Ma Bell in Family Feud

AT&T Wireless CEOs John Zeglis has a battle plan to take on the Baby Bells. Must local phone companies die for AT&T to gain?

NEW YORK—While this weeks Consects Global Wireless Summit featured sci-fi visions of future services, voice communication remains the major revenue generator for U.S. wireless providers.

John D. Zeglis, chairman and CEO of AT&T Wireless, started the day-long gathering Thursday by describing a world in which virtually all communications are wireless. However, Zeglis acknowledged that voice still represents the sound of money. The United States, he noted, has 50 percent wireless penetration, a number Zeglis said he wants to see rise to 70 percent or even 90 percent. As one of the steps to get there, Zeglis believes the industry will have to start cannibalizing local landline phone service.

Wireless has already landed huge blows to pay phones, long distance and calling cards; can it compete with the Bells? Over a generation, Im sure well continue to see more young customers drop their landlines, but dont look for this to be a short-term answer to the industrys woes.

First, weve been down the road before. AT&T experimented for at least a decade with a fixed wireless end-run around the local loop called Project Angel, aptly named because it never quite materialized here on Earth. Now that AT&T Wireless has global standards religion, it may have more faith that the marketplace will provide these solutions, but none are around the corner.

Second, AT&T Wireless will have a tough time getting legislative support to make the notoriously stubborn Bells budge on anything that makes them more susceptible to competition. Always legally formidable, the Bells own major shares of Verizon Wireless and Cingular. Even Sprint is an incumbent local exchange carrier (ILEC) in about five percent of its markets. At the conference, Verizon Wireless and Sprint PCS discussed how theyve been deploying successful bundling strategies, and even Zeglis admitted to being "quite the bundler" when he was at AT&T despite the margin squeezing that bundling can create. If I were a strategic planner at an ILEC, Id be a lot more worried about my broadband group stealing away my customers through offerings such as Vonage than I would about my wireless group.

Third, despite Zeglis claims that the industry doesnt need a great product (which could be interpreted creatively), landline phones have simply set the standard for reliability and clarity. Like audiophiles who claim that MP3 has ruined an appreciation for expensive stereos at the expense of flexibility, current landline users may just be resisting the tides of change, but that resistance will take a long time to wear down. Zeglis noted that if a tree falls on your phone line, there goes its reliability, but Ill take that philosophical bait and note that if a tree fell in the woods, I probably wouldnt be able to hear it on my GSM phone because half the time it gets no signal from within my home.

Not only that, but consumers still use phones differently around the house than they do when they are mobile; they want handsets readily available in multiple rooms and the ability to talk on the phone at the same time without needing an impersonal speakerphone or setting up a cumbersome conference call. Zeglis described how this could be achieved using some fancy base station technology, but it seems like a complex, expensive approach for whats a relatively simple, inexpensive purchase today.

In response to a question on wireless number portability, Zeglis quipped that that the real need for phone number handoff is not from wireless to wireless but from wired to wireless. Invoking hyperbole, he noted that local exchange carriers lose customers only when they die. Wireless carriers may reach their Waterloo as Baby Bells fight to the death to keep those customers. If you dont believe me, ask the ghosts of former Bell competitors Northpoint and Rhythms.

Are you ready to give up your landline phone? Can operators like AT&T Wireless take on the Baby Bells? E-mail me.

Wireless Supersite Editor Ross Rubin is a senior analyst at eMarketer. He has researched wireless communications since 1994 and has been covering technology since 1989.

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