Cingular's BABY STEPS - Company Business and Marketing

Industry Standard, The, July 23, 2001 by Alexei Oreskovic

WIRELESS COMPANIES ARE RACING TO NEXT-GENERATION NETWORKS, SO WHY IS CINGULAR BETTING ON A GO-SLOW STRATEGY?

Mal Ziegler doesn't get all gee-whizzy about the future of wireless communications. As the gray-haired lab technician wends his way through narrow corridors lined with head-high server cages at a Cingular Wireless switching station in Pleasanton, Calif., he doesn't even mention streaming video, location-based advertising or mobile commerce. Instead, he talks a lot about base station controllers and transmit-receive units.

Ziegler opens up one of the cages to reveal a tangle of wires and blinking lights. This, he explains, is the switch that receives every wireless call in the area and routes it to its destination. In the next cage sits a seemingly identical jumble of wires and lights. This second jumble is part of a test of Cingular's next-generation wireless network -- and, potentially, the key to the company's future.

If the system works, Cingular customers in a few markets around the country could be sending and receiving data from their cell phones before the end of the year at speeds twice as fast as are currently possible. More important, the new system gives consumers an always-on Internet connection, eliminating the tedious process of dialing in every time a person wants to access information on a cell phone.

The California rollout puts Cingular in a position to be the first major wireless cater to offer its customers high-speed connections through their cell phones. But this is still only a tentative step into the wireless future. The technology Cingular is using is known in the industry as 2.50 - meaning it's halfway between wireless technologies in use today (so-called 2G) and the faster, third-generation networks (dubbed 3G) in the pipeline. If they ever come to fruition, 3G networks will let users connect to the Net at speeds up to 2Mbps -- enough bandwidth to turn cell phones into digital Walkmans and video cameras.

Upgrading to 2.5G is relatively simple, requiring techies like Ziegler to swap in new hardware and software at switching facilities around the country; 2.5G services can ride on top of the same airwaves Cingular uses for its present voice networks. And Cingular is introducing 2.5G in only 30 percent of its markets. The limited implementation lets the company test the waters for broadband wireless before committing to 3G.

The relative simplicity is what makes moving to 2.5G so attractive. But it also masks a big gamble: By going slow, Cingular risks losing out to the more ambitious plans of its rivals. Three of Cingular's competitors, Verizon Wireless, AT&T and Sprint PCS, have already made high-profile public commitments to 3G; Cingular has not. Which raises the question: Is Cingular hedging its bets - or burying its head?

Cingular was born last October when SBC and BellSouth merged their wireless divisions. The two Baby Bell parents had been in an awkward spot. Established, national long-distance players like AT&T and Sprint were cutting into the wireless market. Meanwhile, in June 2000, Bell Atlantic, GTE and Britain's Vodafone joined forces to create Verizon Wireless, which upon its birth was the country's biggest wireless carrier.

SBC and BellSouth followed suit, joining their respective wireless properties in October 2000 and naming the new entity Cingular. The new carrier inherited 16.5 million customers from its parents (Cingular currently boasts more than 20 million customers), with a presence in 32 states and yearly revenues of $12 billion; it instantly leapfrogged AT&T Wireless and Sprint to become the country's second-largest wireless carrier. It also inherited some cultural baggage from its parents. Most of Cigualr's 28,000 employees came from SBC or BellSouth; the company's board consists of two BellSouth executives and two SBC executives.

The job of moving Cingular into the future fell to Stephen Carter, the company's dapper, English-bred CEO. A 14-year veteran of SBC, Carter rose through the ranks, eventually landing the top job at SBC Wireless in 1999. He's been in charge of new-technology rollouts before -- and it's clear that being first to market isn't a high priority. At SBC Wireless, he introduced Digital Edge USA, a flat-rate monthly pricing plan for consumers, almost two years after AT&T launched its comparable Digital One Rate plan. Similarly, Carter didn't offer Cingular customers wireless Internet service for cell phones until this April, a year and a half after Sprint PCS.

To Carter, being first to market is less important than convincing customers you've got something they want. "The one thing that I'm absolutely certain about," he says, waving a bottle of Perrier, "is that technology will not be the difference between the winner and the loser. It's going to come down to marketing."

This, after all, is the guy who created an entirely new brand from scratch, in a market dominated by established names like AT&T and Sprint. One month after the Federal Communications Commission approved the joint venture in October, Carter plunked down $200 million for an advertising campaign (insiders confide that the number ended up being even higher). More than 131 million Americans were introduced to Cingular Wireless -- and its ambiguous, X-shaped mascot (named "Jack") -- on Jan. 28, 2001, Super Bowl Sunday, with quirky ads exhorting viewers to "express themselves."