The PAS phone comes to New Mexico: wireless local loop service takes root in the rural southwest, thanks to a determined investor and gear from UTStarcom

America's Network, July 15, 2004 by Kirk Laughlin

Then the president of China Telecom visited Jal, N.M. a few months ago, he was greeted with three varieties of homemade pastries and handshakes from locals who saw his arrival as further validation of how their little town in the middle of nowhere had risen to become a uniquely progressive telecom laboratory.

Weihua Zhang had come to Jal to see the first U.S. deployment of UTStarcom's PAS wireless phone solution, a technology that has attracted more than 45 million subscribers in China during the last several years, but was never given much chance of success in the U.S.

Zhang was invited to Jal (population 2018 and located 150 miles southeast of Roswell, N.M,) by Norm Bangle, lead partner at Stellar Holdings, a New Braunfels, Texas-based investment consortium, which is coordinating as many as 12 PAS phone launches that will cover 12 million POPs in New Mexico, Texas and Hawaii during the next two years. The rollout follows a $2 million purchase of UTStarcom equipment by Stellar announced late last year.

"Mr. Zhang wanted to see how our PAS system worked and how we interconnected with fixed line plant," says Bangle, who has spent the last several years examining the viability of limited mobility voice and data services as a means to challenge the dominance of incumbent operators.

"People here are excited by new technology. They may not live in an urban area, but they want these cutting-edge capabilities even out here," says Bangle, who rumbles around town in his Ford King Ranch truck and appears to be known by virtually everyone. "When I first came here, I went to the local coffee house and got to know people. I listen to them and heard their frustrations."

On a recent visit to Jal, a number of the local townspeople complained that privately held Valor Telecom, which purchased access lines from Verizon after the company's acquisition of GTE five years ago, is slow to respond to customer service complaints.

Chris Payne, a spokesperson from Valor, says the carrier is dedicated to strong customer service, noting that its performance record exceeds regulatory requirements."We welcome head-to-head competition, and our strategy will not change because of [the PAS phone project]," Payne says.

During the past six months, Bangle estimates that about 60% of Valor's Jal customers have switched to the PAS service, operated in Jal by Lovington, N.M.-based Leaco, a cooperative which offers local voice, DSL Internet, cable television and cellular and broadband wireless services as an incumbent in some areas in Southeastern New Mexico and as a CLEC in others.

John Smith, the executive vice president and general manager of Leaco, says that the PAS rollout--like many launches of entirely new technologies--has not come without a few headaches. Leaco has had to rely on interconnection with existing copper plant owned by Valor. Rains during the early part of this year led to unexpected outages for some PAS customers. Other complications included receiving technical instructions manuals from UTStarcom in Mandarin and an 11-month delay in receiving customer-premise desktop phones.

"It was a learning curve for all of us," says Bangle. "We had some out-of-the-box failures of radio ports, but it was not a substantial problem."

ATTRACTIVE ECONOMICS

Still, the economics of PAS remain highly attractive. Bangle says investors anticipate a 30% return on investment within 14 months of service launch. This figure does not account for the anticipated revenue received from USF (Universal service funding), which is distributed to rural-based providers who meet qualifications that include introducing competition to uncompetitive markets and "serving the public interest".

"If this works out, it represents about one-fourth the cost of regular fixed line," says Smith. "This could become a saving grace for CLECs." Operational support systems are no different for PAS compared to other platforms, and the service is not under direct public utility oversight, says Smith.

Unlimited local calling is priced at $17 per household. PAS phones, which are equipped for both voice and data capabilities, currently support symmetrical throughput speeds of about 112 Kpbs. The PAS system is designed to evolve to support data speeds of 2Mbps. Bangle also indicates that the FCC is currently testing a dual mode PAS device that would work seamlessly between the wireless local loop and a cellular network, utilizing an air-interface standard like CDMA.

The lessons learned in Jal will serve Stellar Holdings well, according to Bangle, who is currently gearing up for PAS launches in at least six other cities in West Texas. "Everyone's trying to migrate to a wireless broadband world, and we recognize that in many respects, we are real pioneers."

Inside Sources

Project: Investment consortium Stellar Holdings partners with southeast New Mexico cooperative Leaco to establish PAS phone service in the community of Jal, N.M. The project was initiated in late 2003, when local authorities in Jal officially welcomed the initiative, which was billed as a alternative to local voice service provided by incumbent Valor Telecom.