The Wireless Industry and Its Contributions Presentation to Wireline Competition Bureau

1. The Wireless Industry and Its Contributions Presentation to Wireline Competition Bureau September 2004

2. Who are we? • 183 facilities-based carriers - - national, regional and locally based companies serving rural and urban areas across the country (Service areas originally defined by the FCC) • Mobile Virtual Network Operators – MVNOs – reselling wireless service (Virgin Mobile USA, Liberty Wireless, etc.) • Multiple companies using multiple technologies to send interoperable messages • We compete against each other and other industry segments, wireless companies are not utilities, and are not monopolies

3. What do we do? • We provide multiple kinds of services: • Voice • Data (e.g., short messaging service, e-mail, office system access) • Entertainment / Ringtones • We invest in infrastructure: • more than $146 billion spent to build networks nationwide, over $19 billion in 2003 • more than 169,000 cell sites, 1,000 switches, routers and more are in operation nationwide • We operate networks on different platforms • evolving from the legacy AMPS system through the many digital flavors of TDMA, CDMA, GSM, and iDEN, and deploying new generations of technology – CDMA 1xRTT, EV-DO, EV-DV, GPRS, EDGE, and Flarion – making possible new service offerings • 92% of wireless subscribers are on digital platforms

4. What do we do? • We offer choices • 97% of Americans live in counties served by 3 or more wireless carriers • 93% in counties served by 4 or more • 87.5% in counties served by 5 or more • 75.8% in counties served by 6 or more • 29.5% in counties served by 7 or more • As a result, we serve more than 169 million customers nationwide today • We deliver more than 200,000 wireless 9-1-1 calls daily, more than 73 million a year • We’re driving the price of service down – the FCC itself said the price per minute fell by 13% last year

5. Why we operate the way we do • Licensed by the FCC to provide services in specific geographic areas without regard to state / local geopolitical boundaries • Multiple licensed service areas in overlapping markets – Primarily Cellular Metropolitan Statistical Areas (MSAs), Rural Service Areas (RSAs), and PCS Basic Trading Areas (BTAs), and Major Trading Areas (MTAs) • In the US there are 306 MSAs, 428 RSAs, 493 BTAs, 51 MTAs, and there have been multiple geographic and spectrum splits which have enabled even more smaller companies to enter the market • Our services are national, regional and local – offered by local, national, and regional carriers without respect to their size

6. Who regulates us? • Telecom Act (1993, Section 332(c)) established Federal jurisdiction with limited State role • States precluded from entry and rate regulation, but allowed to regulate “other terms and conditions”

7. And the result of a Federal Regulatory Paradigm with no economic regulation is . . .

8. 1993 2 providers per market “A regulated duopoly” Avg. monthly bill - $ 61.49 Local charges only long distance charges extra roaming charges extra Landline surcharge extra 39,810 employees $13.9 billion cumulative capital investment 2003 5 providers per market for 83% of consumers In 1993 $s Avg. monthly bill – $ 38.73, a decline of 37% Nationwide coverage – plans with no roaming charges No long distance charges Subscribers phone on 24/7 205,629 employees $146 billion cumulative capital investment A Decade of More Choices, More Services, and More Benefits for Consumers

9. Quality of Service Has Continued to Improve Industry voice network performance measurements 31 Major U.S. Markets, Top 5 U.S. Carriers, 2001 – 2003 No Service Areas Dropped Call Rates Good Signal Strength “No Service” as % of Calls % Good Signal Strength % of Calls Dropped Year Year Year Source: Telephia voice network performance drive test information. Note: Simple averages for dropped calls, no service, and percentage of signal strength readings greater than neg. 90 dB, across 31 major U.S. markets and the five largest national U.S. wireless providers: Verizon, Cingular, Sprint, T-Mobile and AT&T. For AT&T, we have included network measurements based on TDMA network testing. For Cingular, measurements based on TDMA network in TDMA-legacy markets, and GSM networks in GSM-legacy markets (primarily West Coast markets).

10. Wireless Network Design: Then… • Tall Towers • Over 200 Feet • High Power Emissions • Inadequate Coverage • 30 Mile Radius • Few Radio Channels • Limited Bandwidth • Poor Service • Unhappy Customers Radius = 30 miles

11. Wireless Network Design: …& Now • Short Towers • Under 200 Feet • Low Power Emissions • Adequate Coverage • 10 Mile Radius • Many Radio Channels • More Bandwidth • Improved Service • Happier Customers

12. The Smart Phone Today: Feature Rich Environment • Compact size • Contacts and calendar • Internet Browser: • Handset • Laptop – 1X EVDO 1XRTT EDGE • Email • SMS • Multi-tonal ring tones • MP3 player • Digital Camera • Location capability • Games

13. Multimedia Service: Camera Phones • Introduced just over a year ago in U.S., currently on pace to replace DVDs as fastest growing consumer device ever. • 75 million phones with integrated cameras were shipped in 2003, while just 50 million stand-alone digital cameras were sold. • The market for mobile oriented transmissions will grow from $10.2 million today to more than $440 million in 2008. • Globally, sales of camera phones are expected to reach 150 million in 2004, and increase dramatically after that.

14. Entertainment and Games Games • The global mobile games market is expected to climb from over $1 billion last year to $8.3 billion in 2008 • 7.9 percent of U.S. wireless subscribers used their phone to play games during 2003, a number expected to grow to 34.7 percent by 2008, according to IDC Music • The top revenue producers for mobile music are downloadable ring tones • Last year ring tone sales were $3.5 billion worldwide – more than 10 percent of the $32.2 billion in global music sales, according to the ARC Group

15. Bluetooth RF Transceiver Bluetooth RF Transceiver Bluetooth RF Transceiver Bluetooth Concept A transparent method of connecting mobile computing device with a wireless modem Easy = Wide Adoption

16. Comparative Global Mobile and Mobile Internet Users and Number of Personal Computers on the Internet Source: Accenture “The Future of Wireless: Different than You Think, Bolder than You Imagine”

17. The Future is Without Measure Solutions for the Consumer, Enterprise and Homeland Security • Mobile Commerce - Proximity payments • Mobile monitoring systems - flow of people, traffic and agricultural applications • Remote analysis - mobile medical examination, wireless medical monitoring devices • Biometrics: facial recognition, retina scanners • Real time video, image transmission from databases Image Transmission from Crime Databases Iris Recognition Facial Recognition

18. We Need to Ask The Right Questions “Before launching a new round of regulation – with the potential for 51 distinct sets of regulatory obligations – I believe we should first ask ourselves, what problems are we trying to fix and are we adding any value?” Kathleen Abernathy, Speech, May 13, 2004, AEI-Brookings

19. Wireless Carrier Participation in WCB Proceedings • The Wireless Industry is Participating in Many Wireline Competition Bureau Proceedings, Including: • Intercarrier Compensation (CC Docket No. 01-92) • IP-Enabled Proceeding (WC Docket No. 04-36) • Triennial Review (WC Docket No. 04-313) • CALEA Implementation (ET Docket No. 04-295) • Numbering (CC Docket No. 95-116) • Universal Service (CC Docket No 96-45) • Competitive ETC Proceeding • Rural High-Cost Reform • Contribution Methodology • Advanced Telecommunications Capability (GN Docket No. 04-54))

20. Guiding Principles • In a competitive market like CMRS, regulation is only necessary upon demonstration of market failure • Regulations should not be used as a way of placing an industry at a competitive disadvantage • Regulatory uncertainty has a direct, adverse impact on investment in the wireless industry: this ultimately disserves consumers • A federal regulatory paradigm, rather than state regulation, will better promote the continued growth of the industry and the proliferation of services and products demanded by consumers • The industry needs the FCC’s help to forestall balkanized state-by-state regulation

21. Examples of the Applicability of the Guiding Principles Across Issues 1. In a competitive market like CMRS, regulation is only necessary upon demonstration of market failure • IP-enabled services • Terms and conditions regulations 2. Regulations should not be used as a way of placing an industry at a competitive disadvantage • USF / ETC • Interconnection • IP-enabled services • Underfunded mandates • Numbering / LNP • CALEA

22. Examples of the Applicability of the Guiding Principles Across Issues 3. Regulatory uncertainty has a direct, adverse impact on investment in the wireless industry: this ultimately disserves consumers • IP-enabled services 4. A federal regulatory paradigm, rather than state regulation, will better promote the continued growth of the industry and the proliferation of services and products demanded by consumers • LNP / Numbering • IP-enabled services • Broadband reporting requirement • USF / ETC 5. The industry needs the FCC’s help to forestall balkanized state-by-state regulation • LNP / Numbering • IP-enabled services

23. Intercarrier Compensation • Under the FCC’s access charge system, all revenue flows to wireline networks and away from wireless networks. • Access charges are many times higher than reciprocal compensation charges creating incentives for wireline carriers to characterize all traffic as long-distance. Particularly true for those wireline carriers that derive a high percentage of revenues from access charges. • This one-side and illogical compensation system results in marketplace distortions slowing the growth of intermodal competition. • CTIA supports the wireless and internet bill-and-keep system of no intercarrier compensation, under which providers recover all costs from end-users.

24. Universal Service • Last year, wireless companies contributed about a quarter of Federal Universal Service Funds, and drew less than 4% • The universal service fund grew 44% between 2000 and 2003, and is projected to grow another 18% this year • The bulk of Universal Service funding goes to wireline companies – and the bulk of the increases in the Universal Service fund is attributable to wireline companies, not wireless companies • CTIA supports competitively neutral ways of curbing fund growth consistent with the goals of universal service

25. Wireless Contributions to and Support Drawn From Federal High Cost Fund

26. Fixed Local (Wireline) Contributions to and Support Drawn From Federal High Cost Fund Note: Above local service providers’ contributions and total draw on the High Cost fund focuses on fixed local service providers, e.g., ILECs, CLECs/CAPs, Shared Tenant Service, local resellers, and other local providers.