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Smart City 
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The Personal Information Technology Report

November 12, 2002

In this issue:

Smart City: Puttin' on the Ritz

The Russian wireless explosion

Smart City: Puttin' on the Ritz

The story in brief: A company that made its name in providing telecommunications services to arenas and convention centers makes new inroads as a local exchange provider in Florida. It finds that lessons learned in delivering quality service to diverse groups of convention attendees are directly applicable to competing in residential broadband services.

For Smart City, the word "service" in service provider is a mandate. So when approaching issues of quality and customer relations, Smart City asks, “What would the Ritz-Carlton do?”

To make sure there are no doubts about the answer, all of Smart City’s field technicians and customer service staff members take a course designed by the Ritz-Carlton Training Institute, which the hotel chain created to ensure it holds to the highest standards in the hospitality industry.

But can the quality measures designed for hotels translate to telecom? Martin Rubin, CEO of Smart City, believes they can. “Back in 1998, we concluded that innovation is a commodity,” he says, noting any company can offer broadband or Web-based customer service. “What makes a company competitive is its employees and how they relate to customers.”

Hence, the Ritz-Carlton approach, under which employees are trained to make every customer feel special. Smart City technicians must comply with a dress code, be prepared to answer questions and deal with special customer requests. Punctuality goes without saying. “When the appointment is at 8:30, the technician is there at 8:25,” says Rubin.

But Smart City’s quality initiative is more than an employee code of conduct. There is a top-down emphasis on maintaining a personal connection with each customer. For example, receptionists, not voicemail systems, answer incoming calls. Area managers personally sign all correspondence with customers.

A background in services

Smart City never did follow the typical telephone company profile. Founded in 1984 to supply telecommunications services to the Astrodome in Houston, Smart City’s history is rooted in both contract work and meeting the immediate telecommunication needs of large groups with lots of specialized requirements.

In the 1980s and 1990s, Smart City’s business extended beyond sports arenas into convention centers, including most of the major exhibition venues in Las Vegas, the Anaheim Convention Center, the Dallas Convention Center, the Javits Center in New York, as well as many others. If you’ve attended a Comdex, Networld+Interop or Consumer Electronics Show in the past several years, chances are that at some point, even if it was just for wireless access on the show floor, your telecommunications services were handled by Smart City.

In the last few years, Smart City has moved into the local exchange business. Its biggest win so far came from Disney, which awarded the company the local franchise for Disney World, Lake Buena Vista, Fla., and the nearby prototype town of Celebration.

Absent the set-up and teardown cycle, public network service is increasingly taking on aspects of a service delivery business that must meet the wide-ranging communications needs of a diverse group, rather than offer one type of service from one type of infrastructure.

For example, in the convention business, Smart City moved into wireless as a way of responding to exhibitors who ordered  phone lines late, after the booths had gone up and the carpeting was laid down. That prevented deployment of additional cable. "We saw wireless as a necessity for service," says Rubin. 

When the point of the local exchange is to provide last mile communications in any form, Smart City's model as a telecom contractor is easily transferable. 

Smart City Telecom, the company’s telco unit, already offers DSL service in Celebration, which, with a population of 6,000, is comparable in size to numerous U.S. towns and villages served by independent telephone companies.

DSL and Wi-Fi together

Celebration is a lab for Smart City’s “Ritz-Carlton” service philosophy. Here, technicians not only install the hardware, they will assist DSL customers in setting up wired and wireless home networks. This alone creates a consumer environment more amenable to personal information technology. Despite the fact that most personal computer and home networking components are plug-and-play, the process of ordering PCs, Ethernet hubs, and 802.11b base stations for the home can be a bit intimidating, especially when it's done a la carte from a catalogue or Web site. Smart City offers consumers a much-needed friendly hand in assembling the elements. That makes for a richer, more positive technology experience.

The company’s most innovative move has been to make public Wi-Fi service free to its DSL subscribers. By combining wired DSL with wireless Internet access, Smart City illustrates a creative approach to marketing the broadband access technology, which competes with cable modems but has a more difficult value proposition, as it can't be bundled with television service. Smart City's plan shows a way broadband can be delivered attractively and inexpensively to rural and downtown areas.

Smart City hopes to use its base in Disney World and Lake Buena Vista to grow further in the Orlando, Fla., area. The company is now looking to expand in the areas of Web hosting and fixed wireless broadband, Rubin says.

At one time the differences between a local phone company and a convention services contractor were far more pronounced. But as the “last mile” becomes less dependent on infrastructure and more sensitive to service assurance and quality, a company oriented toward platform-independent service delivery, like Smart City is, understands the new model. After that, it comes down to how well you can satisfy or delight the customer. For that, all you have to do is check out the Ritz.

The Russian wireless explosion

The story in brief: Although it isn't the most glamorous of markets, and there's hardly any talk of 3G yet, Russia is a hotbed of wireless growth. The last few years have seen the opening of new spectrum and vibrant growth, especially in the eastern part of the country. 

For the Russian wireless industry, the fall of Soviet communism in 1991 could not have been timed better. That was also the year the first digital cellular systems based on the Global System for Mobile Communications (GSM) became operational in Europe. As the Russian economy shook off the Communist era, the enormous pent-up domestic demand for phone lines, along with the equally important need for the Russian mobile phone system to support the influx of foreign business development, combined to create an eye-popping business case.

For all intents and purposes, the Russian telephone system relies on wireless networks to deliver the last mile connection. At the end of September 2002, the cumulative subscriber base of all wireless networks in Russia had reached 14.7 million. By the end of this year, the total subscriber base in Russia is expected to reach 17 million, translating to a penetration level of 12% and, according to U.K.-based Baskerville Research, an annual growth rate of 100 percent. This growth is fueling overall expansion in the region, helping make Eastern Europe the fastest growing wireless market.  

Wireless development in Russia both follows and intensifies a pattern seen in other parts of the world where wireline infrastructure is poor. As wireless penetration peaks in Western Europe, east Asia and the U.S., Russia serves as a reminder that there are still markets that are ripe for development. Russia's expanse, which literally straddles urban, industrialized Europe and rural Asia, makes it all the more unique.

A new buildout

The Soviet government's lack of interest in building a civilian mobile telecommunications infrastructure meant that Russia sat out much of the early years of analog wireless technology development. So while Advanced Mobile Phone Service (AMPS), Time Division Multiple Access (TDMA) and Nordic Mobile Telephone (NMT) systems were rolling out in the U.S. and Europe, these early technologies had limited introductions in Russia.

Consequently, most of Russia was able to launch digital GSM out of the gate. On the downside, introduction of these systems lagged Europe by several years. The earliest GSM systems, in the more populated cities in western Russia, started coming online in 1994. It wasn't until late in the decade that coverage spread to accommodate most major and mid-sized cities, especially east of the Urals.

In the late 1990s, Russia joined the rest of the GSM world in opening the 1800 MHz band, allowing existing companies to accommodate greater user capacity and offering new companies the chance to bid for licenses. These newer 1800 MHz systems started becoming operational in 2000. Many have yet to complete construction.

The delay in initial GSM development means that Russia is also behind in deployment of next-generation wireless technologies. Most carriers in Europe have introduced General Packet Radio Systems (GPRS), a technology overlay that lets GSM systems handle data at a faster bit rate. In Russia only the two largest operators, Vimpel Communications, owner of the Beeline brand, and Mobile TeleSystems (MTS), have deployed GPRS, and then only in the Moscow metropolitan area.

From a technology standpoint GSM dominates Russia's wireless scene. Market studies estimate the total market share of GSM networks is close to 90 percent. Nokia, Ericsson, Alcatel and Siemens have divided up the infrastructure market and handset market, which has remained strong despite the economic problems plaguing Russia.

Two operators, Moscow Cellular Communications and Delta Telecom of St. Petersburg, plan digital networks using IS-95 Code Division Multiple Access (CDMA), a rival to GSM. Delta has already established a supply agreement with Lucent Technologies, which makes CDMA systems. Meanwhile, the small market share that TDMA and NMT networks have continues to decrease.  

Consolidation under way

The wireless market in Russia is competitive. There is generally more than one service provider in each market, even in smaller cities. However, as revenues and companies grow, consolidation is beginning to occur. VimpelCom and Megafon, Russia's third largest operator, have garnered much of their recent growth from acquisition of regional systems.  

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Russia's top three wireless companies by subscribers, as of September 2002

Mobile TeleSystems      5.4 million

VimpelCom                    4 million

Megafon                        2.3 million

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VimpelCom's systems cover the largest share of the Russian population, making VimpelCom and its Beeline brand two of the most recognizable names on the Russian wireless scene. The group's license portfolio covers markets totaling 101 million people, approximately 70% of Russia's population.

VimpelCom, a closed joint stock company, is divided into two units. One serves Moscow and the surrounding areas. The other unit, VimpelCom-Region, manages all other Beeline markets outside the Moscow region. 

VimpelCom's total capital expenditures for 2001 were approximately $238.3 million, with $163.1 million spent in the Moscow license area. Key vendors include Alcatel for switching and base station systems and Intec Telecom Systems for billing and administration systems.

VimpelCom-Region launched 15 networks between September 2001 and January 2002, including networks in several key cities, such as Nizhny-Novgorod, Novosibirsk and Rostov-On-Don. As the end of the year approaches, the company has significantly intensified its national expansion, providing coverage and services to a substantial part of the 85 million people in its licensed territories outside of Moscow.

In September 2002, the licensing committee of the Ministry of Communications of the Russian Federation approved the issuance of a GSM-1800 license to VimpelCom-Region for Russia's Northwest license area. This includes the city of St. Petersburg, the surrounding Leningrad region, and the Vologda, Kaliningrad, Murmansk and Novgorod regions. The total population of the Northwest license area is approximately 13.7 million.

Although it's still geared to meet demand for voice communications, Russia's wireless system may ultimately become another showcase for wireless as the last mile. In the major cities wireless already is an inexpensive and superior alternative to wireline dial tone. In the more remote sections of the country, it's the only option. Wireless technology is a basic part of the Russian telecom scene. As the technology evolves to broadband, Russia will be a critical market to watch. 

-- Steven Titch 

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