SIC 4812
RADIOTELEPHONE COMMUNICATIONS



Establishments included in this category are primarily engaged in providing two-way radiotelephone communications services, such as cellular telephone services. This industry also includes establishments primarily engaged in providing telephone paging and beeper services and those engaged in leasing telephone lines or other methods of telephone transmission, such as optical fiber lines and microwave or satellite facilities, and reselling the use of such methods to others. Establishments primarily engaged in furnishing telephone answering services are classified in SIC 7389: Business Services, Not Elsewhere Classified.

NAICS Code(s)

513321 (Paging)

513322 (Cellular and Other Wireless Telecommunications)

513330 (Telecommunications Resellers)

Industry Snapshot

The first wireless telecommunication services, apart from radio, were developed in the 1960s, and the first experimental cellular systems were installed in 1979. Even by 1985, only a few hundred thousand Americans were using cellular telephones. Rapid growth during the 1980s and 1990s, however, catapulted the wireless telecommunication industry to prominence.

The wireless telecommunication services industry in the early 2000s was comprised primarily of cellular telephones, paging services, and personal communications service (PCS) networks. These various services allow customers with mobile telephones to send (and receive) calls to (and from) people with landline phones, pagers, or hand-held wireless phones. As digital wireless technology became more pervasive (accounting for about 89 percent of subscribers in 2002), data of various types including short messages, news reports, and Internet content were also transmitted over digital wireless systems. Cellular service subscribers typically pay a monthly sub-scription fee plus an additional per-minute usage charge. According to the Cellular Telecommunications and Internet Association (CTIA), in 2002 there were an estimated 140.8 million mobile wireless subscribers, generating about $76.5 billion per year.

Like the rest of the telecommunications industry, the wireless industry was marked by significant turbulence as the 1990s drew to a close. The sweeping changes in the regulatory landscape brought about by the Telecommunications Reform Act of 1996, and the emergence of PCS systems as viable competition to cellular networks, promised lower costs and improved services to consumers. It also increased the stakes tremendously for industry players. A boom in infrastructure investments during the late 1990s led to overcapacity and high debt for these firms. In addition, as the market for wireless services became increasingly saturated, competition for new subscribers became fierce.

Organization and Structure

By the end of the 1990s the general consolidation of the telecommunications industry had blurred the distinction between the traditional landline telephone companies and wireless. Companies that aspired to be dominant players in the industry moved to establish themselves in all types of communication delivery. Moreover, success in the fiercely competitive mobile market was seen to hinge to a great extent on national coverage. However, the huge capital investment required to build the networks necessary to be a big winner created the need for mergers, joint ventures, and other forms of strategic alliances.

How a Cellular System Functions. A cellular telephone system consists of three main components: the cellular site or station, the mobile telephone switching office (MTSO), and the mobile telephone unit or pager. The mobile telephone unit is simply a low-powered portable transceiver. A pager is a wireless receiving device.

The term "cellular" refers to the network of cells or transceivers that support a company's service area. Each service area is broken down into several communication cells that have a radius of 2 to 20 miles. Each cell is equipped with a low-power transceiver and antenna, known as a base station, which sends and receives wireless telephone transmissions. Ideally, the cells should be arranged so that they efficiently canvass an entire service area, but cells often overlap or miss certain areas.

When a mobile phone user makes a telephone call, the transceiver in the cell receives the call and immediately routes it to the regional MTSO that oversees all the cells in its service area. The MTSO, which acts as a central nervous system, is connected to each cell by a landline or a microwave link. The MTSO analyzes the telephone call to determine whether the caller is a "roamer" (someone operating outside of his or her home service area) or a subscriber. Once it determines how to bill the call, the MTSO connects the call to a landline, or "trunk." Depending on the number dialed, the call is routed to a long-distance or local carrier. Among other tasks, the MTSO monitors the caller's signal strength within other cells. If the caller passes from one cell to another, the MTSO will "hand-off" the call to the next cell without interruption.

When a caller on a landline telephone calls a cellular phone user, the call is received by the MTSO, which sends an individualized "page" message to its cell sites to locate the mobile phone. The cellular phone responds to the page by sending a signal to the cell, after which the MTSO causes the mobile phone to ring. If the user elects to answer the call, the MTSO establishes contact between the communicators. The entire process requires only milliseconds. The MTSO works similarly for cellular callers that are contacting other mobile phones and for callers that are trying to reach a person's paging device.

Advantages. The advantage of using a cellular system is "frequency reuse." Because the Federal Communications Commission (FCC) grants a limited number of channels, or frequencies, to the cellular telephone service industry, it would be impossible to have only one or a few transceivers in each service area. Multiple cells allow the same channel, or frequency, to be used by many callers in the same service area. Furthermore, each cell can be subdivided into sectors, usually three, using directional antennas. As a result, a single service area can have thousands of callers communicating on several hundred designated channels.

PCS. PCS systems operate similarly to cellular services. However, PCS systems use comparatively low-powered phones that operate at a higher radio frequency. As a result, the systems use smaller cells that allow a greater concentration of users. In addition, PCS systems utilize digital technology that transmits a caller's voice as a numerical code. Most standard cellular systems, in contrast, used analog technology that mimicked sound waves. Many systems were being converted to digital in the second half of the 1990s, and by the early 2000s nearly 89 percent of all wireless subscriptions were digital. Digital transmission delivers greater sound quality and makes more efficient use of limited frequencies.

The net result of PCS differences is a cellular network with as much as 20 times the capacity of a standard cellular service area. This increased capacity allows PCS to spread costs over a potentially larger subscriber base. In addition, PCS phones require less power, weigh less, and are cheaper to manufacture. PCS has the potential to allow a cellular user to utilize the same phone number for his or her landline and wireless communication devices, so that other callers would not have to know his or her location before calling.

Besides increasing the efficiency and sound quality of wireless telecommunication systems, advancing digital technology also promised to open an entirely new market to the cellular service industry—data transmission. Many analysts expect data transmissions to rise rapidly in the next decade, as users of new electronic devices begin transferring digitized data over telephone lines and wireless systems. Although existing cellular systems allow users to transmit data over analog systems, such transmissions are typically troublesome and expensive. Signal fading and interference often hamper the process, though new Cellular Digital Packet Data (CDPD) standards and digital packet-switched networks offer potential solutions to analog transmission problems.

Regulation. Under regulations enacted in 1981, two operating licenses were granted for each Cellular Graphic Service Area (CSGA): One license was given to the local landline carrier or phone company, and the other was awarded to a wireless carrier through a lottery. Each carrier received half of the available frequencies. In addition, each of 428 designated Rural Service Areas (RSAs) was served by one or two carriers. In September of 1993, the FCC initiated a set of rules aimed at governing PCS. The commission allocated significant bandwidth for PCS licenses and divided the United States into 51 major trading areas (MTAs). The MTAs contained 492 basic trading areas (BTAs), each of which corresponds to a metropolitan area. The FCC auctioned off the licenses for these markets in six blocks between December 1994 and January 1997. Some blocks, called the "entrepreneur blocks," were set aside for bidding by businesses with gross revenues of less than $125 million and total assets under $500 million. Provisions were also made for companies owned by women and minorities.

The Telecommunications Act of 1996, signed into law February 8, 1996, swept away 62 years of regulation of the telecommunications industry. The legislation was intended to promote competition across the industry, resulting in the development of new technology, the creation of new businesses and new jobs, and ultimately lower prices. Local telephone companies (telcos), long-distance providers, wireless companies, and cable television operators would be free to offer any and all telecommunications services. Since all the major landline entities were already cellular providers, this did not have an immediate effect on the wireless industry, but the long-range goal of the major industry players was to provide "one stop shopping" for consumer's telecommunications needs, leading to a general consolidation of the industry.

Background and Development

The Detroit Police Department used the first mobile radio system on April 7, 1928. The spectrum for radio transmission was broadened seven years later to include FM, or frequency modulation, signals. FM transmission technology paved the way for the mobile radio systems, which were widely used during World War II. After the war, American Telephone and Telegraph (AT&T)—which at the time held a virtual monopoly over phone service in America—introduced the Improved Mobile Telephone Service (IMTS), which made possible extremely limited cellular communication systems. The service was so restrictive that even by 1970, the Bell system in New York City could simultaneously sustain a total of only 12 mobile-phone conversations. Bell Laboratories developed the cellular telecommunication concept during the 1960s. In the early 1970s, using a relatively small amount of bandwidth allocated by the FCC for mobile telephone communication, several crude wireless phone services began. A total of 44 channels were available. Only a few channels were allocated to each major metropolitan area because of the risk of interference from high-powered mobile transmitters.

As technology improved during the 1970s, the federal government began to reconsider cellular potential. Around 1980, under the guidance of AT&T, the first practical framework for mobile service in the United States, advanced mobile phone service (AMPS), was born. The FCC allocated space for AMPS in the Washington, D.C., test market, but it was not until 1983, in the Chicago and Baltimore markets, that companies provided relatively inexpensive, efficient, consumer cellular service in the United States. In 1982, the FCC allocated the equivalent of 622 additional channels to the cellular mobile phone industry, resulting in a flurry of activity and capital investment in high-tech cellular networks. An additional 166 channels were assigned in 1986, bringing the total to 832. In addition, frequency reuse strategies exponentially expanded the capacity of pre-1980s systems.

Foreseeing a bright cellular future, phone companies and well-heeled private start-ups began investing heavily in the development of cellular networks. Besides the local telephone operating companies, major players included communication giants such as AT&T and McCaw Cellular Communications. Industry investment grew from $354 million in 1984 to $1.43 billion in 1986. A still insignificant subscriber base resulted in a capital investment per subscriber of nearly $4,000 in 1984 and about $2,300 in 1986.

As cellular systems gained public acceptance and service and phone prices began to fall during the mid-1980s, the industry started to gain momentum. Cellular service revenues climbed from around $1 billion per year in 1985 and 1986 to about $4 billion in 1989. During the same period, the aggregate U.S. subscriber base rocketed from several hundred thousand to nearly 4 million. Encouraged by booming sales, cellular service providers continued to sacrifice short-term profits as they fueled massive capital investment programs. As cumulative industry outlays ballooned from $1.74 billion in 1987 to a staggering $5.21 billion by 1990, increased usage reduced the total investment per subscriber to $1,189.

Lower prices and new high-tech phones and accessories contributed to increased cellular service during the early 1990s, despite a lingering U.S. and global recession. The number of cellular users soared to about 10 million in 1992, reflecting an annual growth rate of about 20 percent. Only a few years earlier, analysts had predicted that the industry would achieve the 10 million mark around the turn of the century. Likewise, industry revenues almost doubled 1989 levels when they rose to more than $7 billion. The industry passed a major milestone in June of 1992, when service was established in the last of the 305 MSAs, paving the way for a seamless national cellular network.

The most significant trend in the wireless communications industry in the later 1990s was the shift toward PCS. Some industry participants viewed it as an expansion of local telephone networks, whereas others saw it as a way to bypass landline communications. Many companies saw PCS as an extension of the existing cellular network, and others thought of it as a replacement. The FCC envisioned PCS as including a wide variety of services including mobile telephone, paging, cordless telephones, and other related wireless communication technologies. The FCC granted some experimental licenses in 1990, and the first commercially available network began in the Washington-Baltimore area in late 1995.

The first PCS licenses, for the 51 major trading areas (MTAs) in the United States, were auctioned off between December 1994 and March 1995. Eighteen bidders won 99 licenses, earning $7.7 billion for the U.S. Treasury. The number of licenses purchased for each market put tremendous competitive pressure on everyone. Financial pressure was also great because of the cost of building the networks along with the cost of the licenses. Moreover, many communities opposed the construction of the many transmitting towers necessary for the low-power networks. The FCC, however, along with most industry observers, expected the investment to pay off bountifully within 10 years.

In the face of PCS expansion, cellular companies tended to reduce investment in new cells and turned to other strategies to head off new competition. Some directed funds into stronger marketing efforts while others, like AT&T Wireless, switched more networks over to digital systems, advertising the first nationwide digital wireless service.

As the 1990s drew to a close, the wireless communications industry continued its explosive growth. Between June 1998 and June 1999, the industry experienced its greatest one-year increase in subscribers—25.5 percent, to more than 76 million, according to the CTIA. Total annualized revenue for service in June 1999 was estimated at $37 billion, an increase of 26 percent. Capital investment also surged 33.1 percent, reaching a total cumulative investment of more than $66 billion. The first half of 1999 exhibited a new phenomenon in this industry—the average monthly local wireless phone bill increased, by a little less than one dollar. At $40.24, it was still much less than half the figure in 1987, when it was $98.83. A report by J.D. Powers and Associates said that in 1998 wireless customers used the phones an average of 199 minutes per month, whereas usage in the first 10 months of 1999 was up to 242 minutes. The growth in usage was expected to continue.

Service continued to improve as well, as more systems were converted to digital transmission and as carriers extended geographic reach. AT&T Wireless announced a new rate plan called Digital One that eliminated roaming and long distance charges. Other companies that served wide geographic areas followed with similar plans.

Satellite-Based PCS. Piggybacking off the PCS concept were several proposals for massive global satellite communication networks that would vastly expand the reach of terrestrial PCS. Ideally, the systems would allow phone users to communicate with anyone in the world through their mobile phone, while bypassing long-distance landline carriers. Although the service would not initially compete with land-based cellular services because of price differences, economies of scale and decreasing fees could eventually allow satellite systems to dominate global telecommunications.

The first such network to go into service was the Motorola-inspired Iridium, Inc. Iridium established a global satellite network that allowed customers to call or be called anywhere on earth, any time, using hand-held wireless telephones. According to the plan, 66 low-orbit satellites were interconnected with earth stations and public telephone networks. Iridium, with the financial backing of investors on almost every continent, launched its first satellite in 1996 and began offering commercial service in 1998. Marketing efforts were not as successful as expected, however, and in August 1999 the company filed for bankruptcy protection. ICO Global Communications, a similar satellite venture, followed suit later that month. A third enterprise, called Globalstar, began rolling out its service to selected customers and partners around the world in October 1999.

High-tech entrepreneurs Craig O. McCaw and Bill Gates proposed the most ambitious satellite plan in 1994. McCaw sold his McCaw Cellular Communications to AT&T Wireless in 1994 for $11.5 billion, and subsequently launched Teledesic Corporation. Gates, the founder of Microsoft, invested $4 billion of his own money in the venture largely on the basis of McCaw's track record in growing McCaw Cellular. Dismissed by critics, the Gates/McCaw venture called for a $9 billion network of 840 low-orbiting satellites. McCaw's vision differed from others in that, instead of creating a globe-girdling telephone network, his aim was to span the world with a satellite-based Internet. Teledesic was scheduled to begin offering service by 2001. In the meantime, McCaw and others involved with Teledesic announced plans to invest in ICO Global, thus hoping to salvage that effort and protect the satellite communication vision.

One technological issue facing the industry during the late 1990s was competing standards for digital transmission. Some major carriers rolled out systems using code division multiple access (CDMA) technology, while others were based on time division multiple access (TDMA). The European industry adopted Global System for Mobile (GSM). Various industry groups and regulatory bodies such as the International Telecommunication Union (ITU) were working on the thorny issue of the next generation of wireless technology, loosely referred to as 3G. ITU-200 is a standard that specifies a minimum set of capabilities for 3G services, including high-bandwidth communication anywhere in the world, global roaming, and a single system for residential, office, and mobile use. The primary decision yet to be made was the choice of a CDMA or TDMA air interface. At the end of the 1990s it seemed unlikely that a single technology would be agreed upon, but standards were set that would most likely ensure compatibility in user equipment.

Current Conditions

In addition to a weak economic climate, by the early 2000s wireless telecommunication providers were troubled by the large network infrastructure investments they made during the boom years of the late 1990s. Saddled with debt, industry players operated in a climate characterized by cutthroat competition for a dwindling supply of new subscribers. With the majority of corporate, middle- and high-income users already subscribing to wireless services, providers sought to grow their subscription bases by going after younger consumers, as well as those with lower income levels. However, the latter strategy did not come without consequences. For example, Sprint's attempt to profit from this demographic led to additional debt from unpaid bills, as well as high cancellation rates.

Figures from the CTIA placed wireless subscriber revenues at $76.5 billion in 2002, up from $65.3 billion in 2001 and $52.5 billion in 2000. Although this was a positive sign, the bottom lines for industry players were not faring as well. For example, in its assessment of the overall telecommunications services industry—which also includes wire-line providers—Value Line reported that while industry revenues increased, net profits fell drastically. Revenues rose from $289 billion in 2000 to $291.2 billion in 2001. However, net profits fell from $24.5 billion to $10.2 billion during the same time frame. Value Line estimated that revenues would fall to $285.5 billion in 2002 and reach $288.5 billion in 2003. During the same period, net profits were expected to fall to $8.6 billion and then reach $10 billion.

By the early 2000s, new products and services that complemented existing wireless and PCS systems were emerging. In fact, as early as late 1999 hand-held wireless devices with the capability to send and receive e-mail, browse the Internet, and even trade in the stock market were available for purchase. Although most wireless phones were Internet-ready by the early 2000s, U.S. consumers as a whole were slow to adopt wireless Internet services. However, industry analysts were hopeful that so-called "third-generation" (3G) data services, which companies were expected to begin adopting by 2003, would inject new life into the wireless telecommunications industry. 3G will serve to converge wireless networks that carry voice, video, and data and improve quality in the process.

According to the Federal Communications Commission, "3G systems will provide access, by means of one or more radio links, to a wide range of telecommunication services supported by the fixed telecommunication networks and to other services that are specific to mobile users. A range of mobile terminal types will be encompassed, linking to terrestrial and/or satellite-based networks, and the terminals may be designed for mobile or fixed use. Key features of 3G systems are a high degree of commonality of design worldwide, compatibility of services, use of small pocket terminals with worldwide roaming capability, Internet and other multimedia applications, and a wide range of services and terminals."

In August of 2002 Sprint rolled out PCS Vision, the first nationwide 3G service. In addition to traditional voice communications, subscribers were able to take and send digital photos with their phones, communicate via e-mail, access the World Wide Web, and more. According to the company, PCS Vision delivered graphics that rivaled desktop PCs in terms of quality. Other leading wireless service providers also have provided their customers with wireless data transmission capabilities. However, Sprint was the first to do so on a national basis.

Industry Leaders

According to Standard & Poor's, during the early 2000s Verizon Wireless was the leading wireless service provider, with more than 30 million subscribers and a market share better than 26 percent. Cingular was second largest, with 22 million subscribers and more than 19 percent market share. Close behind with 20 million subscribers and approximately 17 percent of the market was AT&T Wireless, followed by Sprint PCS, which claimed more than 14 million subscribers and nearly 13 percent of the market. In order of market share, the industry's other leading firms included Nextel, Voice Stream, Alltel, and U.S. Cellular.

Bedminster, New Jersey-based Verizon Wireless, Inc., was the undisputed industry leader in 2002, with sales of $19.3 billion and 40,000 employees. The company is a subsidiary of Verizon Communications, Inc., and United Kingdom-based Vodafone Group PLC. It originated in 2000, when Vodafone and Bell Atlantic combined their wireless interests in the United States. In addition to its headquarters in New Jersey, Verizon Wireless has regional U.S. Headquarters in Morristown, New Jersey; Schaumburg, Illinois; Alpharetta, Georgia; and West Irvine, California. The company claims to have developed the "first national high-speed data network," and to have offered the "first downloadable applications over the air onto phones." In 2003, Verizon Wireless offered customers a boggling array of service plans, including eight voice packages, six Internet and data service plans, and a variety of value-added services.

Further Reading

"About Us." Verizon Wireless, Inc. 29 March 2003. Available from http://www.verizonwireless.com .

Barker-Benfield, Simon. "Competition Drives Costs Down for Cellular-Telephone Users." The Florida Times-Union (Jacksonville, FL), 31 October 1999.

"Boards Study Bell Atlantic-Vodafone Deal." The New York Times, 14 September 1999.

Blumenthal, Robin Goldwyn. "Follow Up: One Record Down." Barron's, 11 October 1999.

Cellular Telecommunications & Internet Association. "Semi-Annual Wireless Industry Survey." 2003. Available from http://www.wow-com.com .

Federal Communications Commission. "3G Information." Washington, DC: 25 November 2002. Available from http://www.fcc.gov .

Fernandez, Bob. "Iridium Casting a Shadow Over Satellite Industry." The Arizona Republic, 19 October 1999.

Forward Concepts. "3G Cellular Market Opportunities." 1998. Available from http://www.wirelessdata.org .

"Gates Buys into Wireless Internet." Sydney Morning Herald, 12 May 1999.

"Globalstar Introduces Satellite Telephone Service." Canada NewsWire, 19 October 1999.

Hamblen, Matt. "Wireless Merger a Boon for National Coverage." Computerworld, 27 September 1999.

Herschel Shosteck Associates. "Mobility, Portability, Ubiquity: What Will Be the Model for Wireless Data Access?" 1998. Available from http://www.wirelessdata.org .

"Nextel Changes Chairman, Reports Growth in Subscribers." Associated Press Newswires, 15 July 1999.

Standard & Poor's Industry Surveys—Telecommunications: Wireless. New York: Standard & Poor's Corporation, 10 October 2002.

"Telecommunications Services Industry." Value Line Publishing, Inc. 4 October 2002.

"Top 20 U.S. Cellular Carriers." Global Wireless, May 1999.

Wireless Data Forum. "WDF Primer." November 1999. Available from http://www.wirelessdata.org .

Young, Shawn. "AT&T Wireless CEO Eyes Market Share Gains with New Rate." Dow Jones News Service, 3 November 1999.



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