?  Because

rguments have been put forth saying it was a bad

hing to issue too many independent of the spectrum



























                                               152



onstraints.

         MR. BESEN:  If there were unlimited

pectrum, why would you want to place a limitation

n the number of licenses you could issue?

         MR. KATZ:  I didn't say I wanted to.  I

ust said people have -- the issue has been raised

n the context of saying that people would have

rouble funding investments in the infrastructure

hey would need because somehow the capital markets

ould be unable to pick which ones would survive.

         And I'm basically asking do any of you

upport that argument or reject it.

         MR. BESEN:  No, I wouldn't support it.  I

hink that sometimes that argument has been posed

n the context of a specific limited amount of

pectrum.  And I think the question then would be

hether you could issue licenses that are so small

hat in fact it would create difficulty.

         The answer is in that context you might,

hat is the difficulty would be of the sort that

he market would spend a lot of resources sorting

ut the -- aggregating up from the excessively



























                                               153



mall number of licenses.

         We know if the transaction costs were

onexistent then we wouldn't care.  Your errors

ould be overcome costly.

         If there were costs of aggregating then

ne might care.  And that is an argument I take it

hat was the sort of thrust of much of the

orning's discussion which was you ought to try as

est you can to get it right basically because

here are costs of reallocations.  You want to save

hose costs if you can.  You want to not prevent

ertain transactions from being defeated because of

he high costs of prearrangements.

         But you have to -- but you can't do

hat.  And inevitably you can't do that because of

he lack of knowledge.  And inevitably there will

e subsequent reallocation.  Do the best you can.

         There certainly are licenses that are of

 size that are probably so small that in fact they

ould not survive the competitive shake ups.  And

t seems to me those are the sort of considerations

hat ought to dictate the sort of the initial



























                                               154



llocations that the Commission comes up with,

mphasizing they are initial allocations.

         MR. KELLEY:  I think the way I would

pproach this question are there competing uses for

hose extra 40 megahertz licenses you are giving

ut that in the real world might not have a chance

f developing into actual competitors.  And if

hat's a real concern than you might be worried

bout it.

         The way I would solve that is to issue as

any -- Stan's world of unlimited spectrum -- issue

s many 40 megahertz licenses as you can and allow

he people who end up owning that spectrum to do

hatever they want with it.  And then you don't

ave to worry about that alternative use for the

xisting spectrum.

         MR. PEPPER:  What about in the context of

tan's sort of second analysis which is not dealing

ith the world of unlimited spectrum but rather the

orld of limited spectrum, and therefore the degree

o which you add more licenses if you don't add

ore spectrum you are cutting down on the amount of



























                                               155



pectrum for each license?

         And have you looked at the trade-off in

hat context between the costs of having to develop

 service with less spectrum?

         MR. KELLEY:  Where are we now?  We are at

bout 120 megahertz total.  I don't know if that's

he right answer or not, but I don't want to reopen

hat debate for the same reasons I mentioned in my

ntroductory remarks.  Let's not reopen that

ebate.  Let's get service out as soon as we can.

         But in a world where you have a choice

etween six 20 megahertz licenses and four 30

egahertz licenses, I think I have heard from the

echnical folks.

         I have heard from people who are worried

bout the spectrum clearing problems in some of the

xisting bands that your -- you might get service

o people faster and more ultimate competition

ooner with a smaller number of larger allocations

ather than a larger number of smaller allocations.

         MR. HALLER:  You said earlier -- and I am

 little confused on this -- a smaller number of



























                                               156



arger allocations.  Then you made a statement of

ncreasing diversity of the licensees, if I

nderstood it correctly.  And it would seem to me

o be in conflict if I understood what you are

aying.

         UNIDENTIFIED SPEAKER:  Yes, that's

ight.  There's a transfer.  The question is can

omeone come in and be a viable competitor with

ellular or provide a viable wireless loop

echnology with 10 megahertz allocation.

         And everything I have heard, and I

uppose we are going to talk a lot more about this

omorrow.  Which is good.  But everything I have

eard suggests that that is probably not a good

ituation, that those tens might not be effective

n those roles.  And that is not good.

         Will 20 be effective?  Let the engineers

nswer that question.  What I have heard is that

iven the spectrum clearing problems, 30 is about

he minimum that you need to be viable to go head

o head against the existing cellular guys.

         And if you do 30, you are going to have a



























                                               157



maller number of total licensees, but you might

ave more effective competitors when you are all

one at the end of the cay.

         MR. PEPPER:  Could we get back to a

uestion I think that Jerry raised.  I think it was

erry.  When he said that if we have low cost

roviders and we have enough of them it will drive

rices towards cost.

         MR. HAUSMAN:  Yes.

         MR. PEPPER:  One of the questions is what

s a -- can you identify or talk a little bit about

 minimum sufficient number of competitors to drive

hose prices to costs assuming we multiple low cost

roviders in the market.

         MR. HAUSMAN:  Yes.  Well, let me just

epeat who I think the group of potential low cost

roviders.  I mean, besides new entrants who are

ust efficient.

         You know, I think they are LEX, the

ellular people, the cable, and I should have also

aid the IXCs, and ESMR people.  So we have that

roup.



























                                               158



         I think that five competitors are enough,

robably more than enough to drive it down and have

uite a competitive market.

         Now, if you take the merger guidelines

iterally, they -- the merger guidelines would say

ix would say six.

         But in practice what the Justice

epartment has actually done historically in terms

f challenging mergers -- you know, you don't know

very merger that they have challenged, but I think

 probably am aware of what they have been doing

ver the last 10 years.  I think five is really the

umber to aim for, that you don't want to end up

ith four or fewer.  But I think five or six are

here.

         I think once you get beyond five or

ix -- this is why I was trying to answer -- I

hink you may lose more than you can gain.  I don't

ant to tell you.  I want to let the market decide,

ut you know when you start aiming for eight or

ine you start trading off as Mr. Kelley said you

now between economies of scale and various other



























                                               159



hings.

         So I think you should try to decide what

he minimum number is, five or six, and then let

he market take it from there.

         MR. PEPPER:  I assume by five or six what

ou are saying is that you are defining the market

n a way that would include cellular incumbents,

SMRs as well as then two to three new entrants.

         MR. HAUSMAN:  Right.  Exactly.  What I

ee is that in any region you are likely to have

wo cellulars, one ESMR -- E-S-M-R.  You might have

wo, but I think one is where will end up.

         You might have Geotech which would give

ou two in the 900 band using the frequency

opping.  So that is how you could get two ESMRs.

         But anyway, even if you don't have them,

ou have two cellulars, one ESMRs which gets you up

o three, and I would expect two or three PCSs.

         MR. PEPPER:  And given your approach you

ould rather err on the side of more than fewer and

llow market forces to determine whether it is two

r three so you'd argue that you'd want to have



























                                               160



hree new entrants?

         MR. HAUSMAN:  Yes.  I don't think you

ant to start off -- I would disagree a bit with

hat Mr. Kelley said.  I don't think you would want

o start off and say let's have three 40s.  I would

ather start of with six 20s.  And if the market

ecides that three 40s are better, so be it.

         But I would rather -- I think it is

asier to aggregate than to disaggregate, and how

his works given what we have seen in other

ountries and what we have seen in the cellular

ere.

         So, yes, I would rather start off with

ore competitors, and then if the market can

upport six, we would see some aggregation among

he --

         MR. PEPPER:  What you are talking about

asically is adding -- adding three new

ull-service competitors to start with.

         MR. HAUSMAN:  Yes, that is what I think

s likely in densely populated top 50 MSA type MSA

ype areas.  Not necessarily you know, where -- a



























                                               161



win Falls, Idaho, but in the larger MSAs that is

hat I would expect.

         MR. PEPPER:  Stan?  Dan?

         MR. BESEN:  Let me say I don't think the

ight question is let's try to determine precisely

hat the optimal number or the irreducible minimum

umber is.

         It seems to me there are -- I have seen a

umber of plans, all of which if I sort of look at

he implications of any of them for concentration,

one of them -- over a fairly wide range, they give

e no problem.  They seem to me not to raise

uestions of excessive concentration, and

herefore --

         MR. PEPPER:  That was a slightly

ifferent question.  I was the question based upon

hat Jerry was saying that if you have low cost

roviders, you know, how many do you need to really

rive your prices down towards cost?

         MR. BESEN:  Well, this is --

         MR. PEPPER:  No --

         MR. BESEN:  I think no one can answer



























                                               162



hat question precisely.  I think what one can say

s that if in markets that are not terribly

oncentrated one has a high expectation that that

ill occur.

         But because of the difficulty of

oordinated behavior, as we know, will be

ubstantial in markets that are un-concentrated.

         And as a result we expect the firms to

ehave aggressively and competitively.  Whether the

recise number is five or six or seven, I'm not

ure once can know with precision.

         I think one can look at particular

ransactions and particular combinations and ask

hether considering other aspects of the market

tructure those combinations raise competitive

oncerns.

         And it seems to me again over a wide

ange of outcomes the Commission will be hard

ressed to choose one of them as in some sense

etter than the other.

         The reason one wants to allow these

rocesses to be determined by market process is



























                                               163



recisely because costs factors are in fact going

o -- in general the low cost provider or the

rovider that provides the services that consumers

ind most attractive will be the ones you'd like to

ave access to the spectrum.

         Again, within -- that's in fact what

ou'd like to be the dominant factor that

etermines the industry structure.

         The only thing you ought to be doing is

orrying about whether you ought to constrain that

rocess in some fashion, whether you ought to

stablish limits beyond which concentration should

ot be permitted.

         It's the fairly reasonable thing to do,

ut I think those limits are fairly wide.

         MR. PEPPER:  Dan.

         MR. KELLEY:  I think if you can get three

CS players that would be a very good thing.  It is

learly a lot better than the two cellular carriers

e have now that dominate the existing mobile

ireless markets.

         It would clearly provide you I think with



























                                               164



ome interesting entry points into a portion of the

ocal telephone business.

         My concern is when you go beyond three

dditional players, four additional players -- I

on't know what the magic number is -- you start

ausing problem with the viability of each one

ecause the amount of spectrum they have might not

e enough or the clearing problems might slow them

own and prevent them from being effective for a

ouple of years which would not be a good thing.

         I would disagree with Stan a little bit.

nd that is that I think you need to worry about

he costs of aggregating up to an efficient size if

ou put out licenses that are too small.

         That is going to be time-consuming.  And

f you have a good basis for believing that you

eed 30 to be viable, start there.

         MR. BESEN:  Bit it works both ways.  We

re talking again -- we keep talking about

ggregating up.  It is possible that somebody might

ecide to take the 20 that was talked about this

orning and decide that he only wants 10 of it.



























                                               165



nd one shouldn't object to that either.

         The transactions can go either way here.

he notion that we can sit here and predict in the

ace of considerable uncertainty about what

ervices are going to be offered and considerable

ncertainty about the technology precisely what

he -- the market structure I think is wrong.

         It's true we have to guess.  It is

nevitable that one is going to guess in terms of

nitial allocation -- initial blocks to be

icensed, but one should not necessarily take too

eriously the idea that we are going to get it

recisely right if only we had a few more months to

o so.

         MR. PEPPER:  Jerry?

         MR. HAUSMAN:  Let's make one last point.

 think you need to -- in answering the question

nd thinking about how many and what the minimum

umber is you really have to take into account what

he expected economic factors of stylize facts we

all it of this industry are.

         To start with, voice mobile has been



























                                               166



rowing at 35 percent per year.  So for those of

ou who remember the rule of 70 from junior high

hat means that the market size doubles every two

ears.

         So that there's -- at some point we are

oing to of course start to reach the inflection

oint on the S curve.  That was brought up this

orning.

         But so far as anybody can see we are

owhere near it yet.  And so there will be more

han enough customers to go around for everybody.

         And I think in that type of situation,

ou know, questions about viability -- we are not

alking about the cement industry here which hasn't

rown for 35 years and if a new player comes in,

ou know, an old player may need to exit.

         I think in this type of industry where we

re growing that fast and we expect extremely fast

rowth, you know, at least over the next five years

hich is as good as anyone is planning horizon can

e in my view, that the viability thing, you know,

oing back to Michael's question, could we pass out



























                                               167



oo many licenses, is really just not on radar

creen because there is just more than enough

emand around for people if they can meet it.  And

here really won't be barriers to expansion of

upply.

         The whole thing about frequency reuse

ither for cellular or for PCS, if the demand is

ut there, you can just split cells.  It is

xpensive to do so, but of course you can

conomically meet your demand and expand your

apacity quite a bit.

         So I think the point -- the two points,

hat this is incredibly fast growing -- you know,

he only industry since World War II I can think of

hat has been like this has been the PC industry.

         And secondly, that the costs are falling

nd people can easily expand their supply by

requency reuse.

         I think the whole question of, you know,

an we pass out too many licenses or how many

ompetitors do we really need is really sort of a

econd order.



























                                               168



         MR. PEPPER:  It's going to be interesting

n the second panel this afternoon to hear from the

nvestment community in terms of some of the

hings --

         MR. HAUSMAN:  I can make a point on that

ight now if you would like.

         MR. PEPPER:  Yes, I --

         MR. HAUSMAN:  If you look at the

arket -- I think there are two interesting market

acts.  Number one, Nextel (phonetic) is currently

orth about $6 billion.  It was down a point and a

alf on Friday, but if you capitalize it, it's 6

illion.  If you take Cencall (phonetic) and

owpage (phonetic) which are the two other major

SMR providers their market capitalization is $10

illion.

         They have had no trouble raising capital

t all so far as I know.  Nextel (phonetic) is

oing to get money from MCI.  And Dowpage

phonetic) has made a public offering.  So

verybody knows that PCS is going to come in.

         Nevertheless, the money has been out



























                                               169



here for ESMR.  I think that is interesting fact

umber one.  That also really makes me leery of a

ot of the more pessimistic forecasts on PCS that

ame out this morning because if those companies

re worth $10 billion that means the market who in

y view is not a perfect forecaster but probably

etter than I can do, things are going to be pretty

ealthy demand for local telecommunication, you

now, if these companies are capitalized at that

igh value.

         And then I think the second thing which

s interesting is when you came out with the first

rder last fall I think it's fair to say the 120

eg was more than most people expected.

         In other words, in economics language

here was an unexpected event study we can do.  Yet

he market value of neither the ESMRs nor the

ellular companies even glipped (phonetic).

         So again, the market -- you know, people

ho are actually putting their money on the table

nd buying these stocks again must think that there

s going to be a lot of demand for mobile services



























                                               170



r if they were really worried about Michael's

uestion about too many competitors, I would have

xpected their stock would fall.

         MR. PEPPER:  Well, there is an

lternative explanation of course which is the one

hat has appeared in a number of the investment

nalyst reports which, you know, go to some of the

ther questions which is the block sizes and

hether or not seven was so many going in the other

irection and --

         MR. HAUSMAN:  But I mean ESMR -- ESMR has

nly 14 megahertz, and they don't have clear

pectrum either.  They have the short spacing

roblem.  Yet nonetheless -- and they have -- they

uilt almost nothing.  So, you know, if they're

orth $10 billion with only their spectrum and a

ew, you know, SMR customers, it seems to me --

         MR. PEPPER:  That's why I say it will be

nteresting this afternoon to hear from the

nvestment community because --

         MR. HAUSMAN:  Yes --

         MR. PEPPER:  -- the question then is I



























                                               171



hink you -- well, in hearing where there is some

greement is that well, you may not -- we may argue

hat we shouldn't set a limit that a likely a

ikely competitive market is five or -- a minimum

umber of five or six competitors including the

ncumbents, the two cellular and the ESMR.

         And the question then is as you add three

ore whether the fourth, fifth, sixth into the

arket will be able to raise the capital.  That is

uestion to ask for the second panel.

         And I think that --

         MR. HAUSMAN:  Well, if I might disagree I

on't think that is the right question.  It is not

hether the fourth, fifth, sixth are going to be

ble to raise the money.  It is how much the

ederal government is going to get out of the

pectrum licenses when they are auctioned because,

ou know, literally if the fourth, fifth, and sixth

an't raise money the price could get driven to

ero, I'm willing to bet -- which I always am with

y students -- that we are not going to see that

appen.  So that the money will be out there.



























                                               172



         MR. PEPPER:  Any other questions that you

ant to ask before we move on to second set of

uestions?  Again, we are focusing on market

tructure.

         UNIDENTIFIED SPEAKER:  If I could clarify

ne thing, Mr. Hausman, you indicated that you are

n record for 20 megahertz was about right?  You

aid that?

         MR. HAUSMAN:   Yes.  What I am on

ecord -- could I be precise about it.

         UNIDENTIFIED SPEAKER:  Sure.

         MR. HAUSMAN:  Because I think the 10s are

oo small.  And that -- I can't be sure that you

re not going to need more than 20, but the 20s are

 good building block in case you need more because

t is easy to aggregate from that.  And 20s may

ell be enough.

         MR. BESEN:  Can I actually -- there was

ome disagreement this morning about whether 10s

ere enough.  Some people thought 10s were enough.

t's possible 10s are enough when combined with

ome -- with somebody's existing allocation.  So



























                                               173



ven if the 10 was not viable by itself it might be

iable in might be viable in combination with other

olders.  Ten might be viable combined with one of

he 20s.

         I guess it is even possible to combine it

ith one of the 30s under the rule.  So it doesn't

ean it won't have value in the auction if one

articipates combining it with something else.

         That in fact -- the only reason that it

ouldn't obtain its full value is it -- it would

nvolve the cost, whatever costs there are of the

ecombination.  If those are small, then a 40 would

ell for the same as a 10 and a 30.

         MR. HAUSMAN:  I would actually like to

isagree with one point on that if I might.  I

hink that is true in principle, but the current

osition is that the 30s are in the low band and

he 10s are in the high band.

         And it is my understanding, and some of

he economic analysis I have done seems to confirm

his.  That those would be quite expensive to

ombine just because of the gap in the spectrum.



























                                               174



t might be much more economical if you wanted to

ave combination to have them adjacent to each

ther or at least in the same lower block or the

igher block rather than trying to span lower block

nd adding a 10 from the higher block.

         MR. VAUGHAN:  Can you quantify that?  If

e switch, the Commission were to switch -- put the

0s in the lower block?  Is that significant

conomic --

         MR. HAUSEMAN:  Well, what I'm saying is

s that I think if you wanted to have 10s and if

tan is right you want to have a mixture beside

ach other so that when they are aggregated you

ould have -- yes, it's my understanding that the

ind of numbers you can come up with are about a 15

o 30 percent cost difference in terms of the

eceivers because of, you know, the amplifiers and

he various things you have to put in.

         Now, I can't say that I can independently

o that because I can't price out a cellular

eceiver, but those are sort of the types of

umbers that I have been told and heard and seem to



























                                               175



ake sense.

         UNIDENTIFIED SPEAKER:  We are going to

ursue that tomorrow with some of the equipment

anufacturers.

         MR. PEPPER:  Maybe we could -- did you

ant to ask any questions.

         UNIDENTIFIED SPEAKER:  No, I wanted to

et to the next question.

         MR. PEPPER:  The next question which is.

         MR. HALLER:  Can I get one

larification?  I'm curious just on definition of

arket, if all of you view the market as the same.

nd I think what I have heard today is that the

arket is cellular, ESMR, and PCS, and I guess both

arrow band and wide band PCS.

         MR. HAUSMAN:  And certain types of paging

 would say as well.

         MR. HALLER:  And paging?

         MR. HAUSMAN:  Yes.

         MR. HALLER:  So are all of you including

he entire mobile communications market.

         MR. KELLEY:  I would agree that there is



























                                               176



 market there and that is sort of primarily what

e are looking at effecting with these rules.

         But as I pointed out earlier, there are

ther markets you want to look at.  You want to

ook at the local exchange market.  And when you

re making decisions about how to allocate the

pectrum, you want to allocate it in ways that --

ou know, if it's cost less, you want to allocate

n ways that will promote competition there if you

an do that.

         MR. BESEN:  In our paper we argue that

he market was basically a broad market for mobile

elecommunication service, really wireless

ervices.  And the reason we argued that was -- had

o do with the ability of suppliers to shift among

ervices being provided.

         So relying primarily but not entirely on

ubstitutability on the supply side we argue that

n fact there is a broad market for

ommunication -- for mobile services.

         MR. PEPPER:  So that you are actually

ooking at the product market as the broad -- what



























                                               177



ome people refer to as full-service wireless

arketplace.

         MR. BESEN:  Well, basically we are

rguing that in fact to the extent that firms --

ecause firms can shift with the same -- use the

ame spectrum to provide any of a variety of

ervices, those services all ought to be defined as

n the same market.

         Those markets -- those separate products

re -- not necessarily because consumers regard

hem as substitutes, although they may -- but

ecause firms can in fact shift among the provision

f those services in response to opportunities for

rofit from one of the other.

         And that -- that supply side

ubstitutability is what in fact creates a single

road market rather than a set of single -- or a

et of smaller separated markets.

         MR. KELLEY:  At the risk of getting

yself into deep water technologically, one area

here Stan and I might differ is on the size of the

icenses.  And he is talking about 10s maybe being



























                                               178



ood, and I'm arguing that you need larger.

         And one of the reasons is that if you

ook at PCS as an alternative to part of the local

xchange as a wireless loop service, my

nderstandings of the kind of traffic loads that

re offered over wireless loops are such that you

eed larger chunks of spectrum to be efficient.

         MR. BESEN:  Again, there is nothing

nconsistent between that and what I have suggested

efore.  It's entirely possible that someone might

ind 10 perfectly suitable to provide a set of

ervices even though someone else might decide that

or the particular set of service that he wanted to

rovide he might need a larger band.

         But there is no inconsistency at all

etween those two views.

         MR. KELLEY:  In fact I say in my written

tatement that I supplied that there are services

ou can think of offering where 10 might be

nough.

         My point is that there are other services

e ought to be concerned about two.



























                                               179



         MR. PEPPER:  Don, did you want to move on

o the second question, and then ask him questions

bout that also.

         MR. GIPS:  We have sort of moved on to

he spectrum question, but I'm curious given what

e heard this morning about the head start that

ellular providers already have from the different

anelists, how do you all view the head start

roblem in terms of creating a competitive market.

         MR. PEPPER:  By the way, it might be

seful to note who your clients are as you answer

hese questions.  Very seriously because somebody

assed up a question from the audience who are

hese people sitting up here.

         And as noted that -- you know, Jerry said

e conducted a study on some of these spectrum

ssues and then the question was well, who is his

lient.

         MR. HAUSMAN:  Well, my main client here

s the American public I hope.

         MR. PEPPER:  That's ours.

         MR. HAUSEMAN:  I know in the FCC bar that



























                                               180



s just amazing to say, but anyway in this

roceeding I have worked for Pacific Bell, Airtouch

phonetic), former Pacific Tel, and also for Bell

tlantic PCS.

         In terms of the head start I think we

ave had market experience on that.  I don't think

he head start is important.  Two facts, number

ne, the point I just made that the market

ontinues to grow at the rate of 35 percent a year

r even 25 percent a year.

         There are a lot of new customers for

veryone to get, okay?  That is fact number one.

act number two is there was a question this

orning about lock in of cellular customers.

         I think again in the big MSAs there is

ot lock in because over the next few years you are

oing to have to have customers change from their

icrotack (phonetic) analog devices -- put a plug

n for Motorolla -- to a digital cellular.

         So people are going to have to buy new

ubscriber equipment anyway.  It is not as if they

re locked in to their analog equipment.



























                                               181



         That equipment may be subsidized.

ebates may be given by the cellular companies, but

here is nothing to stop PCS or ESMR companies from

oing that too.

         In fact the ESMR companies are planning

o subsidize the subscriber units just like the

ellular people have done.

         And then the third reason I don't think

hat it is important is that we have already run

his experiment before.  And the experiment that we

an was that in every -- of the top 30 MSAs in

ellular, all but Boston and Washington had a head

tart on the order of 12 to 18 months for the block

 carrier.

         And I haven't looked at it in the last

ew years, but in about 1991 I actually did a study

f this, and there was no remnant of the head

tart.  In other words, the block A people who came

n later, different periods of time and different

SAs had not really been adversely effected.

         So to the extent that we have run this

xperiment and, you know, we have a fast growing



























                                               182



ndustry which is why I think the block A cellular

eople weren't disadvantaged, I don't really see

hat head start as really leading to, you know, a

oor competitive outcome.

         MR. PEPPER:  Couldn't one difference

hough -- factual difference be that the people who

ought handsets to operate on block B could easily

witch to block A?

         MR. HAUSEMAN:  First of all, we have also

un this experiment in London.  Someone talked

bout one to one this morning.  Mercury, slash,

able and wireless, slash, U.S. West had started

his summer in London.  They run GSM on the 18

undred.

         Demand has been so great that they have

ctually had will to ration their subscriber

nits.  Their suppliers have not been able to keep

p with demand.  So here is somebody who came in

gain with the new type of units.  You couldn't use

our old cellular units on Mercury GSM.

         They offer a very innovative service,

ff-peak free calling, and they have been inundated



























                                               183



ith demand.  The last statistics I saw was that 50

ercent of all the new cellular hookups -- mobile

ookups -- excuse me -- in London in the last

uarter were on one to one.

         So they -- you know, in terms of new

ookups were doing better than --

         MR. PEPPER:  Do you recall how much

pectrum they got for that.

         MR. HAUSMAN:  I think in England they

ave a fair amount.

         MR. PEPPER:  All right.  As I recall, the

ellular incumbent did not receive any additional

pectrum.

         MR. HAUSEMAN:  Right.  They also have --

 think they had 50 megahertz to start with.

         MR. PEPPER:  50?

         MR. HAUSMAN:  Yes, some of the people

ave 50, I think.

         MR. PEPPER:  The new entrants didn't have

o move anybody, did they?

         MR. HAUSMAN:  Right.

         MR. PEPPER:  They weren't microwave --



























                                               184



         MR. HAUSMAN:  In Australia though they

ave 20 megahertz for GSM.

         But you know, in terms of a head start I

hink people will be able to offer service.  And I

on't see any reason why if they can offer a good

ervice at the right price they won't be able to

et the customers.

         There is nothing to stop people from

witching over from cellular.  But even if no one

witches, given that the market is doubling in size

very two years there is going to be more than

nough demand for them to make their system viable.

         MR. PEPPER:  Stan?

         MR. BESEN:  I have submitted comments in

his proceeding on behalf of the Cellular

elecommunications Industry Association.

         I guess I agree with Jerry on the notion

hat the head start is probably not a significant

actor here.  And it seems to me there are a couple

f factors some of which he has already eluded to.

         One is the very rapid growth.  Second is

he fact that the service offerings themselves are



























                                               185



oing to change greatly over this period of time.

e heard this morning discussions on a very large

ange of services that potentially may be offered

nder the PCS rubric most of which are not now on

he market.

         In a world like that the new entrants are

s well positioned as the incumbents to offer those

ervices.  The -- I think of the analogy here of

he personal communications market -- personal

omputer market when we might have sat here in 1982

nd thought that IBM's head start was

nsurmountable and nobody would ever talked about

ell or AST or any of the large number of other

ompanies that seem somehow to have rather nicely

vercome the head start of a firm that would have

een regarded as a formidable competitor.

         The last point I guess is there is

ome -- there is -- at least I mentioned to this

oint one disadvantage the incumbents have and that

s the continuing allegation to provide analog

ervice for a time, something the newcomers will

ot have -- not be responsible for providing.



























                                               186



         And that will be -- that is a factor that

s in fact a burden as opposed to an advantage that

he incumbents have.  And it should be reckoned in

he calculus.

         MR. PEPPER:  Dan?

         MR. KELLEY:  I have filed a couple of

apers in this proceeding at various times at

arious stages for MCI.  So MCI is my client.  I

iew the six of you and the people you report to

rom a marketing point of view as my customers

ecause if you don't believe that what I'm saying

s in the public interest, it is not going to

appen.

         On the head start issue I learned about

ead start from Stan.  He filed a paper in 1982 or

983 or for the A side cellular carriers who are

orried about the head start that the wire link

arriers were going to get.

         And as it turns out Professor Hausman is

xactly right.  It turns out not to have mattered

ery much in that situation.  And I suppose there

re a lot of explanations for that.



























                                               187



         However, we are right now -- and one of

he explanations might be it was very early in the

ireless game and customers were just becoming

amiliar with what the service was.

         Right now we are in this accelerated

rowth phase.  And that can cut two ways.  One, it

an say, well, the head start is not going to be a

roblem as Professor Hausman argues.  The other is

hat if we get much delay in PCS we might hit the

op of that curve before the new guys get to come

n and feast off that accelerating part of the S

urve.

         But the bottom line I think is why take a

hance, you know, on whether the head start problem

s or is not there.  Let's move very quickly to

icense new competitors and get them out in the

arket and minimize whatever head start there is.

         UNIDENTIFIED SPEAKER:  I'm also curious

o hear both Stan and Jerry's response and Dan's to

hat we heard this morning which is clearly people

elling us that the head start was a serious issue

n their forecasts and how -- where you think their



























                                               188



orecasts are wrong.  You were both here this

orning, I think.

         MR. HAUSMAN:  Well, I think that -- I

ave to admit I haven't read all the papers that

ame out.  But I think in terms of where their

orecasts are wrong, their forecasts by and large

re flatly inconsistent with stock market values.

nd until somebody convinces me that the stock

arket gets it wrong, that is enough for me as an

conomist.

         Where I really think that they are

issing it is that I didn't hear anyone talk at all

bout the necessity of switching over the majority

f cellular customers to new handsets which as I

nderstand it is just going to have to occur.  I

ean, you can't run digital off an analog handset.

         And then I think the second point is is

hat -- that I think they may have been much more

essimistic about when we are going to hit the top

f the S curve than I am.

         You know, you can never be sure of this,

ut to the extent that this becomes a -- let me put



























                                               189



t this way, the paging industry talked for years

bout how can we keep growing.  And then about five

ears ago the paging industry actually slowed

own.

         And then what happened was Pagenet

phonetic) hit the market.  Pagenet joined the 900

and of paging.  And they decided to come in and

ffer a low price service.  And what Pagenet did

as they were so successful that they got more new

aging customers last year than all of the -- our

locks and the rest of the paging companies

ombined.

         So it is my belief that what they have

eally done is finally started to get the elusive

onsumer market rather than just the business

arket which paging had been aiming for for years.

         And I do agree with people this morning

hat for PCS to be really successful they are going

o have to hit the consumer market and be

uccessful there.

         And I think with a lower prior offering

erhaps without all the bells and whistles will be



























                                               190



ble to do that.  And we are a long way from the S

urve.  And I really do expect rapid growth through

he end of this decade in mobile

elecommunications.

         MR. BESEN:  I think the most striking

hing to me in listening to the morning discussion

as the fact that apparently when one goes out to

ries to ask people about these new services it is

ery hard for them to picture exactly what they are

oing to be.

         And consequently as a result I'm

nclined, although I'm sure the estimates were made

ith as accurate as they might be, that in fact

here is substantial difficulties in doing the

arket forecast in markets where the evolution of

echnical change and the evolution of service

fferings is so great that nobody will recognize a

ear from now -- not even thought about in the

uture of services that now people are trying to do

orecasts for.

         And so I think it is just very difficult

o put tremendous weight on estimates of that sort



























                                               191



iven the considerable uncertainty that the

espondents of those kinds of surveys have in

etermining how much of something they are likely

o buy at prices that are hard to determine in

dvance without knowing with any great

articularity what features there are.

         I think we discover uses for things after

hey are made available to us.  That certainly is

rue in the history of say personal computers.

         UNIDENTIFIED SPEAKER:  The most famous

orecast in this business was AT&T, so at the time

f divestiture it was forecasting a million

ellular companies by the end of this decade.

         MR. BESEN:  I think they were forecasted

ltimately television penetration would be about

alf of U.S. households.  Or just imagine what

orecasts of fax sales would have been, say, five

ears ago.  Very hard to do here.

         UNIDENTIFIED SPEAKER:  The most famous

orecaster in economics I think was Irving Fisher

ho shortly before Black Tuesday said the market

as going to keep going forever.



























                                               192



         UNIDENTIFIED SPEAKER:  The problem with

rving Fisher was he had his money in the market.

         MR. BESEN:  On the head start issue I'm

oing to be very interested to hear what the people

n the next panel have to say.

         MR. PEPPER:  I was going to say that.  In

act one of the questions that comes up is how do

ou -- this actually came from the audience.  You

now, how do you equate a six-month to a two-year

ead start between the A and B carriers in cellular

nd a 10 to 12-year head start between cellular and

ew entrants if in fact they are in the same

usiness.  And I guess that is what we are

earing.

         Where there is some real disagreement

ere is that, you know -- one school of thought is

hat the market is expanding so rapidly with new

ervices that we don't know that there is no head

tart problem.

         On the other hand I think Dan and some

thers are saying that notwithstanding the rapidly

rowing market there are head start problems.



























                                               193



         And if you take a look at the cost of

cquiring a subscriber for cellular today as being

 very expensive part of the business, and what

ncumbents can do to hold onto those customers may

ecome more important.

         So it will be very interesting to ask the

nvestment -- and I assume they are all sitting

ere.  So be forewarned.  You are going to be asked

bout these questions.

         If we could shift a little bit into some

f the other variables on how the Commission can

romote a competitive market structure we haven't

eard anything yet about the geographic size or

cope of the license.  If you could address that

nd what other kinds of licensing requirements you

elieve are necessary in order to promote a

ompetitive market.

         Why don't we actually start at the other

nd of the table first.

         UNIDENTIFIED SPEAKER:  I just had a

uestion or a clarification.  Do you want to

o questions two and three together then?  I was



























                                               194



rying to figure out what you were --

         UNIDENTIFIED SPEAKER:  Yes.  Where are

e?

         MR. PEPPER:  We started with one and slid

nto two.  And I think that we have already begun

alking a little bit about three which is some of

he cellular telephone companies.

         The question there for the rest of you is

re there specific types of market participants who

ight deserve special treatment.

         And we have been talking a little bit

bout some of the advantages that cellular and ESMR

ompanies might have in terms of scope economies.

nd by implication they might need special

reatment.

         There are also questions about designated

ntities, wire line, exchange carriers, others,

SMRs, and so on.  So I think to the extent to

hich we are looking at these variables together,

f you can comment on them.

         But I think it would be useful if we

aybe started talking about the geographic scope



























                                               195



nd perhaps some of the problem that were

dentified by this morning's panels with the

xisting cellular market structure with the

ifficulties that follow you anywhere types of

ervices and whether or not there is something that

e can do to remedy that and result in a more

ompetitive market.  Dan?

         MR. KELLEY:  Thank you.  I guess we are

oing to -- the panelists are going to continue to

isagree on the aggregation problem.  I still think

t is a concern.  And given that concern I think

hat you want warn to have large geographic

icenses rather than small ones.

         I don't think that the larger markets we

ave out there now, the MTAs, are all that bad.  I

ould hate to see it grow any smaller.

         I was one of those early on in this

roceedings who supported the notion that it might

e good to have a nationwide geographic license.

         The lawyers and lobbyists have told me

hat that is not in the decision set anymore.  I

hink that the next best alternative is to have a



























                                               196



icense large enough that to the extent competitors

eel they need to aggregate to a nationwide

resence, such as mobile link is going after, it

ould be easier for them to do that.  So I like the

arger rather than the smaller licenses.

         What was the second part of --

         MR. PEPPER:  Well, why don't we just deal

ith the geographic size and come back to other --

         MR. KELLEY:  Oh, the types of

ompetitors.  Again, I think going back to a point

 made a little bit earlier, cellular companies --

nd it was reinforced by what I heard this

orning -- they're in the market.

         They have got 25 megahertz spectrum.

hey are going digital.  They -- we do -- our firm

oes a lot of work for a lot of companies in the

ireless business and the radio communications

usiness.

         And what our clients are telling us is

hat the cellular companies are very busy.  They

re preparing for this competition that is coming.

hat is good.  That is exactly what we would expect



























                                               197



hem to do.

         But the point is they are already there.

o let's bring in some new people in the market to

omplete with them.

         MR. PEPPER:  Stan?

         MR. BESEN:  I don't want to be associated

ith the view that says that aggregation is, quote,

o problem.  I think that is too strong.

         Clearly there are go going be costs to

ny reallocation that exist.  I guess I've never

een very strongly convinced by either side of the

rgument that says it is terribly costly to --

symmetrical costly to integrate great up than

o -- than to vest down.  So I tend to be an

gnostic on that point.

         If it turned out that national licenses

ere efficient, then they probably will emerge even

hough there may in fact be some costs in doing

o.

         MR. PEPPER:  On that some people have

rgued that in fact nationwide licenses in cellular

ould have been very efficient and that there have



























                                               198



een a number of players attempting to put those

ogether for the last five or six years and they

ave not yes succeeded because of the licensing

tructure in the industry.

         MR. BESEN:  There are costs to the

ggregation.  There is no doubt about that.  It is

qually possible that in fact there be some

arket -- or some market segment better served by a

eries of narrow more localized firms.

         And if you started out with a national

arket structure we might be sitting here wondering

hether -- the great difficulty this industry has

n getting down to a size more appropriate for the

ervices being offered.

         So I don't think again once can know in

dvance which of these structures is most

ppropriate.  Obviously one has to make some

uesses.

         I think the notion of having some sort of

iversified portfolio so that there is some large

nd some smaller ones seems to make some sense.

         On the issue of whether or not the



























                                               199



ncumbents have enough I always regard that as sort

f an odd question.  In most markets we let firms

row if they want to do so and can do so by

ffering additional services to customers that

ustomers want and provide it efficiently.

         We only worry about them growing too much

f in fact they -- those raise anti-competitive

oncerns.  So I don't know what the notion of

nough exactly means here.

         There certainly is a size to which firms

ight grow that would raise competitive concerns

or me.  But simply the notion that the incumbents

re already capable of providing PCS services does

ot answer the question of whether or not they

hould be permitted to require additional

pectrum.

         It is a quite separate question and

hould be judged in terms of competitive concerns.

nd I fairly clearly differ from Dan in this

egard.

         MR. PEPPER:  You all may want to come

ack to that because it seems to me there are



























                                               200



eally two questions you can ask about that.

         Specifically one is whether or not

ellular's entry into the market by acquiring

pectrum would raise their rival's costs, the new

ntrant's cost, or alternatively if you allowed

ellular to acquire in the extreme so much spectrum

s to foreclose entry by new entrants, there are a

umber of potential -- there are questions that you

an ask to tease out answers on that question.

         So I think that --

         MR. BESEN:  My only point is that Dan's

otion that already have enough is not

ispositive.  Far from it.  And in our view, they

ould acquire a significant amount.

         MR. PEPPER:  Without increasing rival's

osts for foreclosing entry.

         MR. BESEN:  I don't know exactly how

ivals' costs are raised here.  Rivals have access

o the spectrum.  There is no direct effect on the

ost of the rivals.

         MR. PEPPER:  I guess that is a question

hat goes back to some of the technical matters



























                                               201



elating to -- you know, given that we do not have

n infinite amount of spectrum.  We're working with

 finite amount.

         To the extent to which you as -- by

iving spectrum -- by dividing the spectrum up into

maller blocks thereby increasing cost of clearing,

ncreasing costs of equipment, increasing cost of

etwork operations where there are trade-offs of

pectrum versus you know, the network operations.

         MR. BESEN:  It obviously depends on the

articular numbers one's talking about.  We have

one through a rather extensive set of calculations

nder a whole variety of different market

tructures.  I commend you to look at them.

         There is a whole series of them under a

umber of different circumstances some of which

nvolve ESMR, some of which don't and raises

ssumption about the advantages of digital over

nalog.

         Again one can't answer that question in

rinciple.  I'm just objecting to Dan's sort of

lanket assertion that because PCS is offering --



























                                               202



s offering -- I'm sorry -- because the incumbents

an provide PCS services in their existing

llocation that that therefore applies that they

hould get no additional spectrum.  That seems to

e to be a nonsequitor.

         MR. HAUSMAN:  Well, I think the point I'm

aking is that the cellular companies as they stand

ith technology changing have the capacity to grow

ith their existing allocations.

         MR. KELLEY:  I thought, Bob, when you

sked the raising rivals cost issue -- what came

nto my head which is an interesting one to think

bout and I don't know if I want to give you the

nswer today -- but the concern that if you let the

xisting cellular carriers funded by their local

xchange company currents for the most part beared

n every spectrum band the end result is they have

 position to protect and may in the process of

rotecting the rents that they get from that

osition spend those rents in the spectrum auction

nd drive up the prices of acquiring frequencies to

ompete against them.



























                                               203



         MR. PEPPER:  I'm sure Stan has an answer

o that.

         MR. HAUSMAN:  Actually, I'd be glad to.

         MR. PEPPER:  Okay.  Jerry, why don't

ou -- you're not shy.

         MR. HAUSMAN:  Okay.  To start with this

s MCI's exact argument for why the cellular

ompanies shouldn't be allowed to buy block A

ellular circa 1985 which they argued to

udge Green that they had a position to protect,

nd that they should not be allowed in -- remember

CI got a lot of spectrum for free from you guys

nd they sold it to McCaw (phonetic).

         Then they had the chutzpah to come in and

ay that the blocks had this position to protect

nd should not be allowed in block A.

         But again I have done econometric studies

ere.  And the prices actually are lower where the

locks are competing with each other in A and B

hen when they are facing non-blocks.

         So again there is no evidence that the

locks have not competed in cellular and tried to



























                                               204



rotect their position.

         This is a recycled argument.  It didn't

ork last time.  I don't think it should be allowed

n the table this time.

         MR. PEPPER:  Well --

         MR. HAUSMAN:  I haven't finished.  I have

he floor.  So that is my first point.

         The next point, the raising rivals' cost,

ou forgot the second part of the phrase,

r. Pepper.  To maintain power over price.  Okay?

         And the question is how -- if you let the

ellular companies in, how are they going to

aintain power over price?  Even if they got 20

egahertz, you know, between them, that is only 40

ut of the 120.  There is still 80 left.

         There will be no vertical relationship

etween cellular companies and PCS.  Usually when

ou worry about raising rivals' cost you have a

ertical relationship in which I increase a price

f one of your inputs.

         But since the PCS people will not be

epending on cellular one iota, I really wonder how



























                                               205



ith 80 megahertz left there will be any raising

ivals' cost to have power over price.

         The same for foreclosure.  Again, if the

ellular people bought 20, there is 80 megahertz

eft.  How can they be foreclosed?  I mean, that is

 lot of spectrum.

         When we first started this exercise a lot

f people thought 80 might be as much as the -- as

he Commission would allow.

         So in terms of any anti-competitive

utcome, I haven't heard a theory yet that, you

now, has any basis in either economics or the

istorical facts of cellular.

         My last point I will just return to the

eographic thing.  I think the geographic thing

eally depends to some extent on what the

ommission decides in terms of -- in terms of how

hey were going to allocate the spectrum?

         Again if you go to six 20s which is my

avorite plan I think a mixture of BTAs and MTAs is

eally quite attractive.  I'm not saying it should

e three each.  Maybe it should be four and two or



























                                               206



wo and four.  But you do allow a mixture of

ggregation.

         I think if you stick to your current plan

hich has two 30s which would be the MTA, that in

erms of people trying to link together to provide

uper regional or national services which was being

iscussed, I think it could be considerably

arder -- more difficult under that type of

ituation.

         So I think the geographical scope cannot

e necessarily separated from the amount of

pectrum that is passed out.

         But again I think if we get away from the

0s which again I don't favor, then I think the

TAs start to look more attractive, you know, by

he time you get to up to twenty or more.

         Then the last point, I can't -- I'm sorry

 have to say this.  You said what could the

ommission do to make the -- to ease the cellular

roblem and the MSAs and the size -- you know, more

ompetitive?  It would be to get AT&T and MCI to

top trying to forbid the box cellular companies



























                                               207



rom providing long distance.

         They could provide super regional -- they

ould provide super regional service if it weren't

or the assume MFJ, but of course that is a

iscussion for another time.

         MR. KELLEY:  Professor Hausman and I have

ad that discussion.  And I'll be glad to refer you

o all the piles of paper that have been filed in

hat issue.

         But going back to the ancient history if

ou want to get into real ancient, I was at the FCC

n the late 70s and early 80s when we were trying

o figure out how to allocate cellular spectrum.

         And I think Chuck Jackson holds me

ersonally responsible for the $86 billion consumer

elfare loss for the delay in licensing cellular

hat he and Ross Major (phonetic) -- but we were

head of our time back then.

         We were thinking -- some of us at the

ommission anyway were thinking about using

ellular as an entry point in local competition.

nd I think that the boxes were very successful in



























                                               208



reventing that from happening because they got

he -- they were able to get the free spectrum for

he B side and they went out and bought all kinds

f A side and created a nice little duopoly

ituation and created a market out of cellular

hich at this point doesn't allow any competition

r at least doesn't result in any competition for

ireless loops.

         MR. VAUGHAN:  STANLEY? Professor Hausman,

ould you expand a bit on the comment that you

elieve it is harder to aggregate say 30s at the

TA levels contrasted with say heterogeneous 20s

TA, BTAs?

         MR. HAUSMAN:  My point was -- I'm sorry

f I didn't make myself clear, Mr. Stanley -- was

hat I think the current scheme with the 10s being

TAs, that may create a problem with aggregation.

         So that is why I believe that if you go

o 20s you could have a mixture of BTAs and MTAs

ithout undue worry about aggregation.

         But from much of what I have heard and

ead I think there is quite a bit of fear that the



























                                               209



0s in the upper frequencies may be difficult to

ggregate.

         MR. GIPS:  One of the questions that we

ad given you is how can we help designated

ntities participate in this market and what

echanism should we be considering.

         MR. HAUSMAN:  There are two feelings

bout that.  The first is I think the designated

ntities should be permitted special consideration

ith respect to paying for their spectrum because

ere I think -- although I'm a real believer in

arket -- that there may be capital constraints.

         So that I think some type of frame work

n which they wouldn't have to pay all the money up

ront but some other frame work could be but

orward.

         I think there are many that might be

uite useful.  However, beyond this point I don't

hink that the FCC needs to set part of the

pectrum aside especially for designated entities.

         So I'm in favor of special financial

rrangement but not in favor of the saying here is



























                                               210



 megahertz and that should only go for designated

ntities.

         I think the second thing I would also

uggest here is that I think the attribution rules

eed to be fixed or at least cleared up so that

esignated entities will find it easier to enter

nto joint ventures or other type of corporate

rrangements with non-designated entities or either

n the industry now who will enter.

         So I guess those are my two favorite

lans.  One would be a special financial

rrangement and secondly is clearing up the

ttribution rules to make it easier for them to

ombine with other corporations or firms.

         MR. BESEN:  I guess the one thing I would

dd is that to the extent that designated entities

n fact require licenses in the initial auction

rocess, I would be in favor of allowing them

onsiderable freedom in subsequent sales.

         To the extent that it turns out that the

nitial licensees are folks who decide that in fact

hey cannot use is as profitably as some other



























                                               211



ntity I would not impose significant trafficing

ules on their subsequent transactions.

         UNIDENTIFIED SPEAKER:  Doesn't that give

hem an incentive to sell.

         MR. BESEN:  It certainly does.

         UNIDENTIFIED SPEAKER:  I'm not sure how

hat encourages their participation other than

aking a lot of money up front.

         MR. BESEN:  Well, they may make a lot of

oney.  The question is if the objective is to

rovide the best possible services to consumers

hat in fact it will be a mistake if someone were

n fact forced to hold onto a license for a

onsiderable period of time when in fact someone

lse could better offer service to the public.

         MR. PEPPER:  You're not suggesting

hat -- well, I guess we should probably stay away

rom auctions issues since we have not yet released

he item.

         So we are still to some extent under --

e still are under sunshine act so we should

robably pass on discussing specific auction



























                                               212



echanisms.

         Dan?

         MR. KELLEY:  I guess I'll take this

pportunity to agree with my panel members.  It is

 rare occasion.

         MR. PEPPER:  So the agreement is

lexibility on payment and no set aside is what.

         MR. HAUSMAN:  I did have one other point,

he ability to combine with other entities by

learing up the aggregation rules.  I take it that

s just a technical thing for the lawyers to fix

p.  Economists don't have a special competitive

dvantage on telling you how to do that.

         MR. PEPPER:  What about questions -- have

ou looked at the capital requirements for build

ut?  Have you looked at standard questions,

uestions of -- does this to some extent go to

eographic scope roaming for cellular -- for PCS

ervices as compared to what has occurred in

ellular?

         And what about provisions for example

o -- or require resale in order to smooth out any



























                                               213



otential head start problems?  Have you thought

bout these questions.

         MR. KELLEY:  On the standards issue one

f the reasons in my early papers in the proceeding

hat I thought a national license would be good,

nd one reason why I believe today it would be good

o allow for a rapid aggregation up to national

icenses is that is going to make it easier to get

tandards in place.

         I worry on the standards issue that if

ritical issues get referred to industry forums,

hose forums are going to be dominated by carriers

ho are in the market and have vested interest and

herefore get bogged down.

         So I think the Commission is going to

ave to be active in this area to ensure that the

tandards process isn't used as a way to erect

arriers to entry or to raise rivals' costs as we

ere talking about earlier.

         I have not looked at the capital

ggregation issue myself.

         The other dash in question for this



























                                               214



iming of entry -- and again I will go back to my

efrain, the sooner the better.

         MR. PEPPER:  Stan?

         MR. BESEN:  I don't disagree with the

ooner the better either.  I think that is right

nswer.  With respect to the standard setting, it's

een a long time since I have actually looked at

his question in this industry.

         It seems the times I looked at it in the

ast there seemed to be quite reasonable

elationship between the industry and equipment

anufacturers that seem to be dealing reasonably

ffectively with the standards question.

         I think the Commission might -- may have

 role, but I would limit it to an oversight role

f the private bell injury standard setting

rocess.  And I would be seriously concerned if the

ommission were to attempt itself to establish

tandards at this point particularly given the

ighly fluid nature of market demand and technology

ere.

         MR. HAUSMAN:  On capital again I think



























                                               215



hat that is not going to turn out to be an

verwhelming problem.  The capital markets are

oing to work well enough -- you know, again with

he caveat the designated entities might deserve

pecial treatment.

         But, you know, again the ESMR people had

o problem raising capital at least that I'm aware

f.  The interesting thing about ESMR too is that

SMR in some sense is going to be using a new

echnology, the Merz (phonetic) technology from

otorolla.  And there is some real problems with

SMR because it has to do frequency hopping by

onsiderably more than other types of technology.

ou also have the short spacing problem.

         Nevertheless, they have been able to

aise the money.  To some extent there is already

roven technology out there for PCS which is GSM if

eople want to deploy it.

         It's been successfully deployed in

ngland, parts of Europe and Australia now.  So

hat we have a proven technology.

         But what I heard this morning from what



























                                               216



he market seemed to think that certainly demand is

ut there that could be met at a reasonable cost.

         So all that leads me to believe that

here is not going to be a special problem here and

hat the market will be able to sort this out.

         Again, I'll say the sooner the better.  I

ean, how can anybody disagree with that?  That is

otherhood and apple pie.  We want a reason

ecision, but there is no reason for special

elay.

         And, you know Dan, in fact was at fault

or the $85 billion which I would only put him down

o $84 billion and spread the other billion over to

awyers who practiced before the FCC.

         I think on the standard setting I find

articularly interest but also difficult.  It is

asy to say we would like to have nationwide

oaming.  And perhaps if we had a nationwide

ellular system without the roaming fees that would

ave been nice.  Maybe that was one of the costs of

he break up of AT&T although we've certainly got a

ot of benefits, you know, on the other side.



























                                               217



         But I'm really quite worried that if the

ommission becomes involved in the standard setting

rocess we may be headed for the $84 billion

gain.  So I think that what should be done perhaps

s to have a frame work for review, but no more

han that.  And to actually depend on private

ctions.  So I pretty much agree with Stan here I

hink.

         MR. PEPPER:  Before we wrap up, do any of

he other panelists have any questions?  Is there

nything else.

         We promised you a closing statement.  Is

here anything --

         MR. KATZ:  Let me ask whether anybody

ould like to add in his two cents worth about the

otential role for unlicensed devices or for

arrier provided services on unlicensed spectrum?

         Do you want to add anything?  You want to

et to your summary.

         MR. KELLEY:  I guess just very briefly

rom our work with a lot of companies that come to

atfield Associates for technical help -- and they



























                                               218



ertainly don't get it from me.  But a lot of

ompanies come to get it from my colleagues.

         So there is a lot of good ideas out

here.  People chomping at the bid to get into the

arket.  And that is all for the good.

         MR. PEPPER:  Why don't we wrap up?

         MR. HAUSMAN:  Okay.  I think that this is

 really historic departure for the for FCC using

uction.  And I think part of where Dan and I

isagree is just our difference in where we come

rom.

         And I think the real question here,

hould there be a conscious policy of exclusion or

hould there be a conscious policy of inclusion.

         Once upon a time when the FCC passed that

pectrum people would come in with really neat

deas and try to convince you that this is a good

dea.  And then you would give them spectrum for

ree.

         And then you sort of have to decide is

ompany A a more worthy recipient than Company B.

 think we are facing something very different now,



























                                               219



nd this is should the Commission have a purposeful

xclusionary policy.  In other words, should they

ay the cellular people can't buy any more

pectrum.  You know, they have enough.  Somebody

as decided they have enough.

         And I think that is the wrong foot to

tart off on in a market-based policy which this

CC is going to unless there are real fears that

he cellular companies can actually exercise market

ower and hold prices above competitive level.

         I think that is really the only grounds

nder which anyone should say here is who we are

oing to let in and here is who we are not going to

et in.

         Just to end up, I'm going to quote my

olleague, Paul Sanderson's, textbook.  We know

hat the market will lead to the economically

fficient outcome boring the exercise of market

ower.

         And to quote Paul Sanderson, if anyone

hinks differently it means that an ognition

phonetic) planner could not come along with a



























                                               220



omputer and find a solution superior to the market

utcome.

         This concept of efficiency that you can

ot make one person better without making another

erson worse off is one of the central ideas of

conomics.

         So my view that the market should be

llowed to decide, and if anyone says differently

eally what they are saying is that it is an

dministrative decision which claims implicitly

hat it can be do better than the market and the

llocation of resources.  And you will find very

ew economists who believe that that is possible.

         And I believe that the whole thrust of

he administration to the greatest extent possible

s to let markets decide.  So I certainly encourage

ou to do so.

         MR. PEPPER:  Thank you.  Stan?

         MR. BESEN:  In 1952 the FCC released its

pectrum allocation plan for television, even

efore Bob Pepper was with the Commission.

         MR. PEPPER:  I was going to say this was



























                                               221



ven before -- you were still here then?

         MR. BESEN:  Yes, I was here.  There was a

atter on which the Commission worked for a very

ong time.  It actually started at least back as

ar as 1948.  So it had been at this for about four

ears.

         After all this was the sixth report and

rder.  They had been trying for some time to get

t right.  The plan was actually rather detailed

nd elaborate.  It decided how much stations there

hould be in each locality.  How many should be UHF

r VHF.  How many should be commercial or

oncommercial.  How many should -- what the size of

he service area served by each station should be.

         It was a very elaborate and detailed

lan.  I'm sure lots of very high quality man-hours

ere devoted to trying to get it just right.  And

f course the Commission.

         In fact, one of the earliest problems I

ver worked on when I began looking at the

ommunication industry was the fact that there were

ll these idle UHF allocations.



























                                               222



         At the very time -- apropos of today's

iscussion -- land mobile radio was starved for

pectrum.  And the process went on for probably a

ecade or so to squeeze small amounts of spectrum

rom television over to the poor then-starved land

obile radio user.

         We have come a long way from that.  I

ean, really I think it there is remarkable.  I

hink we are now at this proceeding talking about

etails.  The big decisions have been made.  They

ave been made correctly.

         We are talking -- Jerry emphasized the

ssue of relying on auction rather than

dministrative process to determine precisely

hat -- who should get the assignments.

         I'll emphasize the point I made earlier

hat it is critically important that the Commission

an allow flexibility in use after the initial

ssignments are made.

         This flexibility in reassignments is in

act as critical a part of the process it seems to

e as the initial auctions.



























                                               223



         No one should not believe -- everyone

hould know, I guess, at this point that we can't

e sure precisely which services will be delivered

nder the rubric of PCS, who will be the best firms

o provide them, and what is in some sense an

ptimal market structure.

         We ought to be leaving as many of these

ecisions as we can to private market processes

ubject only to the constraint -- which I think

ermits the Commission very wide latitude --

ubject only to constraints that the market not

ecome excessively concentrated.

         If the Commission pursues that approach,

akes that view of the matter, I think this process

ill have an extremely happy ending.

         MR. PEPPER:  Thank you.  Dan?

         MR. KELLEY:  There is more agreement up

ere than is apparent.

         The sort of motto for the day is the

ooner the better.  I'll repeat it one more time.

         I think the Commission should go about

romoting a competitive structure in order to



























                                               224



romote innovation, investment, and efficient

ricing.

         To me promoting a competitive structure

s not the same thing as using a merger guidelines

nalysis to prevent undue concentration.

         Your job is to promote competition not to

revent bad things from happening.  And in the

ourse of doing that you should provide opportunity

or new entrants because that is going to bring the

ost competition to the market.  Thank you.

         MR. PEPPER:  Thank you very much.

         MR. HALLER:  Well, okay.  Very

nteresting session.  Thank you panelists.  We will

ake a break now and reconvene promptly at 3:00

ith our last panel of the day.  Thank you.

         (Thereupon, a recess was taken, and then

         the deposition continued as follows:)

         MR. HALLER:  If we could please get

tarted again.  All right.  We are back for our

ast session for the day.  This session we will

earn about the finance community.

         I was handed an article which may be an



























                                               225



ppropriate way to start off when you start talking

bout the financial community.

         And I quote, in 1865 a writer of the

oston Post informed his readers well-informed

eople know it is impossible to transmit voice over

ires.  And if it were possible to do so, the thing

ould be of no practical value.

         I think that we are sure learning today

hat there is a tremendous value to communications

nd the communications that can be provided by

CS.

         To that extent, I hope this panel in fact

nlightens us even more on that subject.  I would

ike also to mention that because the auction --

he general auction's second report and order is

till in the sunshine period because it has not

een released -- that is Plans and Policy docket

3-253 -- we will be placing a copy of the

ideotape of this session in that docket as well.

         So to the extent that issues related to

uctions have been discussed in today's meeting

hey will become formally part of that auction's



























                                               226



ocket.

         With that, I'll turn to Don Gips for our

ext panel.

         MR. GIPS:  Thank you, Ralph.

         I would like to introduce our panelists.

e have Al Houston from AT&T network systems,

ohn Oxendine from Broadcap, Herb Wilkins from

yncom, Paul Rissman from Alliance Capital

anagement, Nancy Peretsman from Salomon Brothers,

nd Mark Roberts from Alex, Brown & Sons.

         We are going to go back to the format we

sed in the first panel and have each panelist

tart with five minutes of opening remarks, and

hen turn to questions.

         So I'll turn immediately to Al.

         MR. HOUSTON:  Didn't bargain to be first,

ut let me get started.  My name is Al Houston.

'm the project finance director, North American

egion, that is U.S. and Canada for AT&T Network

ystems, the manufacturing arm of AT&T.

         In my five-minute written statement I

efer to AT&T's public statement position in the



























                                               227



CS proceedings.  As I'm here representing the

anufacturer from a financing prospective no

urther reference will be made to those positions.

         I am employed by AT&T Network Systems,

herefore my views on finance are from a supplier's

rospective.

         I think the first thing here is where is

he money going to come from to get this new

usiness started, let it remain viable, and grow.

         We believe that that's the question that

he FCC invited this panel to answer.  And I think

o facilitate that question they provided three sub

uestions:   What market and regulatory factors

ill make PCS a viable business, what type of

inancing will support PCS, and how can the

ommission best create realistic opportunities for

esignated entities.

         With respect to the first question I will

ocus on the problem, three environmental factors

hat in our view will contribute to the viability

f PCS, number of licenses, geographic scope, build

ut requirements.



























                                               228



         In general the decision to provide

inancing is based on perceived risk and return

xpectations.  The higher the risk profile, the

igher the expected return, and the lower

robability of finding investors willing to

nvest.

         Therefore, investment opportunities with

he perception of extremely high risk will lack for

nvestors.  We believe that there will be a direct

orrelation between the number of licenses granted,

he geographic scope, the associated build out

equirements, and the economic viability of such a

enture.

         The combination of a small geography and

 high number of licenses with less than aggressive

uild out requirements theoretically creates a

ighly competitive environments which is one of the

ommission's objectives.

         However, such an environment may not

ppeal to investors, either debt or equity.  Simply

ecause predictions of viability will be more

ifficult.



























                                               229



         Each licensee must have access to a

ufficiently-sized population so that reasonable --

o that at reasonable penetration rates their

usiness venture will be a viable one.

         It is impossible to state with any degree

f certainty just how the mandated build out period

ill produce the PCS performance data that

nvestors normally look for prior to making

nvestment decisions.

         However, we believe the longer the time

rame before PCS specific performance data is

vailable, the longer the period before investors

ome on board in significant numbers.  Come on

oards in signature numbers.

         Industry specific data remove uncertainty

nd stimulate rational investment.  As a result we

uggest that the build out requirements be

evisited to ensure that they are closely linked to

arket demand and provide investment opportunities

hat attract investors.

         The second question, we believe the

icense acquisition will be financed strictly



























                                               230



hrough equity.

         The economic potential of this market in

he proposed environment with such -- so much

ncertainty will make it difficult to find debt at

his time.

         On the third question I want to address

omething that is very important.  We believe to

itigate against the unintentional warehouse of

icenses which would be due to insufficient capital

o progress to the build out phase, the Commission

ay wish to consider establishing a total

apitalization adequacy test as a form of

requalification for anyone entering the bidding

rocess.  Thank you.

         MR. OXENDINE:  Okay.  This is not an easy

ne.  We were asked to answer three questions, what

arket and regulatory factors will make PCS a

iable business, what type of financing will

upport PCS, how can the Commission best create

ealistic opportunities.

         That's a lot to answer in five minutes.

'll have to refer to my notes.  I think that with



























                                               231



egard to encouraging participation of designated

ntities, namely women, small business, rural

elcos, it is important for us to create some

eaningful opportunities.  And in order to do that

r we need some resources.

         We as minorities, women, and small

usiness do not have sufficient resources or

xperience or expertise to do it by ourselves.

         So I think the Commission has to look at

ome preferential provisions for us.  Specifically

he Commission has looked at spectrum set asides,

ax certificates, and installment payments.

         And I think each of these are invaluable

or us.  But recently the Commission had wanted to

eexamine policies regarding tax certificates --

ell, not tax certificates, but reexamine some of

ts policies.  And I think that while they should

eexamine them they should not completely eliminate

hem because they are reexamining them.

         For example, one concern of the

ommission -- and I imagine everybody's -- is that

et asides are for minority and women only, but in



























                                               232



act if these set asides supposedly include small

usinesses, minorities and women, and all of us

ualify to bid on supposed set asides, then there

ught not to be any constitutional problems with

et asides.

         So I think that it is dangerous to look

t set asides and then eliminate them.  I think if

e look at set asides we'll probably want to keep

hem.

         Initially I said that I don't think we

re as minorities have a heck of a lot of money.

aving been a former banker and currently a venture

apitalist, I think putting on my business hat I

ould like to see people come to the table who have

ome experience.  And we are going to have to do

hat perhaps with some joint ventures.

         So I kind of suggest that we as

esignated entities should be able to joint venture

ith other companies who both offer us some

elecommunications experience as well as some

ollars.

         And I know the Commission is concerned



























                                               233



bout preventing designated entities being fronts.

nd consequently they have put some pretty tight

ules regarding having a 50 percent ownership and

0 percent control.

         But I think that these ownership

estrictions need to be looked at.  Specifically

eing a radio person and owning some television

tations I know that I'm able to do that having had

ontrol of my stock but at the same time not having

0 percent equity interest in my company.

         And I would hope that the Commission

ould be able to revisit that issue and look at the

act that perhaps they would be a little bit more

lexible and not ask that you have to have 50.1

ercent ownership as well as 50.1 percent control.

         The Commission has looked at additional

reference options for the designated groups.  And

t has been suggested that there be a two-year

oratorium on the installment of payment.

         And I think as a venture capitalist I

hink that makes some sense because when you have a

usiness you have to make sure that when you build



























                                               234



t people have an opportunity to pay back whatever

hey borrowed.  So this option they are looking at

or a two-year pay back I support.

         Currently the Commission does not allow

he cellular companies to get involved with the

esignated entities as such, and I think that

hat -- I won't say that might be a mistake, but I

hink that we as minority entrepreneurs can use

ome of the expertise that the cellular folks

ave.  And it might make some sense for us to work

ith them.

         MR. GIPS:  Mr. Wilkins?

         MR. WILKINS:  Instead of trying to go

ack over where everybody has been I think I will

ry to pick up because nobody seems to be able to

inish.

         I believe that the significant points

ere are that in order for anyone to be successful

n this industry there has to be some assurance as

l indicated earlier there is equity in place that

ill allow that person or company to finance out

heir operations.



























                                               235



         The cost of building the infrastructure

ecessary to support PCS/PCN under the current

icense structure is significant.  And clearly very

ew people other than major companies can afford

he capital to build out and competitively pursue

he development of PCS/PCN with the current license

tructure.

         I believe that the size in the licenses,

he area, the geographic area should be reduced

arkedly.  I think that instead of having the

umber that we are being asked to have now there

hould be at least two to three times that number

f license areas.

         I'm not sure how geographically one would

reak up the nation to create perhaps as many as

500 licenses.  But I think that that is necessary

f the Commission wants to achieve the kind of

iversity of ownership.

         I think that that kind of definition of

ize, of license size, should run to a 20 megahertz

lock and as well to a 10 megahertz block to.

         I believe that in addition to reducing



























                                               236



he size that the Commission in providing for

esignated entities the opportunity for financing

he Commission should consider carefully an

lternative to debt.

         And that alternative would be an equity

take in each of the designated entities with the

ommission taking perhaps a warrant in each of the

esignated entities as opposed to some kind of

ebt.

         The Commission if it wanted to in some

ay monetize its equity holding it could set up a

econdary market in warrants or other kinds of

quity securities.  It could block those equity

ecurities, securitizing some other kind of

nstrument.

         So that in effect the government could

ealize the cash state that it wanted now without

ecessarily hindering the development of the PCS

CS/PCN licenses.

         In order for someone to be competitive in

he 20 to ten megahertz blocks, that entity has to

eally have the capability of providing the



























                                               237



ifferentiated service to the public.

         They cannot come in and provide PCS/PCN

ervice as the 30 megahertz block will or they will

ose from a competitive standpoint.  And to be

ompetitive, to have the capability to offer

ifferentiated service, one has to have the

apacity to go to the market and have the market

hen it pursues a financing receive the potential

or success.

         And that potential for success is

nhanced to the extent that there are not debt

urdens associated with a designated entity, to the

xtent that there aren't encumbrances associated

ith the ownership that is the 51 percent

imitation and/or the resale of the license.

         I think that to the extent that the

ommission and/or the government would take an

quity interest a lot of those concerns would go

way.

         The government should prequalify all of

he designated entity holders so that in effect the

roblems of how much equity an entity holds would



























                                               238



e eliminated prior to the auction actually taking

lace.

         And once the auction had been completed,

he designated entity or any other party would be

ree to sell that license on the open market.  That

n fact would provide an enhanced basis for raising

apital in the marketplace.

         MR. GIPS:  Mr. Rissman?

         MR. RISSMAN:  As an equity

elecommunications analyst for a firm with about

35 billion to invest and about 15 percent of that

oing to our telecommunications issues judging from

he previous comments it looks like we are going to

e seeing some activity.

         I have to preface my remarks with the

act that on Wall Street perception is everything.

hat we think we know is true makes all the

ifference.  It may be true.  It may be false.

verything is what is in our minds.  Too bad.  The

arket is like that.

         The environment that PCS would be born in

ill be very hostile, extremely hostile.  You know,



























                                               239



'm assuming 1994 -- late '94 options.  I'm

ssuming a two-year build out period.  By then I

hink the addressable base will be 25 to 30 percent

enetrated with existing cellular services.

verything will be digital.  Costs will have

eclined for the incumbents.  Seamlessness.

ationwide basis will be there.  Microcells will be

here.  People will have events intelligent network

apabilities so that you will have one person, one

umber service.  It will be a very full service

ellular incumbent environment.  It will be very

ough to match those full services.

         Based on the applications some -- some

pplications will die.  Some applications might be

ble to slip under the door.  A ME 2 (phonetic)

pplication, it's dead on arrival.  The best

ustomers are gone.

         PCS might be the only alternative service

hat does not have national seamlessness.  If P-Tag

phonetic) goes with CDMA and if somebody else goes

ith GSM you're not going to be able to use the

ame handset.



























                                               240



         The incumbents, the cellular incumbents,

ill offer one person one number service.  If you

re a ME 2 (phonetic) cellular system, you are

oing to start building out macrocells. Your

ompetitor is going to say well, look, I have

acrocells.  I have microcells.  You can use your

andset in your car.  You can also use it in your

ouse.

         The PCS competitor comes and says hey,

ook, you can use your handset in your car.  Big

eal.  For that reason because they can't compete

n services they will be forced to compete on

rice.

         Because the cellular operators will

robably enjoy a price advantage, on a ME 2

phonetic) cellular service the PCS guys will be

he first ones out of business.

         Cordless long distance access might be a

airly viable alternative in the short term but

hat is only an arbitrage of the subsidies.

         And as those subsidies go away, as things

ecome more rational, these guys won't have a



























                                               241



eason to exist.

         It is possible -- I can think of one

nvestible application and that is optimize your

ystem.  Current cellular systems are optimized for

ehicular service.  Optimize your system for people

ho are in their homes and who are walking around.

         There is a lot of equipment that you

on't need, equalizers, echocancelers, things like

hat.  You started with that and then build out

our service slowly to become a macro cellular

ervice.  You might have to charge more than a

ellular incumbent for macro cellular.  You can

harge less for micro cellular.  You might be able

o get it that way.

         The final point is give PCS operators as

uch as you possible can give them.  That will --

nly that will ensure their success.  We do not

ant to finance anything that we have doubts about

hether their system will work.

         If you come to us with proven amount of

pectrum and you may get financing.

         MR. GIPS:  Thank you.  A little



























                                               242



epressing, but thank you.

         MS. PERETSMAN:  I'm Nancy Peretsman.  I'm

 managing director of Salomon Brothers.  I had

elished the opportunity to come down here today

nd get away from the recent pessimism of the

treet, but here I am again.

         UNIDENTIFIED SPEAKER:  That's the streets

or you.

         MS. PERETSMAN:  That's right.  I'm on the

nvestment banking side of the business.  I thought

 would really limit my remarks specifically to the

uestions of what type of financing will support

CS, in that that is a marketplace with which I

ave the highest familiarity.

         If one of the axioms that was advanced

arlier is that perception is everything, the

econd axiom of the street is that history repeats

tself or learn by example.

         The last part of that axiom is there is

eally nothing ever new.  And based on theory I

hought that the best way to consider how PCS might

e ultimately be financed is to look at some of the



























                                               243



ecent models we have had in the marketplace.

         We have case studies clearly in cellular

usiness.  We have case studies in SMR, in cable,

n the CAPs (phonetic), and even to some extent in

he United Kingdom cable and telephony businesses.

         What these businesses all had in common

s that they sourced from banks -- not in this

articular order -- but from banks, the financial

arkets, the venture community, and the strategic

nvestors capital for businesses that yet weren't

ully operational in terms of the cash flow,

eaning that the cash from those businesses didn't

n and of itself support those businesses.

         The question that always strikes one was

ell, okay, how do they do it because maybe we will

earn something here.  What is interesting is if

ou look at each of these case studies, and they

ary depending on the peculiarity of that

articular time, place is that there are some

imilarities.

         One is what we call establishment of

ranchise value.  Many of these industries were



























                                               244



ble to finance themselves because they could prove

o the financial market that there was a franchise

alue.

         Now, what does a franchise value really

ean?  In its most distilled terminology it is that

here is a buyer for these assets and the price

hat the buyer would pay is ascertainable.

         If you go back to the early days of

inancing of cellular, if you go back 12 years ago

o when some of us were out there trying to raise

oney in the cable business, at the end of they day

he comfort that the financial community was able

o get, whether it was the providers of debt or

ven to some extent with the providers of equity

ere, well, if we gave up this franchise, what

ould somebody pay for it?

         And that allowed if you will a base case

o establish a frame work from which people could

alculate estimates on financial return.

         Obviously this is a slightly different

orld that we were considering in PCS because

ranchise value is going to be a function of



























                                               245



ompetition, and it is also going to be a question

f franchise value and to whom.

         One of the questions that I think is

egitimately on the table is we have been talking

bout competition among the wireless operators and

ow competitive that might be.

         The gentleman to my left I think

ntroduced a very interesting concept a few minutes

go and that is the question of the true definition

f the telecommunications marketplace.

         Is this really competition among the

ireless providers, or is it in fact this

ompetition among all the possible providers of

elephony service?  Because we are, I would argue,

ooking at a model that is going to suggest that we

ave many more possible components here providing

ervices going forward.

         The second aspect that I would say if I

ere to grossly generalize over some of the trends

hat have underscored the financing of the

ifferent industries is that there was either early

trategic money that went into that industry and



























                                               246



ade a difference, or there was very deep pockets

y -- best described by people who believed.

         When you had Craig McCaw (phonetic)

elling cable systems -- thank you.

         MR. GIPS:  Finish your sentence.

         MS. PERETSMAN:  Well, you can come back

o me in Q&A.

         MR. GIPS:  Mark?

         MR. ROBERTS:  Now I know why Paul Rissman

oes not return my phone calls.

         My name is Mark Roberts.  I'm a

elecommunications analyst with Alex, Brown &

ons.  To preface my comments and put them in some

ontext, we are the oldest investment banking firm

n the United States.

         We have made a specialty out of focusing

n growth and emerging growth industries.  We --

or example, since 1980 we have done more initial

ublic offerings of companies than any firm on Wall

treet.

         We spent a lot of time studying PCS.  And

 think we might have a view that is a little bit



























                                               247



ifferentiated than some others that you'll hear

rom on Wall Street.

         I think part of this is we have not done

 lot of the investment banking work for the

ncumbent cellular service providers which we think

ends to bias the view somewhat.

         Let me state my basic premiss.  We

elieve that personal communications services will

e rapidly deployed at price points likely to

timulate significant demand and foster rapid

rowth if licensees can acquire large blocks of

ontiguous spectrum covering large,

conomically-significant areas.

         Two points, competition will be the

riving force behind the deployment of PCS.  And at

ur firm we see significant linkage between rapid

eployment of PCS and regulatory and legislative

fforts to introduce competition into other forms

f voice, video, and data communications.

         Second point, the ability of PCS to

ompete with cellular is critical.  Because we

elieve at a minimum, full cellular mobility is the



























                                               248



irst visible market for new PCS entrants.

         We are also think that the nature of PCS

ill tend to favor large dominant communication

ervice providers because first of all PCS networks

re going to be very capital intensive, very high

ixed cost networks that require heavy investment

ell in advance of any revenues or potential

nvestment returns.

         Secondly, PCS makes the most economic

ense and tends to have the highest value to the

icensee when it is leveraged off of an existing

ire line backbone such as an inter exchange

arrier, a local telco, cable TV, or even a

ompetitive access provider.

         Now, we think the license structure

ssues that will make PCS a viable business and

end to maximize the auction bids are one, a

inimum of 30 megahertz of contiguous spectrum,

wo, minimum of an MTA license size, and three,

hat you minimize the timing of the availability --

he timing of this new service, that the auction

hould go forward very quickly.



























                                               249



         Let me expand on that very briefly.  The

0 megahertz license size, PCS entrants must get

ontiguous blocks of spectrum so that they can

fficiently compete and have a similar cost

tructure to the incumbent's cellular service

roviders that have 25 megahertz.

         Secondly, license sizes of less than 30

egahertz are likely to permanently lock in premium

nvestment returns for the cellular industry.  Now,

his will inhibit PCS deployment and inhibit their

bility to raise capital.

         The minimum MTA license sizes are

imilar, you reduce the time of after market

ggregation and the cost of aggregation which tends

o increase the amount someone can bid and the

hortens their time to deployment.

         Thirdly, the biggest risk, as I have

lready mentioned, is that the license -- that you

tructure the licenses in such a way that it

equires a lot of after market aggregation which

xpands the time to market.

         The longer the time to market, the lower



























                                               250



he expected investment returns, and the higher the

ost of capital will be, the harder time I will get

aul from returning my phone calls.

         Lastly, let me close by saying that we

re very -- we find PCS very attractive.

         MR. GIPS:  I like that closing.  I would

ctually like to start by pushing further on the

art that Mark was just making and have some of the

ther panelists comment on what is the amount of

pectrum we have to provide for PCS to be viable in

erms of being able to attract financing.  And it

s open to anyone.

         MR. RISSMAN:  If I could answer your

uestion this way.  Right now we don't know what

he size of the spectrum award is that will work.

         We have consultant studies that say 20

egahertz is fine.  We have consultant studies that

ay 30 megahertz is fine.  We have consultant

tudies that say you need at least 40 megahertz.

         All I can tell you is that Mercury one to

ne has 50 megahertz of cleared spectrum that it

oesn't don't have to share with anybody, and they



























                                               251



re successful.

         Incidently, they claim that 50 megahertz

llowed them to reduce their capital expenditure

ost by 20 percent over what it would have been if

hey had been given a plain old cellular spectrum.

         So what we would like to see is a

pectrum grant that we know is going to work.  We

o not want to see a spectrum grant where we will

e scratching our heads saying, boy, if this

oesn't work our money is down the drain.

         There is enough risk in this as it is

hat the size of the spectrum grant does not have

o be the issue around which the risk turns.

         MR. GIPS:  Is there a tipping point.

         MR. RISSMAN:  All I can tell you is we

now it works for 50 megahertz.  We don't know

hether it works for anything else.

         MR. GIPS:  Mark?

         MR. ROBERTS:  Let me -- yes, I will

xpand on my earlier comment briefly because we are

urrently working with a number of the technology

roviders and have talked with a number of the



























                                               252



ervice providers both from our box as well as some

f the new entrants.

         It seems that at the 1, dot, nine

igahertz, 30 megahertz can allow you, particularly

hrough deploying all digital and don't have to

upport analog subscribers that you can deploy a

CS infrastructure with similar efficiency and

imilar costs structure to the current 25

egahertz, eight to nine hundred band that the

ellular service providers have.

         Secondly, we think 30 megahertz appears

o be about the minimum size particularly if you

re going to deploy services in third and

ourth-tier markets, rural markets where you might

ind that this is the amount of spectrum that would

llow you to efficiently deploy what amounts to the

ull service multimedia networks.  Because as you

ove from a copper-based infrastructure to a

ireless infrastructure, you would use these in

ural markets to supply both voice, video and data.

         Also in talking with a number of the

olks who would like to get into plain old local



























                                               253



ccess service, 30 megahertz appears to be an

fficient point where you could deploy Microcells

ff of a full-service network node structure and

upply basic narrow band wire line telephony at

rices that would allow you to earn a competitive

nvestment return compared to prices that people

re -- or slight premiums to what people are

urrently paying for wire line telephony.

         MR. WILKINS:  I really think that is a

ittle bit approaching overkill when you talk about

pectrum blocks in excess of 30 megahertz.

         I really think that the smaller blocks

re competitive.  And if that weren't true you

ouldn't see enhanced SMR our there, as someone

entioned earlier, one of the other panels raising

apital.

         This industry really, I think, would

ssume digital service -- an uviquitous (phonetic)

igital service -- be adequately served if we had

0 megahertz block.

         I think that if you wanted entities that

ere out there and were competing directly head to



























                                               254



ead with existing cellular companies, then yes,

hey need 30 megahertz of spectrum.

         If the Commission's goal is to create

ore cellular companies, then that's fine.  The

ommission can just break up the spectrum into 30

egahertz blocks.

         But if the Commission really wants

ifferentiated service, if it wants alternatives,

f it wants different entrepreneurial services

ddressed in the marketplace, then I think that the

ommission's present separation is adequate to do

hat.

         I think that there are enough 10

egahertz blocks, one 20 megahertz, and the two 30s

s clearly adequate.  And perhaps you ought to

reak up the 30 megahertz and cut them to 20 so

hat people will more efficiently use spectrum

pace.

         MR. GIPS:  John.

         MR. OXENDINE:  I kind of

isrespectfully -- I disagree with you, Mr. Roberts

ecause when we look at some basic truths, if we



























                                               255



ook at the amount of spectrum for each license I

uppose we could take the whole 120 and give it to

ne person and be very efficient that way.  The

peration would be successful but the patient would

e dead in that democracy wouldn't be served and

here wouldn't be a whole lot of people involved.

         I think that we all know that the smaller

he spectrum the mores crowded it is.  And the

arger it is the less incumbered.

         But I think that if we moved forward and

ook at something like three 20s, for example, that

s more equal.  You get the cellular people to

lay.  You get designated entities to play.  You

et some joint venturing going there.  You get some

trategic alliances going.

         As it stands at this point in time the

0, the 20s and 10s, in my thinking you are going

o have the big guys are going to win because -- I

on't mean to be specific but when the Post winds

p getting Washington and Baltimore it is very easy

o build there and not have to worry about the

ncumbents, the railroads, and the other microwave



























                                               256



sers.

         But when the little guys come who have

he 20s and 10s, they got the incumbents to deal

ith.  You are right.  They will never be able to

o anything.  So I think we need to have a

ompromise here.  And I think that the way it

tands there is enough spectrum -- if I had my

hoice I would have three 20s and get everybody to

ork together.

         When you have 30s, and 20s, and 10s, the

ig folks get in there right away because we know

hat this is a capital intensive business, and

hose who have the money are going to win.

         If we want to allow for the others, we

re going to have to make some exceptions.

         MR. GIPS:  Did you want to --

         MR. HOUSTON:  Well, I really do not have

 specific position on this.  I think one of the

hings that we ought to bear in mind is that from a

inancing standpoint the degree of risk that you

erceive in a venture will influence your

ehavior.



























                                               257



         And to the extent that you have a

pectrum size that doesn't provide for growth in

erms of the services that a licensee can provide

ver time or they are constrained by what they can

o in terms of the service offering and so forth, I

hink what that does is to limit their future

ccess to capital.

         And so as the decision process takes I

hink the decision must be taken into the context

f not only what service can be provided today

ased on what we know, but what they might be able

o do in the future.  That is really my comment on

hat.

         UNIDENTIFIED SPEAKER:  May I ask the

anel a question.

         MR. GIPS:  Yes.

         UNIDENTIFIED SPEAKER:  Do you think that

0 or 30 megahertz wide licenses will work just

ine if you have to share with incumbents.  And if

hey don't work just fine if you have to share with

ncumbents, what does say the five year stretch out

efore you can move public safety entities, what



























                                               258



oes that imply to -- for time to market and

herefore your competitive position.

         MR. OXENDINE:  We know that the

ncumbents have three-year holding periods.  We

now Pepco can keep its license the next three

ears no matter who wins.  I'm just suggesting that

he big folks are smart enough -- they can put

ogether strategic alliances and joint ventures

ith some regulatory support where you can have 40s

r 30s, or 50s, or whatever you want.  But when you

trictly you have 30s, 20s, and 10s whoever is

irst there is going to win and not have a need to

orry.

         If i have a 30, and I have the State of

alifornia and part of Nevada, I don't need to work

ith anybody who has got -- you know, just Los

ngeles or Sacramento.

         But if I only have one part and you have

ot the other part we have to work.  And guess

hat, we will work in the same time frame.  So this

rgument that you make that unfortunately if you've

ot a whole lot of players it is going to take



























                                               259



orever and the cellular people are going to be

here forever -- well, the cellular people are

imited too by regulation.

         I'm suggesting that we open it up so

verybody can play.  And I don't hear that from

our side of the table.

         MR. GIPS:  Does Mark or Paul want to

espond to that?

         MR. ROBERTS:  John, I guess I would use

his as an example, when we are trying to raise

quity capital for a new PCS entrant, the first

uestion that any potential investor is going to

sk is how is your cost structure and what is your

arketing strategy?  How are you going to compete

gainst the incumbent cellular service provider who

s in every case going to aggressively attempt to

reempt both your price points and your service

fferings.

         And if you have to go through a period of

fter market aggregation as one of the earlier

anels mentioned, we've had after market

ggregation for nearly a decade now in cellular.



























                                               260



e still don't have a seamless nationwide network.

         It is going to be very difficult for me

o raise capital for someone who can't conclusively

nswer those questions.  And the capital they do

aise is going to be very expensive versus the

ncumbent service providers, who for example the

ncumbent cellular operators who are also going to

e making these same sorts of alliances, and they

re going to have very low costs of capital.

         As we are seeing currently on the wire

ine telecommunications side, cost of capital is a

trategic competitive issue here.

         MR. OXENDINE:  You make a good point

xcept that it is based on the assumption of

xclusivity.  And I'm suggesting to you that

erhaps we are talking about the cellulars and the

ther coming together in strategic alliance.  You

ave not addressed that issue at all.

         I mean, you are suggesting that it very

ompetitive environment and that it is either or,

ne or the other.

         If it is all inclusive, if we have some



























                                               261



egulatory movement on the part of the FCC it can

nclude all the players.  Is that not a

ossibility.

         MR. ROBERTS:  I think it is very possible

hat you can include all the players if you are

pecifically addressing designated entity and small

usinesses, new emerging growth businesses or you

now other designated entities.

         I think there are a number of ways where

hey have the opportunity to leverage off of a

ominant service provider.  But I firmly -- at

east at our firm -- we fairly -- firmly believe

hat the dominant competitors of PCS are going to

e large, very well-established sophisticated

ommunications companies who are -- and the

nvironment that we think would be proper would be

or the FCC to create an environment where you have

 lot of competition.

         I don't think that just legislating

lliances or regulating alliances will result in

he sort of service proliferation and the prices

alling to the point that consumers will be



























                                               262



enefited.

         MR. GIPS:  Commissioner Barrett, did you

ave a question?

         MR. BARRETT:  Yes.  Then I assume,

r. Roberts, that you have already assumed there

re no market scenarios or structures under which

ou would see investments being right for anyone

ho is not what you call large?  Large I accept,

ut large and necessarily sophisticated I don't

ccept.  Then you have automatically turned off the

bility for anyone who is a new entrant who happens

o be sophisticated and has the knowledge of being

nvolved?

         MR. ROBERTS:  No, we actually are

ctively involved in raising large amounts of

apital for new entrants into what I would call PCS

ervices.

         MR. BARRETT:  Are they large and quote

ophisticated?

         MR. ROBERTS:  They are sophisticated and

hey are actively trying to become large through

oint ventures and alliances but it has been very



























                                               263



xpensive capital for them had and trying to back

o raise thus far and they have had the luxury so

ar of not having had to compete head to head with

he incumbent cellular service provider.

         MR. BARRETT:  If Mr. Houston happened to

eave AT&T and take some of Herb Wilkins, you know,

e can afford to underwrite all of this if he wants

o.  If I had Herb Wilkins' money.

         Would he be determined -- he certainly

ould not be the determined large, but a new

ntrant.  Would he be considered sophisticated from

n academic standpoint and experience standpoint to

e able to do the business.

         MR. ROBERTS:  When we talk about

ophisticated we are mainly talking --

         MR. BARRETT:  I know what you're talking

bout but I just want to make sure that we are

alking about the academic and intellectual

ophistication to be able to do certain things such

s switch and understand the markets and understand

he demand process.  And clearly Mr. Houston would

nderstand all of that.  He may have not have the



























                                               264



oney that Mr. Wilkins has, but he certainly has

long with the two of them together could do

ertain things and bring a certain level of

ophistication to the marketplace notwithstanding

he fact they would be new entrants.

         Would you suggest that there is no place

or them.

         MR. ROBERTS:  No.  In fact, just the

pposite.  We would suggest that there are a lot of

pportunities for them.  As I said before, we are

ctively working with a number of just those sorts

f companies.

         In fact, just in the last six months

lone we have raised about $400 million dollars for

ntities that fit the profile that you just

entioned.

         The difference would be the -- on the

xperienced management.  For example, you mentioned

witching.  We would probably look to someone to

rovide some sort of vertically integrated

ervice.  It is not clear to us that Mr. Houston

ould be able to come to us and raise money to bid



























                                               265



or the spectrum.

         He probably after winning the spectrum

hrough having used someone else's --

         MR. BARRETT:  Mr. Houston is just an

xample.

         MR. ROBERTS:  Yes, I'm using this as a

ypothetical that after winning the license and

aving a business plan that we felt could be

xecuted effectively would have enormous

pportunities to raise capital in the markets.

         The difficulty would be for him to come

o myself or any other -- Salomon Brothers --

ecause then we are in turn going to got to Paul

nd try to convince Paul to put a hundred million

ollars into Mr. Houston's company.

         And the kind of questions you heard from

aul today are the typical questions that you would

et from any portfolio manager on Wall Street.

         MR. BARRETT:  You have answered my

uestion.

         Either to you, Paul, Nancy, or whomever,

hat kind of market structure would the -- if you



























                                               266



ook at the size of the markets and the number of

ompetitors, what kind of market structure would

he financial community consider most viable, the

TAs, the BTAs, large blocks of spectrums or small

locks?  Let me tell you the reason I ask the

uestion.

         Why don't you answer that and first let

e tell you why I ask the question.  And I will

ell you that first since Nancy is looking up at

he sky.

         It was my position, Nancy, that during

he process when we voted before when we had two

0s and the four 10s and the 20, that if I were

n -- and I happened to mention Salomon Brothers by

he way.  If I were there and I had someone else's

oney to invest I would look at the two 30s and I

ould encourage someone to aggregate the three of

he 10s.

         And I would waive the ten standing alone

nd the 20 goodbye and say I wish you well, but let

e talk to these people with the three 10s that

hey have aggregated.  And that is the reason that



























                                               267



 ask you what kind of market structure and

cenarios that you see that would be most viable.

         Would you finance the stand alone 10 and

he 20 as presently constituted.

         MS. PERETSMAN:  An independent stand

lone?

         MR. BARRETT:  Mmm-hmm.

         MS. PERETSMAN:  Doubtful.  Doubtful.  It

ould depend on whether or not it was affiliated

ith somebody who was already in the market and/or

as affiliated with somebody who was providing

ervice in that market -- or providing that kind of

ervice in another region so it brought some

xpertise.

         To answer your question I think there's

lso -- it is difficult to answer MTAs, BTAs as a

eneral rule because one of the principles that we

ave learned across the board is it depends

ramatically on a market size.  You know, the top

0 markets are going to accommodate obviously a lot

ore competition than market 25 and 50.

         I mean, you can look at the broadcasting



























                                               268



ndustry for models to that point.  So I think that

ur level of comfort of participants is very much a

unction of what the market size is.

         MR. BARRETT:  Can you describe a scenario

nder which you think -- and I'm sorry.  I didn't

now whether Paul, you or Mark wanted to respond to

hat initial to that...

         MR. RISSMAN:  Sure.  I would wait for a

0 or 20 licensee to aggregate into a larger block

efore they came to us for equity financing on your

irst point.  Second question, as far as MTAs go,

TAs don't really bother me too much. There.

         There will be a market opportunity for a

ot of people who aren't really interested in using

CS beyond their region.  In fact you could

robably claim that the people who are using -- who

ant to use the phone beyond their region have

lready signed up as cellular customers.

         So the great mass that are left are

robably more regional in their interest.  BTAs I

hink however are a little bit too narrow.  And I

ould want to see BTAs aggregated into an MTA



























                                               269



evel.

         If somebody comes to me with a BTA

icense they would not be financeable from point of

iew.

         MR. BARRETT:  If they were aggregated in

hree 30s they would be?

         MR. RISSMAN:  Three 10s on a BTA.

         MR. BARRETT:  Three 10s.  I'm sorry,

es.  Three 10s.

         MR. RISSMAN:  I would not find any BTA

icense attractive whatsoever because -- and that

s because of the confusion regarding technologies

hat are going to be used at this time.

         MR. BARRETT:  Let me ask you a question.

an you think of any scenario under which if a new

ntrant -- whatever a new entrant is -- has

hose -- either those singularly or the ability to

ggregate under which anyone on the street would

onsider financing them in the BTAs.

         MR. RISSMAN:  Only post aggregation.

         MR. BARRETT:  Okay.  That would be after

ne of the big players with deep pockets had gotten



























                                               270



hat they wanted; am I correct and aggregate with

hem?

         MR. RISSMAN:  We could see -- any entity

hat wants to provide PCS I would want to see have

eep pockets.

         MR. BARRETT:  Would your assessment be

ased on merely being configurated as BTAs?  Would

t be based on the market potential that one has to

erve?  Would you have that feeling if there was a

reat demand in an area and there was a great area

n which a BTA would serve, would you still take

he same position with who you would be willing to

inance?

         MR. RISSMAN:  Well, the reason I say that

s that suppose you have gotten aggregated three

0s into a BTA.  You decide to offer GSM based PCS

nd all of the BTAs around you are offering CDMA

ased PCS.  Nobody would be able to use their phone

utside of your little area.  You would not have a

iable business plan.

         MR. BARRETT:  Anyone else want to --

r. Wilkins or Mr. Houston do you share his



























                                               271



eelings?

         MR. HOUSTON:  Basically from a

anufacturer's standpoint I take a position on

hat.

         MR. BARRETT:  You do from a

anufacturer's standpoint?

         MR. HOUSTON:  I do take position on that

eally.

         MR. BARRETT:  Okay.  Herb?

r. Oxendine?

         MR. WILKINS:  No.  No, I don't share his

osition.  I think that the extent that you elect

hat is perceived now as the technology in the

arketplace drives how we structure the PCS/PCN

ndustry we lose an opportunity.

         This is an industry that is going to be

round for quite a long time.  To structure it now

o that it merely rides on the basis of what the

echnology exists, ignores the fact that there are

robably entrepreneurs right in this room who have

deas who would allow the development of the

pectrum in such a way with different technology to



























                                               272



erve different market interests.

         One presumes when you take the position

f Wall Street that the service that the spectrum

ill be used solely to develop additional cellular

ystems.  That is not what this will be used for.

here will be other types of services developed

rom this technology that is not pure cellular.

         And that we have to get away from.  If

he Commission goes the way of the Wall Street we

ill have pure cellular systems competing head to

ead on the basis of price, solely on the basis of

rice without anybody making any money and without

he country having the kind of service that we

ould all like to see it have.

         But if the Commission looked at smaller

ggregation, smaller licenses and small block

pectrum, I think the Commission will be surprised

t the huge amount of new and novel uses that

eople can come up with to use a spectrum.  And I'm

ertain they will.  That is what venture

apitalists look for.

         MR. BARRETT:  Let me just ask a real



























                                               273



uick question because Mr. Wilkins talks about the

all Street perspective.  I assume Mark, Paul, and

ancy, neither of your responses are based on any

echnical aspects of difficulties of the small ever

onfigurations, are they?  Okay.

         UNIDENTIFIED SPEAKER:  No.

         MR. BARRETT:  Did you want to respond to

hat initial question, Mr. Oxendine?

         MR. OXENDINE:  My only concern was that I

hink the FCC has already talked about ordering two

arge spectrum blocks and five smaller ones because

hey were considering the entire country.

         I don't know what you would do when you

ook at Lexington, Kentucky with 850,000 people and

robably a bill might be anywhere between eight to

13 million.  What do you do with those kind of

ommunities?

         MR. BARRETT:  I wanted you to respond to

y question.  I don't want you to get into a debate

ith them.

         Let me just go on to do something else.

nd I want to be clear about this, neither --



























                                               274



ancy, neither your, Mark's or Paul's response are

ased on any technical difficulties that you

nderstand with the small configurations but rather

hat you are looking at it purely from the

erspective of an investor being able to have a

easonable opportunity to -- for the investment to

e safe; am I correct.

         MR. RISSMAN:  When you say technical do

ou mean technological?

         MR. BARRETT:  Yes, that is what I mean?

re any of your reasonings based on the fact that

here are some technical difficulties?  You

entioned some in terms of what one would be able

o do.  But I just want to know if Nancy and Mark's

esponse would be based on anything above and

eyond the financial aspect which is to get as much

rofit and to make sure that one's investment is

elatively sound based on either size or alleged

emand or potential demand.

         MR. ROBERTS:  I would qualify that

lightly.  Our view of PCS is slightly predicated

n technology from two standpoints.  Currently



























                                               275



here are note efficient technologies, digital

echnologies, that would allow you to move from

nalog to TDMA to CDMA to frequency hopping or

hatever else anyone would happen to come up with

hat are commercially viable within the time frame

hat we think you need to deploy a PCS network.

         Also the phones that currently can -- I

elieve the term they use is the dual frequency

hone that would move from one dot nine to two

igahertz are not realistically priced to be used.

         So our view as far as the contiguous

pectrum blocks is somewhat predicated on what

echnologies we see in the pipeline and how long we

hink they will be before they are ready for

ommercial deployment.

         MR. BARRETT:  Nancy, did you want to

espond to that?

         MS. PERETSMAN:  We are presuming a level

f viability.  And with that presumption we are

alking about economic models.

         MR. BARRETT:  Let's assume that one of

he small configurations would have some level of



























                                               276



conomic viability and would not have just for the

ake of the conversation any technical difficulties

otwithstanding what Mark is suggesting -- and I

hink he is right to some extent.

         Would you still even with the economic --

ith the technical aspects being relatively clear

r positive rather and there being a market and

eing relatively viable in terms of size and

romise of demand, would you still shy away from

inancing?

         MS. PERETSMAN:  No, but I guess we are

tarting to run into a bit of a catch 22 here.  It

s really the view that the smaller -- let me put

f this way, the smaller the spectrum allocation

he presumption is more competition.  The more

ompetition -- if you introduce that on the level

hat it already exists we start to get to -- there

s an amount of competition that ends up being very

onstructive and then afterwards you fall off a

liff.

         I think what we are all concerned about

s where that cliff is.



























                                               277



         MR. BARRETT:  And I'll be quiet,

r. Chairman, in just a moment.

         Mr. Wilkins, you had talked -- you had

ade some remarks about set asides that I didn't

nderstand.  You had -- there had been I guess

everal debates this morning about set asides as a

unction of increasing the probability of new

ntrants.  And I came in on the tail end.  Are you

gainst, for them or just -- for what I prefer for

ack of a better word called fundamental fairness

n opening up the market, period.

         MR. WILKINS:  I'm for fundamental

airness in opening up the market.  I think that

here are limitations.  Limitations are defined by

he capital requirement to get involved in the

rocess itself.

         The capital defines whether or not the

ervice will be competitive, the capital -- your

bility to buy a 30 megahertz block and be

uccessful is a function of how much you pay for

t.  If you pay too much you are not going to be

uccessful.



























                                               278



         Of course if it were free, you could

robably end up with some kind of a competitive

ervice down the road.  So it is the process and

he way it is set up that defines what is riskier

or an entrant coming into the marketplace.

         And because the process itself can only

e got into if you are well-financed and have

dequate equity capital after you have gotten the

icense, there are limitations on the openness of

he process itself that I think will drive away a

umber of the people who would instrumental in

roviding some very unique and creative

pplications and -- for the service.

         MR. BARRETT:  Thank you very much.  And I

ave talked too long.  Thank you.

         MR. GIPS:  I actually wanted to come back

o a point Nancy raised and get people's opinion of

here the cliff is, how many competitors, how many

icenses can we issue before we hit that cliff of

oo many.

         MS. PERETSMAN:  I guess I brought it up

o I'll start.  I think as a start I should say I'm



























                                               279



till troubled by the definition of the

arketplace.  But let's presume for a moment that

t is a wireless marketplace.

         I think our view is that the maximum is

hree.  And there's probably markets at the right

umber of two.  Combined with the other

articipants in the market who are -- I understand

hey were covered at earlier session today so I

on't belabor the obvious, but you have already got

 handful of competitors going into this

arketplace day one.

         MR. ROBERTS:  I guess we disagree with

hat.  We think there is an opportunity here for a

ot more than three.  You already have two which

re two incumbents cellular service providers.  And

et me at this point interject something.

         MS. PERETSMAN:  I'm sorry.  But are you

aying -- I said there are already a handful of two

o three additional ones.

         MR. ROBERTS:  Oh, you are saying two to

hree additional ones.  Okay.  Yes.  Under the

urrent license structure of a 120 megahertz then



























                                               280



e think what you are going to end up with is

robably three -- two to three additional

ompetitors, okay, just given the fact that you

ave allocated 120 megahertz.

         At this point let me also redefine the

arket a little bit.  Apparently there is a

istaken notion that we have the view -- or at

east that I have the view that PCS is nothing more

han additional cellular service.  I couldn't

isagree with that more.  I think the opportunity

ere for personal communications services is for an

normous number of new wireless voice, video, and

ata services probably not developed in that

rder.  Cellular is PCS, but PCS is not cellular.

         The only reason that we emphasize the

pectrum blocks is because we don't see any reason

hy the incumbent cellular service providers will

ot and in fact they are planning to aggressively

ntroduce the same sorts of services and price

oints that new PCS entrants would attempt to

ffer.

         And we believe that given the nature of



























                                               281



his industry and the high fixed cost structures

hat they will attempt to preempt PCS.  So that is

hy we -- that is the main reason we have

mphasized the size of the spectrum blocks, not

hat we think that PCS is to be, you know, just

ore cellular.

         MR. BARRETT:  Anybody else want to

omment on that?

         MR. RISSMAN:  Sure.  For a minute.  You

an run through a little exercise in your head.

ake the number of subscribers you think there will

e at some end point, say 10 years from now.  Give

he two cellular incumbents half that numbers

ecause they have such a big head start.

         Let's say you want two extra licenses,

hrow Nextel (phonetic) in there.  That's three for

he remainder.  Divide it up by 51 for 51 MTAs, see

ow many customers you need for each one.  You

now, anything below, say, 150 to 200,000 customers

n an MTA is probably not all that viable.

         But of course the big ones will be

arkedly different from the more sparsely populated



























                                               282



nes.

         MR. GIPS:  There is a question from the

udience that related to some of the discussion

his morning.

         The ESMRs and MCI and Nextel (phonetic)

ou just mentioned as an example have been able to

ttract significant financing with 15 megahertz

ssentially of spectrum.

         Why have they been able to and why the

kepticism about PCS with less.

         MS. PERETSMAN:  I understood that remark

his morning.  And I would like to point out in the

hronology if you look at Nextel's (phonetic)

istory, the amount of capital just as an example

hat Nextel (phonetic) is able to attract was

eally deminimous until they attracted some

trategic investors.

         So if you are talking about arm's length,

ndependent institutions such as Alliance making a

ecision to put capital, it was a fraction of what

he market capitalization is today.

         In fact you can tract where the capital



























                                               283



tarted to explode.  Nextel (phonetic) went public

t 15.  It's now down to nine.  The point being

hat when it was out there on its own it didn't

ave a lot of support.  Comcash (phonetic) shows up

nd makes an investment and one of the great little

xioms that we referred to before is you know you

ollow the money or there is another way of saying

t which is people look for comfort from other big

nstitutions.

         So it wasn't until those big smart

orporate investors, quote, unquote, started

howing up that the independent equity capital

tarted traveling along.  We can go through that

tory time after time for virtually every one of

hese companies.

         MR. HOUSTON:  I think in addition to that

omment I think the apparent footprint that Nextel

phonetic) has, if you translate that into

eographical scope, getting back to what is on the

genda, you'll probably get a feel as to why.  So I

hink there is a direction correlation between

hose two.



























                                               284



         MR. OXENDINE:  It almost seems as if the

ther side of the room is like the soldiers of

ortune.  And it is real interesting to me.  It

mplies that some people haven't read the budget

ct very well which I thought legislated some of

hese things and suggested that A there be

ignificant entities and there could be some

recedence set.

         But if -- that hasn't been the case where

hat people don't understand that.  I think the

nly way we are going to ever motivate people like

hat to do anything is for you as regulators to do

omething.  Because they will not do a thing unless

hey are motivated.

         I mean, this is very apparent right

ere.  You tell me where to put my money, and

hat's where I will put it.  Otherwise I'm going to

ee what I can make and leave.  It is a sad

ommentary but that is just the way the money

arkets work.

         And so it is incumbent upon the

egulators to do something because the financiers



























                                               285



on't do a damn thing.  And I know that from having

een a financier for a lot of years.

         MR. HOUSTON:  I think I want to make a

omment in going back to what Herb said earlier

hat after having the license and going out and

etting the equity to actually pursue a viable

usiness.

         And now commenting on the most recent

omment in terms of what the -- I think the comment

hat I made earlier about that prequalification for

he licensing, if someone brings to you prior to

articipating in the business -- in the bidding

rocess, a whole plan that shows the capitalization

otential for their business undertaking and you

et -- that will do more I think for the designated

ntities than anything else.

         Because what happens is in order to be

ble to put together the capital structure that

hey will bring to you they, will have to have gone

o the marketplace with a core set of competencies

hat they have put together and convinced others,

omeone else, that they have a good business



























                                               286



roposition.

         And included in that will be the

echnical competencies that will be required to

ake it successful, the managerial competence and

ll that sort of -- and by having that as a

rerequisite requirement could be doing a lot of

ood for new entrants not just the designated

ntities but any new entrant that doesn't have the

enefit of the deep pocket as has been referred to.

         MR. PEPPER:  Can I ask Mr. Houston a

lightly different question?  In your opening

tatement you said that you viewed -- you thought

hat the financing strictly would come through

quity and not through debt.

         And yet in the cellular business a lot of

he manufacturers provided debt financing through

roviding equipment.  I was just curious given your

xperience on the cellular side why this is

ifferent.

         MR. HOUSTON:  And when I referred to debt

 was talking about debt in the traditional capital

arket environment.  If you -- and unfortunately a



























                                               287



ot of the manufacturers, equipment manufacturers,

hould have provided -- used equity instead when

hey supplied the equipment.  Should have

lassified it as equity instead of debt.

         I think they would be a lot better off as

 result.  So it is question as to whether or

ot -- what the classification of the capital

hat -- how they classify what they provide to the

ndustry.

         And I think the PCS market will attract

ts fair share of supplier credit.  However I want

o caution one thing that the market is different

han the perceived risk looking forward than what

ou had in the cellular industry.  It's going to be

ifferent.

         I think it goes back to Nancy's point in

erms of the final -- what really is the market

ecause at one point 10, 12 years ago when AT&T

rovided supplier credit for over $200 million to

cCaw (phonetic) there wasn't a cellular industry.

oday -- a wireless industry.

         So now I think when you look forward you



























                                               288



re putting the things in a different prospective.

nd I think the reaction and the perception is

oing to be different.

         UNIDENTIFIED SPEAKER:  Excuse me.  Are

ou suggesting that the equipment manufactures will

ot be as quick to jump into this market?

         MR. OXENDINE:  Or will they take equity

nstead of notes.

         MR. HOUSTON:  I think it's open to

ebate.  I'm not sure because I think the

arketplace is different than it was ten years

go.  But I don't think it should be precluded.

         I think it is open for debate.

         MR. PEPPER:  If we could have maybe Paul,

ancy or Mark respond to John's question, what

ould be done from our prospective to make

nvestments more attractive in the designated

ntities small business, firms owned by women and

inorities?

         Mark talked about -- actually it sounded

ike fairly aggressively pursuing those kinds of

oint ventures.  And I guess what else can we do to



























                                               289



ake those investments more attractive.

         MR. RISSMAN:  One thing you can do is to

eep the cost of entry as low as possible.

         MR. PEPPER:  And how do we do that.

         MR. RISSMAN:  You could give them the

pectrum for free.  I'm not kidding.

         MR. PEPPER:  What about in terms of the

ost of entry on the spectrum side?  Others have

ome in and said that the cost of spectrum even at

arket price is only a fraction of the cost of

uilding out the infrastructure.

         What would you think should be done in

erms of ever geographic or spectrum block size?

         MR. RISSMAN:  Well, any -- you know

omebody can think of a niche application like

ixed wireless for example.  And if it is a smart

dea and in they have a good business plan, and if

he managers are well-experienced, that is

inanceable.

         We are not talking about the huge amounts

f financing that somebody with a MTA of 30

egahertz MTA is going to require or want.



























                                               290



         But for example, the narrow band PCS guys

ill probably get a lot of licensing because they

ill be able to -- a lot of financing because they

ill be able to think of good niche applications.

         Any small business that thinks of a good

iche application will have Will have access to a

imited amount of financing on a small scale.

         MR. PEPPER:  Have you heard of any good

iche applications in broad band PCS versus narrow

and PCS?  I guess Mr. Wilkins suggested up to 1500

icenses which would make it very local and

elatively small blocks of spectrum.

         That to me sounds like it is right for

iche services.  Other people told us there is no

uch thing as a niche service in PCS because if you

ave 30 megahertz or if your cellular was with 25

lus maybe some more spectrum you can provide not

nly the highly mobile service but also the niche

ervice.  So There is no such thing as niche in

his area.  Is that --

         MR. RISSMAN:  I tend to agree with Mark

nd that point of view that in the end everyone



























                                               291



ill be able to provide all services and that

herefore the niche will go away.

         But if somebody can think of a good niche

 would be dying to hear about it.

         MR. PEPPER:  Mr. Wilkins, you might want

o respond to that since your opening statement

eemed to indicate that niche services were really

ort of critical to developing opportunities for

mall businesses.

         MR. WILKINS:  I think they are.  And I

hink that the large companies -- they will them

robably ultimately get there but I think there is

lways the head start possibility for somebody who

omes up with the unique idea.

         And I think that the smaller licensing

reas offers an opportunity to want to service in

n area on a trial basis at least where the risk is

omewhat mitigated by the smaller size and the

rea.

         The larger the license you have to pay

or the less likely it is that the entrepreneur

ill take risks and the people providing the



























                                               292



inancing will allow the entrepreneur to take risks

ith their license.

         What most people will want if they put up

oney is to have the entrepreneur rush to some

evel of cash flow development in his business.

nd they won't really look at the licensing, or the

ntellectual business licensing opportunity to go

ut and define service.

         I don't think anyone will bid on a

pectrum unless they have some idea of what they

ntend to do with it.  But there will be new

ervices that are never tried before and to have

o -- to role that out over a full MTA for instance

ight be impossible.

         A new service over an MTA I think would

e very tough for anybody to finance.

         MR. PEPPER:  What about the amount of

pectrum?  Some people said that actually the more

pectrum you get the lower the costs of entry

ecause of the incumbent microwave problem as

pposed to the geographic scope.

         MR. WILKINS:  I think that is true, but I



























                                               293



hink that anybody who bids on a 30 megahertz block

eally isn't worried about the cost associated with

emoving microwave services.

         On the other side, the smaller guy is.

nd maybe by making the licensing smaller you might

llow somebody to go around the microwave problem.

aybe you can break up an area and smaller areas

ould have fewer microwave problems.  I don't

now.  Someone would have to have an engineer take

 look at that.

         But I would think that you would have

pportunities to have fewer problems in certain

locks of spectrum if the license areas were

maller.

         And hence I think you would get those

ervice developed, the new services developed in 10

egahertz blocks.

         MR. PEPPER:  Mark, you have been talking

o entrepreneurs with I assume a range of

ervices.  Does that sound like a winner or a

on-starter?  I mean, which -- or something in

etween and why.



























                                               294



         MR. ROBERTS:  We are sort of operating

rom the premiss that ultimately these networks are

oing to converge both wired and wireless

etworks.  And network investments have tended to

all into commodity returns.  So operating a

etwork be it wired or wireless ought to be a

ommodity business.  And there is a whole set of

easons why you can say that cellular has not been

hat.

         For an entrepreneur or a small designated

ntity, they have a difficult time developing a

usiness plan where they can compete against the

ntrenched service providers in a commodity

usiness.

         So first of all, raising money for them

o bid for spectrum will probably be difficult.

ut once they have the spectrum, particularly if

ou were to encourage by the regulations designated

ntities to partner with one of the large commodity

etwork providers and force them to take equity and

etain those licenses or -- you know for a

ignificant period of time you offer the



























                                               295



pportunity for the designated entity to work with

his big joint venture partner which you have heard

entioned by both Paul, and Nancy, and I earlier in

ther context.

         The reason we mentioned that is because

f this sort of commodity return concept that the

ig players are better at doing that.  So that is

ne way of doing it.

         Beyond that we think there is a

articular opportunity for small businesses and

esignated entities to offer a variety of

ertically integrated value added PCS services and

echnologies without necessarily having to have

hem be PCS licensees.

         MR. PEPPER:  Mr. Oxendine, how does that

trike you.

         MR. OXENDINE:  I think that -- I mean, we

ave all talked about generic truths.  You asked

bout geographic scope of license.  I think it is

eal clear that the bigger the service area the

ore it costs to get involved and less likely small

layers can survive.



























                                               296



         That is a basic truth.  And as it stands

ight now the way we are set up, the two and the

ive, I think the only way that the small

layers -- and I agree with you here that the small

layers will be able to get into niche marketing

or example doing some mobile -- extended mobile

hone service and they can develop an expertise in

hat hopefully.  And some strategic alliances that

ou kind of suggested.

         I mean, if I were moving forward as we

re presently set up, I think it is disastrous to

o for the 30s if you were me.  And it makes a lot

f sense to go for the small ones, the 20s and

0s.  But I would only finance them if there was a

pecific niche that you had and a strategic

lliance.  Short of that I wouldn't do it.

         MR. PEPPER:  You earlier in your opening

tatements talked about attribution questions of

ow we define small business, minority, female

articipation.

         MR. OXENDINE:  I would have -- it is not

y world unfortunately.  I would have had three 20s



























                                               297



hich would have caused some attribution in terms

f getting to 40 or 30.  It would have caused some

trategic alliances.  It would have caused some

oint ventures.

         But in the imperfect world that we live

n and we'll probably have the 30s.  And it makes a

ot of sense for a lot of reasons.  But at the same

ime think we need to accommodate the 20s and the

0s.

         And the way again I said we would have to

ook at it is to look at some niche marketing that

erb talked about and we got some specifics for,

nd a look at some strategic alliances that are

lmost forced in a way.

         And the idea about giving away free --

othing is free, but if there some designated

ntities, not to talk about minorities or racial

olks, but if there were some designated entities

ho had free because we only had to put up 85

rand, we could raise a hundred thousand dollars

nstead of $3.2 million.

         And I think that could motivate some of



























                                               298



our people to come and play with us.  So that

akes some sense.  I think there are some ideas if

e sit down here and put our head together if could

e a win-win circumstance.

         I think the amount of spectrum is

ufficient.  I think if we figure out how we can

ut together these alliances and joint ventures and

ake some sense.  But we have not done that yet.

e have not had that as a goal.  And I think that

erhaps you need to mandate it as a goal and we

ill come up with some answers other than just

eing anecdotal about it.

         MR. HOUSTON:  Just a quick comment.  That

s, I think one of the things you could do for the

esignated entities more than anything else is to

t this moment to not preclude any particular

usiness option that they could be dealing with

oo.

         Any type of alliance or strategic

usiness arrangement that they can forge should be

ntertained in future discussions because I think

he market is so new that you really can't start



























                                               299



utting parameters about one should be able to do

r should not be able to do.

         I think that is one of the things I think

hat you should be -- leave open, that would be

ery helpful.  And the other comment is that this

s not an AT&T network systems.  But I don't know

here the money that the FCC is going to collect

rom the license and how it will be used.

         And maybe one of the things you want to

onsider is how you participate in accomplishing

he social objective because I really think it is a

ocial policy objective on the designated entities

nd how you accomplish that objective by usage of

ome of the license fees collected.

         MR. PEPPER:  Actually Congress has

etermined where the money is going to go, and they

ave already spent it.  Somebody earlier started

alking about the deficit, and I think it is going

o in part to retire that.

         MR. RISSMAN:  Just one thing quickly

bout strategic partnerships.  I think it is a

reat idea in principal but I can just see somebody



























                                               300



ith a 10 megahertz BTA approaching MCI who wants

0 megahertz BTA so they can provide fixed wireless

nd saying want to be my partner.  And MCI starts

o salivate and says yes we will be your partner,

nd that is the last you ever see of the guy.

         A designated entity that does not have

he network expertise is going to have to give up

ontrol of the network, who does not have the

arketing expertise is going to have to give up

ontrol over the market.

         Somebody with one good idea will easily

e swallowed up and absorbed by a larger partner.

hat would in essence defeat the whole point of

iving a set aside in the first place.  You've got

o be very careful to watch out for that.

         MR. OXENDINE:  See, I totally agree with

ou, but I think that the FCC has looked at the

wnership interest and not looked at the control

ircumstance as might be the case with us

roadcasters.

         If we looked at the ownership -- and I

on't care if you have 90 percent of it.  If I can



























                                               301



ontrol it, that's fine.  And we have the play.

nd you wouldn't swallow me up in an instance.  I

ean, we are all intelligent enough to know about

imited partnerships and how they work and how --

he fact that you can have a general partner

orporation where I can have a, you know,

ontrolling interest of that general partner and

aise an awful lot of money.  And Herb does it

very day.

         So I would suggest just policy wise that

he FCC take a look at ownership, control,

recedence being broadcasters and perhaps implement

t here because it could be very helpful in the

ircumstance that you are talking about.

         MR. WILKINS:  I really don't think that

he partner in the joint venture relationships will

ork.  It was true when cable first rolled out and

hen telephone companies offered to bill cable

ystems.  And there were probably maybe two or

hree cable operators in the country even though

hey were desperately in need of money who took the

elephone companies' offers to build on a lease



























                                               302



ases their backbone.

         And I think that most of the cable

perators realized to the extent that they became

artners with the cable companies -- with the

elephone companies back then they would have lost

heir independence.  And cable would not be like it

s today had they entered into those lease

rrangements.

         MR. OXENDINE:  See, Herb, we are not in

isagreement, but do you understand what I'm

alking about?  The Commission's equity

equirements right now preclude -- are you not in

avor of them opening them up so that we as

inorities will.

         MR. WILKINS:  I am in favor of them

pening the ownership process up.  But I also think

f the process itself, the need to have a partner

o go into the auction really defines who will

ltimately own and control the license down the

oad the.

         The designated entity may own it today,

ut down the road the designated entity will not



























                                               303



wn that license if the obligation is to have a big

eep pocket at the start of the race.

         MR. OXENDINE:  See, Herb, I would like to

ave that problem.  I don't want you to solve that

roblem for me.  I'd appreciate -- I think we make

 mistake among ourselves.

         I don't want to walk away from here and

ay the reason why I couldn't be -- I don't have a

inority preference is because Herb Wilkins who is

ery well respected thinks that down the road I'm

oing to be taken advantage of.  I'll take care of

yself down the road, but just give me the

pportunity to play now.  And that is what we are

alking about now.

         MR. WILKINS:  When I made my first remark

 said that I thought that the Commission should

ake an equity stake -- or the government should

ake an equity stake in the designated entity

icense -- company.  And that would solve the

roblem.

         MR. OXENDINE:  They are not going to do

hat, but they can give --



























                                               304



         MR. WILKINS:  I think if they can figure

ut how to monetize that equity stake that they

ill do that.  I think that they can monetize that

quity stake.

         I think that the folks on the street

ould find that a rather unique opportunity to make

 buck, and they will do it on that basis.

         MR. PEPPER:  This has actually been

ascinating, but if I could just shift for a second

o actually ask Paul a question because in an

arlier round he had said something I found quite

ntriguing, that is what do you see as the key

unctional characteristics of PCS in order for it

o work, to compete, to attract capital, to make

oney at the end of the day?

         And I think I heard you saying something

 little bit different earlier than what you said

everal months ago, but I'm not sure.

         MR. RISSMAN:  Well, aside from a niche

pplication which I think many of us agree probably

s only a short term -- only has short term

iability, what we are seeing now in both the



























                                               305



ellular industry and in the wire line industry is

 convergence, Pacific Bell is dying to get PCS

pectrum because it doesn't have any wireless

pectrum at the moment so that it can integrate --

ssentially what it is trying to do is protect

tself from competition because the cable guys,

nce they get their hands on PCS spectrum will try

o use PCS as a way of implementing fixed wireless

ver their cable plant.

         Once you have fixed wireless, the telcos

ho see this as a major threat will also come up

ith a fixed wireless.  And they will say, well,

ook, our competitor is offering you fixed

ireless.  We will offer you fixed wireless and

ore.  We will offer you fixed wireless and

ireless in your car.  And you can do it with one

andset and we will give you bill and we will give

ou one price and you will find that a more

ttractive proposition than just using -- having a

ixed wireless service and then having to go to

our cellular carrier for vehicular service.  You

arry two phones around, get two bills, et cetera,



























                                               306



t cetera, et cetera, and not have it all be

eamless.

         So I think the competitive dynamics of

hat is going on are driving everybody to the same

onclusion.  And that conclusion is if we don't

ffer the same services that our competitor offers

e will lose.

         That the ultimate conclusion of that

ynamic is that everybody offers all services.

         UNIDENTIFIED SPEAKER:  What is the suite

f services that you see as critical.

         MR. RISSMAN:  Essentially it will be the

ind of things that the one number -- one person,

ne number providers are trying to implement now

ith their advanced intelligence networks, where

ou will be able to be reached anywhere.  You will

e able to use the same handset no matter what

peed you are traveling at with one phone number.

hat is the personal -- you know, the personal

ommunication vision as it was originally set up.

         MR. PEPPER:  So I have to able to use it

n the home with no additional charges?  This



























                                               307



orning we had somebody from GE talking about --

         MR. RISSMAN:  No, no, no.

         MR. PEPPER:  Actually it is somebody

lse.  It was somebody from the Yankee group

alking about different pricing bands, where if you

se it in your home or on your premises there is no

ir time charge.

         As us move away from your home, the

urther away you get the higher the air time

harge.  If you use it in your car at high velocity

hat is the peak charge but you are able to use the

ame device and you may not have any airtime

harges for it.

         On the other hand, depending upon how you

se it there is -- there rather will be air time

harges.  Is that the kind of services that you see

volving?

         MR. RISSMAN:  I think people will be able

o charge a premium because instead of having to

se two phones you only have to use one phone.  And

ith all of the intended efficiencies in that.

         So nobody is going to pay .50 a minute to



























                                               308



se the phone in their house, but if paying .10 a

inute to make a toll call, an inter lateral toll

all, and I can use my wireless phone and pay .12 a

inute, and I cannot have to use my land line phone

nymore, I would consider that as long as I could

se the phone in all contexts.

         Now, some people want a phone in their

ouse just because they like to have a phone number

t their place.  A lot of other people wouldn't

ind that to be particularly satisfying.

         MR. PEPPER:  I guess the question for you

hen is if somebody develops a service that falls

hort of doing what you just described, will money

e available from the investment community for that

orm of service.

         MR. RISSMAN:  I think what we are all

aying is not as much money.

         MS. PERETSMAN:  Not as much money because

t will rely on the perception that there is a

ranchise value that is that spectrum isn't being

ptimized and it could be sold or transferred to

omebody else who could use it in a package and



























                                               309



ptimize it.  So the financing will come off the --

f you will the view of the end game rather than

he business in and of itself.

         MR. PEPPER:  So the need to provide a

ull spectrum of services is crucial up front in

rder to attract the up front financing?

         MS. PERETSMAN:  No.  I don't think you

re saying that?

         MR. RISSMAN:  No, I'm not saying that

ither.  You don't have to -- but to attract the

ost financing, yes.  And also if you can offer an

pgrade path that is a strategically clear one you

ill be able to get financing if -- nobody is going

o put $2 billion dollar worth of capital equipment

n their MTA tomorrow.  Everybody has an upgrade

ath.

         So as long as you can strategically

rticulate it and as long as you have a plan to

ventually provide -- be a full-service provider.

         MR. PEPPER:  What is your estimates of

he cost of being a full-service provider on a

articular block?  Let's take any 30 megahertz



























                                               310



lock across the country.  What is it going to

ost.

         MR. RISSMAN:  I have no particular

xpertise.  I would refer to David Ried (phonetic)

n that.  You know, $700 a subscriber, whatever.

         MR. PEPPER:  Can you talk maybe a little

it about the current cost structure of cellular in

erms of what it costs to get a new subscriber and

here those costs are and what that means for --

ou heard a lot this morning and the panel right

efore yours about whether or not cellular can lock

ustomers in or not.  What is your take on that?

         MR. RISSMAN:  Well, the incremental

apital expenditures between, say, five to seven

undred dollars for a subscriber.

         MR. PEPPER:  But that's in network or is

hat --

         MR. RISSMAN:  Yes.  That is in towers,

adios, whatever, new cell sites.

         Then there is a marketing charge that is

round $350, $400, $450 per new subscriber.  And

hat goes up to $800 per gross subscriber because



























                                               311



0 percent of your subscribers leave the system

very year.

         So all in -- and that does not include

our per minute charge.  But we are talking, you

now, a good thousand, 11 hundred 12 hundred

ollars per subscriber just to get the guy on your

ystem.

         MR. PEPPER:  Is much of the cost

ssociated with the subsidy on the equipment?

         MR. RISSMAN:  Equipment subsidies --

         MR. PEPPER:  The subscriber equipment I'm

alking about.

         MR. RISSMAN:  Yes, there is usually a

ouple of hundred dollars of equipment subsidy in

hat $350 to $400 figure.

         MR. PEPPER:  Mark, Nancy do you agree or

isagree?

         MS. PERETSMAN:  We are in the same

agnitude.

         MR. PEPPER:  You were here this morning

r earlier when there was a disagreement over how

ifficult it would be to take an incumbent cellular



























                                               312



ubscriber away from cellular and migrate them to a

ew PCS service.  What is your take on that?

         MS. PERETSMAN:  I'm sorry.  I wasn't here

his morning.

         MR. PEPPER:  Actually, it was this

fternoon.  It was the panel immediately before

his one.

         Mark, I think you were here.

         MR. ROBERTS:  I think mainly it is going

o be function of service and price.  If you are

ffering an equivalent service where you have the

apability of doing high speed hand off, similar to

 cellular service provider.  And I would not think

t would be necessary to offer nationwide or, you

now, roaming in the sense that cellular says they

ffer it on a nationwide basis.

         But if could you offer roaming in an

conomically viable region, you know,

altimore/Washington or the LA basin, something

ike that, about the size of an MTA, for example, I

hink that it would be fairly easy to take a

ellular customer away based upon price.



























                                               313



         The general consensus of most of the

arket trials of PCS that have been done are that

bout 80 to 90 percent of the consumers really want

ull-cellular mobility.  And they are not satisfied

ith much less than that.

         But what you find is they are not

atisfied paying more than $40 a month for it

ersus the $80 a month they are currently spending

or about 1/10 as much as how they -- or about half

s much use as what they would like what they would

ike.

         MR. PEPPER:  In terms of what you

nderstand about the existing cellular cost

tructures and operation what is the ability for

ellular operators to lower their prices to get it

own to the $40 a month target.

         MR. ROBERTS:  If you look at first of

ust the tangible returns on investment over the

ast decade you will find that the average return

or a wire line telecom company is about 12 to 13

ercent.

         The average return on tangible capital



























                                               314



or a cellular company has been 30 to 40 percent

hich I think accounts partially for their ability

o raise the financing that they have.

         Also, I think it accounts for the

ttractiveness of this industry as SMR players and

thers have come into it.  Their ability to offer

CS services on new spectrum I think would be

robably about half the infrastructure costs they

re spending now because to a large extent I think

 number of the efficient operators would try to

tilize the same tower sites.

         And tower site acquisition is the largest

ixed cost of a cellular network.  If on the other

and you're a wire line company or cable telephone

ompany or particularly a local exchange carrier

hat for some reason does not have a cellular

verlap in that area you could probably deploy a

CS network for about half again that much, maybe

250 to $300 a subscriber.  Now, that would be just

he infrastructure costs not counting marketing.

         Then further the digital technologies

hat they are talking about I think you heard from



























                                               315



erry Waylin (phonetic) earlier this morning.  GTE

as talked publicly about using a digital

echnology called CDMA where they would be able to

ave the capacity in suburban areas where the hand

ff speeds are slow and they already have a large

mount of over capacity because they built their

etwork to try to handle peak loads during rush

our and in business commuter corridors that they

ould be able to offer in a suburban area what

mounts to free calling.  It's about a thousand

inutes of use per month for a flat rate of $40.

         Now, that price begins to go up as you

ove out onto the roadway or into what they call a

remium corridor.

         MR. PEPPER:  So essentially what you are

escribing is it begins to look an awful lot like

he PCS service you described.

         MR. ROBERTS:  Yes.

         MR. PEPPER:  Or I guess Paul described.

         MR. ROBERTS:  Exactly.

         MR. RISSMAN:  If I could just add on to

hat.  Vanguard (phonetic) Cellular in a recent



























                                               316



resentation forecast that their cost would be down

o about .08 a minute after they have fully

mplemented their digital technology, and that they

ould be planning on charging .20 a minute, so half

f what they are charging now.

         MR. PEPPER:  One of the questions that is

eally important and one of the reasons that we ask

his group to get together is your assessment of

ou know how much capital will be available with

hat difficulty or ease for potential licensees.

         Paul started off by talking about -- I

hink you used the phrase hostile environment that

CS would be moving into.

         Notwithstanding that, it sounds to me

ike you are saying that capital will be

vailable.

         MR. RISSMAN:  It really depends on A, who

he operator is, B, how much spectrum they have

ot, and C, whether they have a good business

lan.  And those things are so variable.

         MR. PEPPER:  And two of those three don't

eside here at the Commission.  How much spectrum



























                                               317



ight reside here not definitely.  Because who the

anagement is and what the business plan is, we

an't do anything about that.

         MR. RISSMAN:  Right.

         MR. PEPPER:  What are the things that we

an that will make it more likely that somebody who

as a good business plan and has a good management

eam that will have capital available.

         MR. RISSMAN:  One of the things that

nfortunately hasn't been done earlier is the

uctions, the combinatorial nature of them.  Am I

llowed to comment on this?

         MR. GIPS:  Yes.  Tell us about

ombinatorial auctions.

         MR. RISSMAN:  All right.  Okay.  You

now, the combinatorial nature of the auctions made

ome companies think that they were going to need a

uper computer to decide how to some condition need

ssume computer to decide how to bid.

         And MCI voted with its feet.  They went

ff and bought Nextel (phonetic).  AT&T may have

een it coming because they went off and bought



























                                               318



cCaw (phonetic) California.

         The long distance companies benefit from

aving a large scope quasi nationwide PCS license

ore than anybody.  And MCI wanted PCS publicly at

east more than anybody.

         And in a since the awkward nature of the

uctions drove them away.  The simpler the awards

re, the easier it will be for a company -- these

ompanies are not -- these companies are risk

verse, and they are impatient.  And they don't

ant to do stuff that requires that much effort.

         So that if you make it too difficult for

hem to think of ways to get the spectrum that they

eel they want, they just won't wait around.

         Now, fortunately for you maybe, Nextel

phonetic) is not there anymore.  But I still think

n a subsidiary level that the more holders there

re of licenses, the harder it will be to get the

icense holders together.

         People will simply get sensory overload

nd they will be negotiating with everybody and

hey won't know who is firm and who is not.



























                                               319



etters of intent will signed.  Letters of intent

ill be busted.  And it will adds meaningfully to

he amount of time that people get these things

ogether.

         And as we have been saying, since your --

ince the cellular carriers are trying to preempt

our business and they are moving very quickly,

ime to market is really very important.

         MR. PEPPER:  So -- I know you couldn't be

ere earlier.  One of the presenters earlier said

ggregation was no problem.  And that the market

ill correct for any defects that we have in our

llocation plan.  And if it turns out that the

eographic areas are too small, no problem, there

ill be aggregation.  If the blocks of spectrum are

oo small, don't worry, there can be aggregation.

         But what you are saying is that there are

ransaction costs and time delays with that?

         MR. RISSMAN:  Yes, I'm saying yes in 10

ears that will all be taken care of.

         MR. PEPPER:  What about between now and

0 years.  What is your estimate?  Have the three



























                                               320



f you maybe looked at what the impact of relying

n aggregation could do in terms of delaying,

etting to the point where there would be

ufficient either spectrum blocks or geographic

icenses.

         MR. RISSMAN:  No, but MCI isn't there any

ore.  I rest my case.

         MR. PEPPER:  Mark or Nancy?

         MR. RISSMAN:  Go ahead.

         MS. PERETSMAN:  We don't have any

articular opinion in terms of time frame, but let

s presume it is more than a year or two.  Take the

bsurd case of 10 years sort of out of the picture,

 think the point that is in front of us all is

egardless of how long it is, on the theory the

ime is of some essence here in terms of relative

ompetitive positions, that you are really trading

ff a time frame for that aggregation against the

imeliness of trying to get the future prospects of

he business funded earlier rather than later.  So

t is a tough tension.

         MR. PEPPER:  What would you do if you



























                                               321



ant to avoid the aggregation delay?  What should

e do to reduce that delay in terms of -- again,

his is -- you know, in the context you are here

oday, talking about reconsideration of our PCS

llocation.  What would your recommendation be in

erms of reducing the delay on aggregation on

ither geography or spectrum?

         The implication is what we did is

nsufficient because --

         MS. PERETSMAN:  No, no, no.  Right.  Yes,

 understand the question.  I think that there are

he two aspects to that question and I'm going to

eserve the right to come back at you on this one

ecause it is an interesting question.

         The first is that -- the question is

irst how much of the seepage are you willing to

olerate because you just don't have -- there is a

inancing question in terms of the time delay.

here is also economic seepage with both those

ransaction cost.

         And one would think that to the extent

hat one of your tasks here is to try to minimize



























                                               322



ubsequent seepage as these aggregations take

lace, that maybe we are all better off trying to

irst out of the box optimize the sizing question.

         And so my recommendation would be simply

pend a lot more time thinking about the sizing

uestion rather than setting up a process that

ould expedite aggregation but allow for some

eepage and all kinds of the cumbersome parts of

ransfers.

         MR. PEPPER:  By sizing you mean geography

r spectrum or both.

         MS. PERETSMAN:  Actually I was thinking

ore about geography.

         MR. ROBERTS:  First of all I would point

ut that the gentleman that thought that the market

ould take care of all the aggregation problems

lso said that he thought the stock market

valuations were always correct.  So it is

nfortunate he didn't leave the three of us his

hone number.

         I think the best thing that you could do

o alleviate the risk -- and to the extent you



























                                               323



lleviate the risk you increase the amount that

otential licensees are willing to bid for the

icenses -- would be to hold to a 30 megahertz

lock, at least 30 megahertz of contiguous spectrum

ecause as you have heard today that will allay the

ears of those who see PCS as a, you know, very

hreatened service from the cellular service

roviders.

         Secondly, I take the view that the MTA

icense size is a reasonable license size.  It

rovides coverage in a rational economic area.  I

hink in -- so having the MTA as a minimum number

icense size would probably be the best thing

ecause there you do away with two things.

         You do away with the need to do extensive

mounts of aggregation of spectrum blocks.  You do

way with the need to do a lot of aggregation

cross geography.  And then the third issue is

lmost self-satisfying given the first two, which

s you need to shorten the time to market as to the

hortest possible time frame both in terms of

icensees' perceptions of how long it is going to



























                                               324



ake them after winning a license that they are

oing to be able to introduce service, A, and B,

he time frame in which you award the licenses.

         I see it as a fairly simple function.

he longer the delay before PCS is in the market

he lower the future expected investment return,

nd higher the cost of capital is going to be.

         MR. PEPPER:  You would agree with Nancy

hat aggregation -- and agree with Paul that

ggregation adds delay?

         MR. ROBERTS:  Aggregation adds

ignificantly to delay.  It also raises the risk

rofile and the cost of -- I mean there are very

igh transaction costs.

         MR. HALLER:  Without regard to how we

ight do it are you saying that we should make

very license 30 megahertz and MTA?  Have no other

ptions?  That is what they would all be?

         MR. ROBERTS:  To the extent that we think

hat 30 megahertz is the minimal viable license

ize and that an MTA is sort of the minimum viable

eographic size, if you are going to bid --



























                                               325



articularly if you are going to try to raise money

o bid for the spectrum I guess that would be the

deal circumstance.

         MR. PEPPER:  I guess the question that

aybe Ralph is asking -- from where I'm sitting I

ee the whole group.  And I see Mr. Wilkins here

ort of gasping for breath and especially as what

e was talking about earlier really a very

ifferent kind of service I think.

         I mean you are talking about something

hich is going to be the full-service highly mobile

ompete with cellular.  And I think Mr. Wilkins is

alking about something that is, I think,

ifferent -- please correct me -- where you are

ooking at smaller blocks, lots of licenses, much

ore localized and much more of a niche service.

         And I guess the question is the extent to

hich -- can both visions coexist within what we

re calling broad band PCS.

         MR. ROBERTS:  I guess I'll just finish

ut since you started asking me what the ideal

orld would be.



























                                               326



         I think they could coexist.  Now this is

 little far afield for me because I'm not a --

his is legal and all of this.  But if you were to

andate resale for example so that if a 30

egahertz licensee has just won the license, and he

s starting to build out, if he was obligated to

esell to service providers -- and even

articularly if he was obligated to sell to

esignated entity service providers a certain

ercentage of his spectrum for some period of time

r under some tariff agreement then I think you

ould see a proliferation of all sorts of niche

ervices and technologies to fulfil those service

eeds.

         But that's -- like I said, that is very

ar afield from my area of expertise.

         MR. PEPPER:  I can see Mr. Oxendine sort

f staring at me from the other side because of his

oncern earlier about that doesn't really end up

roviding equity and control.

         These are extremely tough questions as we

ry to balance them.



























                                               327



         MR. OXENDINE:  Dr. Pepper, I don't have a

roblem with what he said.  I could support the 30s

nd the 50s, whatever you want.  I think there are

wo things we need.

         If you are going to deal with designated

ntities they need to have wireless communications

xpertise.  And secondly we need cooperative

usiness arrangements.  Those are two things that

re critical whatever size you use.

         And I would argue that what you could do

ou could effect in the joint venture area if you

ad a waiver with regard to cellular participation

ou could do something.

         And with regard to ownership if you had a

aiver and entertained control you could

omething.  Those are two things.  We could be in

he same boat.

         MR. GIPS:  I have one more quick question

nd then we will wrap it up.  In the order we have

stablished build out requirements both to make

ure the spectrum isn't warehoused and also make

ure that access is provided to the largest number



























                                               328



f people possible.

         I am curious to get your perspectives.

r. Houston raised it at the beginning.  What are

he proper build out requirements.

         MR. HOUSTON:  As you said I referred to

t before and I think I'll restate it and probably

ort of add to it a little bit that the build out

equirements should be linked to market demand.  I

hink there should be a real linkage between

here.

         And what that says then that you might

ot be able to establish what I call a general

uild out requirement.  I think depending upon

ifferent markets you may have different build out

equirements.

         And because I think at the end of the day

he shorter one can demonstrate that they have a

iable -- the shorter the period that one can

emonstrate they have a viable business

ropositions they more likely they are to attract

apital.  And I think the aggregation is somewhat

inked indirectly to the lack of being able to



























                                               329



emonstrate the -- having a viable business

roposition.

         MR. GIPS:  Anybody else want to comment

n the build out requirement.

         MR. RISSMAN:  I think as far as the

ublic markets go the point is essentially moot

ecause the market will discipline any company that

oes not build out aggressively.

         MR. PEPPER:  But what does aggressive

ean, I guess, Paul, the number of parties filed

etitions for reconsideration saying that a 90

ercent requirement at the end of a 10-year period

aises costs substantially beyond and then there

ave been a variety of alternatives proposed.

         What is the point beyond which the market

r before which the market would discipline as

pposed to in the trade off of adding costs.  That

ast increment.

         MR. RISSMAN:  Well, the only analogy I

ould cite is analogy of Nextel (phonetic) which

ecause it is approximately -- was approximately

ix months late in turning on its Los Angeles



























                                               330



ystem was heavily penalized by the market.

         Nextel (phonetic) has a series of hurdles

hat it has imposed upon itself to meet in terms of

hich cities will be turned on when.  And these are

he kind of things the market is looking for.

         On the other hand there are other factors

hat other markets consider important.  For example

n the United Kingdom the market considers the

ercentage of the population that you are going to

over by such and such a year to be important.

         It is all pretty much local factors, but

gain it is not very quantifiable.  Basically if

he market thinks that you are doing the right

hing in your schedule it will regard you and vice

ersa.  You can't predict.

         MR. OXENDINE:  Are you asking about

eliberate warehousing or are you talking about

eople who just can't that build out because they

idn't meet their schedules?  What's the question?

         MR. GIPS:  We actually had percentage

uild out requirements that were just based on a

chedule and you had to agree to meet that when you



























                                               331



ought the license.

         We have five minutes left so I would like

ach person to just go around quickly and give any

losing remarks that they have.  Start with Al.

         MR. HOUSTON:  In terms of a conclusion or

hat I would like to close in saying is PCS will be

 very capital intensive and highly speculative

usiness.  And it's going to be competing for its

hare of the available capital in the

elecommunication market place.

         We believe that it is going to take news

nd creative business relationships as I referred

o before to build a successful business.

         I would think that the PCS environment

ill be different from the cellular and other

ommunication services.  And therefore what we

ecommend is that the Commission be flexible in its

ule making in this new market because you really

ave not faced anything like it before.  Exercise

lexibility.

         MR. OXENDINE:  I think you know my

oint.  I think that PCS holds some significant



























                                               332



pportunities and promise for a lot of people but

f designated entities are going to have any play

t all it is going to call for some special

onsideration from the FCC.

         MR. WILKINS:  I think that if the

ommission is willing to experience the full

enefit of the spectrum that is being auctioned,

he Commission should ensure that entrepreneurs

ave a fair and equitable chance of participating

n the development of the spectrum.  And I think

hat the process is needs to be defined in such a

ay that that opportunity is absolutely ensured.

         I think the Commission should consider an

quity stake as opposed to debt.  Somebody

entioned next to me that equity is Socialism and I

uess debt is Capitalism.  I don't understand that,

ut that is Wall Street for you.

         MR. RISSMAN:  Just want to say that as

ar as my position as an equity investor goes I

on't particularly care is PCS is equitable.  And I

on't particularly care if it makes a lot of money

or the government.



























                                               333



         I care if it gives a company that I'm

nvesting in a lot of profit.  Now, there are many,

any, many opportunities out there to invest in.

housand upon thousands, and thousands.  I don't

et paid for having vision.  I get paid for

potting money-making opportunities.

         We bought lots of cable stocks in the

all because we thought it was a good investment.

n the information super highway vision, now we

ook like idiots.

         So I guess I would just say that if

ou -- to the extent that you can nurture this

echnology to make it as profitable as possible, I

ould.

         MS. PERETSMAN:  I don't bring the

rospective from a professional sense of social

ngineering either.  The overlay that I would say

n final remarks is that it seems that in order for

ou to maximize or at least to accomplish one of

he goals that you have in front of you, which is

o maximize the proceeds that are available to the

CC for this -- or to the government -- resource,



























                                               334



hat you ought to clear and structure your rules in

uch a way so that there isn't a lot of what I

ould call seepage, and whether it is seepage,

eorganization, or profiteering that takes place as

 result of subsequent transactions.

         And therefore you might well be mindful

s you are structuring the rule making process if

here is an ultimate conviction that the number of

layers who will deem it in their own self-interest

o participate in this are going to be limited to a

ertain number, that perhaps there is a recognition

arly on that that's an appropriate way to

tructure the process.

         As it relates to designated entities and

ther groups, I would think that within this model

here still is some room to be able to achieve a

ocial objective.

         The fact is that one can't be as

ptimistic about the up front proceeds, that carve

ut if you will, will be able to provide to you.

         MR. ROBERTS:  We are fairly enthusiastic

bout the opportunity that all at the Commission



























                                               335



ave.  We believe if the licenses are properly

tructured, the capital market will be willing to

iance the license acquisition, the build out, and

he operation of new PCS networks.

         We believe that there are markets, large

arkets that are ready for entry today and that we

iew the introduction of PCS products and service

s very attractive.

         MR. GIPS:  Thank you all very much.  I

ound this session as I'm sure we all did very

nformative and also quite challenging and

ertainly painted the contrasts that we needed to

ddress in trying to figure out how to do this

llocation location.

         MR. HALLER:  Before you leave let me if I

ight just give you a little housekeeping here.  We

ave heard a great dealing of information today,

ut the story is not over at this point.  Clearly

his is a complex set of issues with widely diverse

iews and this forum has provided I think a good

pportunity for experts to come together and

xchange those views and get those views before us



























                                               336



s quickly as possible.

         Few decisions in this are either right or

rong, but they range from favorable to unfavorable

epending on this issue.

         Different decisions provide varying

pportunities for economic growth and job creation,

nd that is what we are trying to find out here.

e have heard demand predictions from 17 to 29

illion.  To the extent that our decisions effect

hat number it is incumbent upon us to know how to

aximize those opportunities.

         PCS has a great potential to make

niversal service a reality not only for voice

ommunications but for all kinds of enhanced

ervices as well.

         Some today have told us that 10 megahertz

s quite usable; others find it unusable.  Some see

TA licenses as unfinanceable; others see them as

reat opportunities.

         Some think you have to have really deep

ockets in order to get into PCS; others see

trategic alliances as providing real opportunities



























                                               337



or designated entities.

         These meetings are going to help us in

ur decision and to come to decisions in a very

apid manner.  Likewise any new thoughts that you

ant to put on the record can help us make those

ecisions as well.

         The Commission has record of moving

wiftly to implement narrow band PCS.  We are very

lose to licensing that.  Congress gave us auction

uthority not long ago, and the Commission has

lready adopted rules implementing that auction

uthority.

         The charge of this task force from the

hairman and the Commissioners is basically this,

et it right, but don't delay it.  And I can assure

ou that is exactly what we are working on.  We

ave staff members throughout the agency devoted to

his topic to bring a speedy resolution to it and

hat is exactly what we intend to do.

         Now, tomorrow it is going to be I think

nother very interesting day.  It's the next piece

f the puzzle.  All of us have to work together.



























                                               338



omorrow we are going to bring the technical people

nd the spectrum experts together to tell us what's

ossible, what's on the drawing board and how much

pectrum is necessary to do that.

         I would like to thank all of our

anelists today for being here.  I would like to

hank all of you in the audience for the interest

hat you have shown in this, and I definitely urge

ll of you to you come back tomorrow and see what

he rest of the picture looks like.  With that, I

id you a good evening.

         (Thereupon, at approximately 5:00
         o'clock, p.m., the above proceedings were
         concluded.)

                  *  *  *  *  *
























                                               339



                    CERTIFICATE OF TRANSCRIBER 

         I, Olga J. Papach, hereby certify that pages 1

    through 80, represent a transcription from the cassette

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    related to, nor employed by any of the parties to the

    action which this transcript reflects; and, further, that

    I am not a relative or employee of any counsel or attorney

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    otherwise interested in the outcome of this action.



                                ______________________________
                                  OLGA J. PAPACH, TRANSCRIBER





























                                               133



                      CERTIFICATE OF REPORTER

         I, Patrica Nelson, a stenotype reporter, before whom

    the foregoing proceedings pages 81 through 130 were taken,

    do hereby certify that said proceedings were taken by me

    in stenotype at the time and place mentioned and

    thereafter reduced to typewriting under my supervision;

    that the transcript is a true and complete record of the

    proceedings.





                        _________________________________
                               PATRICA NELSON
                               STENOTYPE REPORTER


























                                               339



         CERTIFICATE OF COURT REPORTER

         I, VERONICA L. CHILDS, a court reporter

n and for the District of Columbia, before whom

ages 131 through 339 of the foregoing proceeding

ere taken, do hereby certify that the testimony

hich appears in the foregoing deposition was taken

y me in shorthand at the time and place mentioned

n the caption hereof and thereafter reduced to

ypewriting under my supervision; that said

roceeding is a true record of the testimony given;

hat I am neither counsel for, related to, nor

mployed by any of the parties to the action in

hich this proceeding was taken; and, further, that

 am not a relative or employee of any counsel or

ttorney employed by the parties hereto, nor

inancially or otherwise interested in the outcome

f this action.




                     __________________________
                        VERONICA L. CHILDS
                     Court Reporter in and for
                      The District of Columbia