Resellers Pursue PCS Despite Setbacks

Posted: 09/1998

Resellers Pursue PCS Despite Setbacks

By Khali Henderson

Once considered resellers’ best hope of bringing a wireless product to market, personal
communications services (PCS) have been nearly as hard-won as cellular. The Federal
Communications Commission (FCC) has settled a long-standing dispute between resellers and
potential PCS carriers by reaffirming its resale policies up to a point, that is, some
four-and- a-half years into the future. As the hourglass on mandatory resale drains, the
financially handicapped C-block licensees are returning spectrum, restructuring debt or
filing for Chapter 11 bankruptcy, leaving resellers at the mercy of the A- and B-block
winners. Fortunately, for resellers, several PCS carriers are warming up to the resale
channel.

For wireless resellers, the FCC’s summer ruling settling their long-running feud with
PCS carriers was a bittersweet victory. While the commission denied a request by the
Personal Communications Industry Association (PCIA) to exempt PCS carriers from mandatory
resale obligations, it also limited unrestricted resale for all commercial mobile radio
services (CMRS) to five years, retroactive to the completion of the broadband PCS license
auctions on Nov. 25, 1997.

While resellers argued that the FCC could not end a mandatory resale policy, a federal
court of appeals ruled in mid-July that, indeed, they could. In a blow to resellers, the
U.S. District Court of Appeals for the 6th Circuit says that the FCC was within its
jurisdiction to have the resale obligations sunset in 2002.

For PCIA the resale sunset cannot come soon enough. "While this step is important,
the FCC must take further steps to ensure deregulation wins the day," said PCIA
President Jay Kitchen in a July 7 statement in response to the FCC’s ruling. "PCIA
will continue to use every opportunity to push for real deregulation, including continuing
to fight for a more immediate end to the altogether unfair mandatory resale
obligation."

PCIA’s senior vice president for industry affairs Mark Golden told PHONE+ in August
that the association is preparing a petition for reconsideration and will be pursuing
"other regulatory venues."

Representing the resellers, Telecommunications Reseller’s Association (TRA) President
Ernie Kelly has expressed concern that the sunset clock has begun ticking before all the
broadband PCS licenses have been distributed. A significant number of PCS licenses in the
financially troubled "entrepreneur’s" C-block were returned July 2, under the
FCC’s debt restructuring plan. Reauctioning of the licenses is not expected to happen
until early next year.

This is a concern to resellers, says TRA spokesman David Gusky, since the C-block was
where resellers had expected to find their best allies and suppliers.

"With the re-auctions and the troubles with NextWave [Telecom Inc.], the whole
promise of the C-block is on hold," he says.

NextWave, one of the largest C-block licensees, filed Chapter 11 bankruptcy in June to
seek protection from creditors and salvage its aggressive nationwide network buildout
plans. The company has adopted a carrier’s carrier strategy, which it promoted heavily to
members of TRA and the National Wireless Resellers Association throughout 1996 and 1997.
(NWRA merged with TRA in November 1997.) In 1997, NextWave had announced resale agreements
with Excel Communications Inc. and DCN Wireless. Calls to NextWave requesting information
as to its plans and the status of its resale agreements in light of its financial woes
were not returned.

Despite these troubles, TRA’s Gusky is optimistic that the "disappointing
level" of PCS resale soon will rise. "Whereas before it was a flicker, now it’s
a flame. Six months ago PCS resale was nonexistent," says Gusky.

According to a 1998 report by The Yankee Group, wireless resale revenues have risen
from $500 million in 1995 to $1.1 billion in 1997. This year, the Boston-based research
and consulting firm expects resale to reach $1.5 billion, and by 2002, $4.5 billion.

With NWRA and, now, with TRA, Gusky has led the crusade for unrestricted PCS resale,
which began with the short-lived victory on July 12, 1996, when the FCC extended its
commercial mobile radio service (CMRS) resale obligations to include PCS and certain
specialized mobile radio (SMR) services. That ruling was challenged by PCIA, which in May
1997 filed a forbearance petition with the FCC requesting an exemption for PCS carriers.

PCIA’s basic argument against the imposition of resale obligations on PCS, and for that
matter CMRS, providers is that the original rules were meant to prohibit abuses in a
monopoly or, in the case of cellular service, a duopoly situation. In a competitive
marketplace, it says, the reseller/carrier relationship is a business decision that cannot
be regulated.

However, based on results of a member survey, whose integrity was hotly criticized by
PCIA, TRA told the FCC earlier this year that there existed a "resale blockade"
in PCS and SMR. The survey found nearly 90 percent of respondents who have sought to
resell PCS have been denied the opportunity to do so, TRA said. PCIA’s Kitchen says none
of the survey data supported TRA’s claim. Furthermore, he says, the survey included
misleading questions that taint the results.

"If I asked a classroom of school children if they thought they were being given
too much homework, they would almost all say yes. TRA’s survey, in essence, did just
that," he says.

For all the lobbying and quarreling, Gusky says the recent but modest increase in PCS
resale has less to do with regulations than a recognition by PCS carriers that they need
resellers.

"Despite what the rules are, if a carrier is really intent on it, it can stifle
resale," he says, citing artificial barriers such as protracted contract negotiations
and delayed provisioning, allegedly used by underlying carriers in cellular, long distance
and, most recently, the local services markets.

Gusky is encouraged by resale programs sponsored by carriers, such as Pacific Bell,
Western Wireless, Sprint PCS and BellSouth Mobility DCS. The latter two companies–A- and
B-block licensees–were scheduled to shop their respective programs to resellers at TRA’s
Summer Carrier Forum in late July. While Sprint PCS canceled at the last minute, BellSouth
Mobility DCS touted its program’s reseller-friendly structure.

Business Development Director Larry Boyd said the company has 10 resellers in its
18-month-old program. For resellers new to PCS, he says there is not much difference
between selling PCS and long distance.

"Customer service and after-sale support are common to long distance. The only
difference is the need for subscriber equipment and we have a process in place to handle
that," he says. The company’s handset distributor, Brightpoint, will drop-ship
handsets to resellers overnight, he says, adding that resellers have the option of
branded, unbranded or private-labeled handsets.

"We look at resale as a way to make our business more successful," says Boyd.
"We’re here [at TRA’s Forum] not because the FCC says we have to offer resale. We
don’t look at the sunset rules as something that goes away. We look at resale as a
distribution channel–one that we would like to take advantage of and to grow our business
through."

BellSouth Mobility DCS may be an exception. "In long distance, the
carrier-reseller relationship is advantageous to both sides. I wish that on the wireless
side they would recognize that," says TRA’s Gusky.

PCIA’s Golden says "every carrier we talk to has some level of resale activity.
Some are actively pursuing resale agreements; others are merely offering their ‘best rate’
to resellers–which is after all, all the rules require–while they concentrate on
building out their networks," says Golden. "The bottom line: where a reseller
creates a new market distribution opportunity, carriers are anxious to close a deal."

Khali Henderson is editor-in-chief of PHONE+ Magazine.