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Lower Tolls On The Information Highway

With emerging telecom technology, Voice over Internet will cut the cost of long-distance calls, roaming charges will disappear, and access to the Internet will be faster and cheaper


November 22, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Change is in the air: Advances in wireless telecommunications technology is quickly making up for Puerto Rico's lagging wireline services

Data, voice, and video now travel on separate roads, but in the not so distant future these roads will merge onto a single highway. The result will be faster speeds, better service, and lower costs.

You will no longer have separate services for Internet, voice calls, video, or TV. You will be able to place a phone call while surfing the Web through the same pipeline--and do both at blazing speeds. You will be able to watch TV and switch to the Internet through your television.

The first steps in this convergence of services will be in voice and data. Instead of the Internet being a service available over the telephone lines now used for voice network, voice calls will be placed through the Internet using a service called voice over Internet protocol (VoIP).

"We are conscious that clients are looking into integrated solutions that provide security and quality at a competitive price. This demand will drive the conversion of the traditional voice networks into data networks that can handle the transmission of voice over Internet protocol," said Victoria Medina, general manager of Telefonica Larga Distancia.

So what’s in for you, the user, with VoIP? How about slashing long-distance costs by 50% for starters?

VoIP also allows smaller telecom companies to compete with the big ones on a level playing field, which should result in even cheaper rates while providing more choices among long-distance carriers for consumers.

Since the Internet is based on a flat fee for connection, you bypass most of the telecom company charges. The implications are huge since it will expand the number of players able to offer telephone service while slashing rates. Most telecommunications hardware companies and carriers are already gearing up to integrate this service.  (See related story.)

At least one company, Islanet Communications, has announced plans to launch a commercial service followed by residential service next year. Almost all leading telecommunication companies are making the switch to the new networks in order to stay competitive.

You will also be able to choose how you want these services delivered by the Cable TV, telephone company or wireless infrastructure.

The improved services will not be exclusive to the fixed telephone/data line domain. They will also be ported to the wireless industry which is the fastest growing telecommunication segment. So more than voice will soon be traveling the airwaves.

With the new generation of wireless networks and devices, known as third-generation (3G), your cell phone will be more of a handheld computer than a telephone. Data and voice will flow to your cellular phone or handheld device making you more productive and keeping you in touch anywhere in the world. You will be able to access your e-mails and contacts. And if you need to browse the web you will be able to do it through your handset.

The upgrading of these networks into a single domain will also eliminate roaming charges and provide the new services anywhere you have signal. You will buy x-amount of minutes and use them as you please; for long-distance calling, Internet browsing, or e-mail checking.


Wireless cellular telephone service is the fastest growing segment in the telecommunications industry. Six companies provide cellular service to the more than 1.2 million users in Puerto Rico. These are Centennial, Cingular, MoviStar, SunCom, Verizon, and newcomer Sprint PCS.

With such a high number of companies vying for a limited market, the competition is heating up. This will accelerate the arrival of third-generation (3G) services, lower rates, and packages known as the bundling of services. Carriers have been forced to invest in their networks to improve the quality and capacity of their systems.

This not only provides the carriers a clear path to the new services but also improves the quality of service (QoS) by minimizing network congestion as it can manage more voice and data. You will hear fewer busy signals or the dreaded echo of your voice.

"This year, we’re going to invest $50 million in infrastructure when average annual upgrade investment was $35 million," said Garcia.

Verizon Wireless (formerly known as Celulares Telefonica), recently launched its code division multiple access (CDMA) network. Until now, Verizon used CDMA protocol in all markets except Puerto Rico because when it (formerly GTE) bought a controlling interest of Puerto Rico Telephone (PRT), time division multiple access (TDMA) protocol was being used. This created a problem for local customers who wanted to use their cellular phones in the States–referred to as roaming. It also presented a problem for network upgrades as TDMA is not as flexible as CDMA or global system for mobile communications.

The problem was solved when PRT invested $40 million to lay a CDMA network on top of its existing cellular network operated by Verizon Wireless. New customers will use CDMA and existing customers are being shifted over to the new network. This move will provide seamless integration of the local network with Verizon global operations, allowing customers to roam outside Puerto Rico at lower or no cost.

"The implications of this are huge. We will be well positioned to offer 3G services. Service quality will improve as we increase capacity. Also, because we now use the same technology as in the States, roaming will be seamless and the costs will drop," said Jon Slater, president of PRT.

Raul Burgos, general manager for SunCom AT&T-Puerto Rico, is equally enthusiastic about the near future. "2002 will bring the next evolutionary step in wireless data, with exciting data applications for consumer and more sophisticated ones for business. During 2002 we will also see another generation of handsets with more data capabilities including entertainment and information features such as FM radio and MP3 within the same unit." 

Wireline transmissions evolving

But the evolution of wireless doesn’t mean that you will get rid of that cable going into your home. The wireline segment no longer refers to the physical telephone line but to new ways of delivering data and Internet services faster and cheaper.

The current telecommunications infrastructure was designed to carry voice and optimized for this function. As technology developed data was transmitted on the same network. However, this is slowly changing. Today, there are data networks that also handle voice communications. (See related story, VoIP.) Businesses with large bandwidth demands now rely on dedicated wirelines, like T1 or T3, which are usually too expensive for small businesses or the home consumer.

Centennial of Puerto Rico recently launched its new broadband division under the name Centennial Broadband Services. The new division will manage Centennial’s local and Caribbean fiber-optic network constructed at a cost of more than $500 million over the past five years.

Centennial also presented, Innova, its first product of the new division. The new service will bundle regular voice and high-speed Internet/data services into a single package for business customers.

"By creating the new division, we are sending a clear message about our commitment to Puerto Rico by providing the best telecommunications and Internet/data services available," said Carlos Bofill, president and CEO of Centennial of Puerto Rico.

"We plan to continue the development and expansion of our current telecommunications infrastructure offering redundancy and reliability across the whole island. As part of this effort we have grown our capacity on various submarine fiber-optic cables around the world, acquired a switch in Florida and presence in the Internet Network Access Point (NAP) of the Americas so we can connect Puerto Rico directly to the Sates and the rest of the world," said Alvaro Pilar, general manager for Centennial Broadband services.

The simplest access to the Internet right now is by way of a dial-up line. It’s easy to set up and widely available. Drawbacks include a slow connection speed (56 kilobits per second) and the inability to place calls and send or receive data over the same line while it is connected to the Internet.

Two technologies are emerging to replace telephone lines–digital subscriber line (DSL) and Internet through cable television. Both of these broadband systems work by integrating voice over a data connection and provide high speeds that are at least five to six times faster than regular dial-up connections.

DSL is provided through the current copper-wire telephone network, so PRT provides the service to the majority of telephone-line clients. Centennial also offers DSL service but only in places where it is the sole provider of telecommunication services, or 7% of the market.

"DSL needs three basic things before it can fly. First, we have to condition or upgrade the copper lines. Second, modem compatibility problems need to be resolved. Then, we must be sure everything works for the customer," said Seidenberg, president and co-CEO of PRT parent Verizon Communications.

"We expect that to have islandwide DSL coverage in the first quarter of 2002," said PRT’s Slater. "Right now we have more than 2,000 customers on the service and our goal is to have another 1,000 by the end of the year."

He added that the need of more speed for the new applications on the Internet requiring video and voice would drive the demand for broadband services.

Internet access through cable television uses the coaxial cable entering homes to transmit and receive large amounts of data at high-speed. It can also be setup to provide voice call service like DSL (CB Nov. 8).

The two largest cable TV companies in Puerto Rico, Adelphia and Liberty Cablevision, are preparing their networks for official launches next year.

"When Adelphia launches the service in the first half of 2002, we could be offering it at an estimated basic price of $39.95 a month," said Francisco Toste, vice president and general manager for Adelphia-Puerto Rico.

Toste added that under current network conditions 50,000 customers could subscribe to the service of its base of 140,000 if the service was launched immediately.

Liberty Cablevision expects to provide the service to more than 40% of the 23,000 customers they serve in the first year.

CHART A: Fixed lines Reported by Carriers by State

State Total number of lines (In millions)  Penetration (%) Number of ILEC-CLEC
California 24.9                     73.4%           22 
Florida            12.0   75.5%                     27
Mississippi 1.37                   48.9%            10
Montana  0.53                  58.7%                      9
New York        13.7                   72.5%                 31
Puerto Rico    1.3                   34.2%                    2
Nationwide  193.8                    67.9%                  251

Source: FCC end-user lines served by LEC report (December 31,2000)

Nationwide numbers include Puerto Rico
Companies with less than 10,000 clients didn’t have to report
ILEC = Incumbent Local Exchange Carrier
CLEC = Competitive Local Exchange Carrier

CHART B: Cellular users by State

State                          Total number of users (In millions)       Penetration (%) 
California 12.6                37.0%         
Florida                 6.3                    39.6%                        
Mississippi 0.7                                  27.8%                        
New York          5.7                               30.0%                        
Puerto Rico        1.2                    31.0%                        
Nationwide total  101.2                    35.5%                        

Source: FCC Mobile Wireless Telephone Subscribers report (Dec. 31, 2000)
Nationwide numbers include Puerto Rico

CHART D: Puerto Rico Total Cellular Market Outlook (In Millions)

  Dec. 2000      Dec. 2001      Dec. 2002
Number of users 1.2 1.5   1.8
Penetration         31.5%  39.4%  47.3%
 Source: CARIBBEAN BUSINESS estimate

The Pros and Cons of Broadband services

Cable Modem
  • Cheaper ($40 a month estimated)
  • Faster speed initially
  • In can be used without computer through special cable boxes
  • Always on connection (no dialing)
  • Not all people have access to network                  
  • Slows down as more users log in
  • Voice call service is not currently available

  • Available throughout a larger area
  • Performance doesn’t degrade
  • Always on connection (no dialing)
  • Bundles with voice call services
  • You need to live close to a central office
  • Condition of copper wire is very important to maximize speed
  • Computer setup required


Asynchronous Digital Subscriber Line (ADSL) - This is a DSL version that supports data speeds of more than 2 Mbps downstream (to the user) and slower speeds upstream (to the Internet).

Asynchronous Transfer Mode (ATM) - A networking protocol designed to move multimedia data around with high reliability and speed. Some Internet Service Providers use ATM as the protocol for their backbones.

Bandwidth - This is a measure, in some amount of bits per second, of the amount of data that can be sent over a particular cable, interface, or bus.

Baud - The measure of how frequently sound changes on a phone line. This used to be the measure of speed of modems because they worked by brute force and actually made a sound for each bit of information. Now, modems work on a more sophisticated level. A 14.4 Kbps modem actually uses 2400 baud, but can transmit 14.4 Kbps.

Bits per second (bps) - This is generally a measure of how fast some device communicates, usually in thousands of bits per second (Kbps) or millions of bits per second (Mbps).

Broadband - This is a technology that refers to the transfer of multiple signals over a single medium. It's any Internet connection that allows for higher transfer speeds than an analog modem, most often applied to cable modem access. However, it is sometimes used to refer to DSL, satellite and wireless Internet services as well.

Bytes per second (Bps) - This is generally a measure of how fast some device communicates, usually in thousands of bytes per second (KBps) or millions of bytes per second (MBps). If you've got a capital B, you are talking Bytes. Each bit equals eight Bytes.

Cable Modem - Cable companies are working to provide Internet access over their coaxial cable. A cable modem accepts this coaxial cable and can get data from the Internet at up to and above 1.5 Mbps. It's only available from certain cable companies in certain communities.

Cellular: Refers to wireless communications systems, especially the Advance Mobile Phone Service (AMPS), which divides a geographic region into sections, called cells. The purpose of this division is to make the most use out of a limited number of transmission frequencies.

CDMA: Short for Code-Division Multiple Access, a digital cellular technology first used during World War II by the English allies using spread-spectrum techniques. Unlike competing systems, CDMA does not assign a specific frequency to each user. Instead, every channel uses the full available spectrum. Individual conversations are encoded with a pseudo-random digital sequence.

E-mail - This stands for electronic mail. It is a service provided over the Internet that allows you to send information to another person or list of people.

Fiber Optic — A wireline method of transmission alternative to copper. The way it works is by pulsing light down a strand of glass. These pulses represent binary code. The advantage is that a single strand of fiber optic can carry thousands and thousands of different frequencies at once without data loss.

GSM: Short for Global System for Mobile Communications, one of the leading digital cellular systems. GSM uses narrowband TDMA, which allows eight simultaneous calls on the same radio frequency. GSM was first introduced in 1991. GSM service is available in more than 100 countries and has become the de facto standard in Europe and Asia.

PCS: Short for Personal Communications Service, the U.S. Federal Communications Commission (FCC) term used to describe a set of digital cellular technologies being deployed in the U.S. PCS includes CDMA (also called IS-95), GSM, and North American TDMA (also called IS-136). Two of the most important distinguishing features of PCS systems are: They are 100% digital and they operate at the 1900 MHz frequency range.

Roaming: The ability to use a cellular phone outside its base or home system when traveling.

TDMA: Short for Time Division Multiple Access, a technology for delivering digital wireless service using time-division multiplexing (TDM). TDMA works by dividing a radio frequency into time slots and then allocating slots to multiple calls. In this way, a single frequency can support multiple, simultaneous data channels. TDMA is used by the GSM digital cellular system that is very popular in Europe.

Wireless Application Protocol (WAP) - This is a standard that allows for transfer of data securely between wireless devices, such as PDAs, cell phones, pagers or other combinations of those devices. WAP supports many different wireless networks.

. Color Voice over Internet Protocol: The long-distance cost killer?

Voice over Internet Protocol (VoIP) is another application that uses the Internet and poses a serious threat to carriers offering long-distance service through the public switch telephone network (PSTN), the voice network used today to place calls.

In a regular long-distance call, the person who places the call is physically connected through wirelines with the person receiving the call. The call goes through various telecommunication companies and switches until it reaches its destination. Each of these companies charges for the use of its network resulting in a higher cost per minute.

The Internet is different. You connect locally to the Internet but once your data is on the Net, it’s routed through data networks directly to its destination. Since the Internet charges are based on a flat connection fee to the global network, costs are lower. You pay only your monthly Internet fee even if the call is placed from Puerto Rico to Hong Kong.

At the moment, you still need a computer, Internet connection, or a telephone system that’s Internet enabled to take advantage of VoIP. But a company called Phone Genie is about to bring VoIP to the masses.

Phone Genie manufactures a device that plugs between the telephone and a regular wall jack. This device, based on programming by the telecommunication company providing the service, will distinguish between a local and a long-distance call. If it’s a long-distance call, Phone Genie will place it through an Internet voice gateway or server via your regular telephone, without the need of a computer, bypassing long-distance carriers and the local telecommunication company. The device will reduce the cost of what is now more than $0.07 a minute to as little as $0.04 a minute.

"This device will open up the VoIP market to people without computers or the knowledge to place a call with a PC. The operation is completely transparent. The telecom company that licenses our technology will have a clear advantage over long-distance carriers. Even small telecom companies will be able to compete with the giants," said Christopher Olander, president and CEO of Phone Genie Technology Inc.

Locally Islanet Communications is getting ready to launch commercial VoIP long- distance service. "We will be able to offer our current or new Internet clients long -distance calls to the States for as low as $0.04 a minute with no other fees or hidden charges. They just need an IP capable telephone system," said Julio Rodriguez, vice president sales & marketing for Islanet Communications.

Rodriguez added that they plan to expand the service to residential customers using the Phone Genie technology. "Any Internet service provider (ISP) in Puerto Rico will be able to resell our long-distance service using our voice gateway for Internet calls," added Rodriguez.

Using VoIP can also make tariffs like the local K-2 Tariff--charged to long-distance carriers for interconnection and call termination--obsolete. Since it’s a local call immediately routed through the Internet and not the PSTN, there’s no tariff. VoIP could end the current dispute between long-distance carriers, the Telecommunication Regulatory Board, and Puerto Rico Telephone. To put it simply, whoever provides the service is the winner.

Most hardware companies of the likes of Cisco, 3Com, Lucent, and Polycom are getting ready for the demand for VoIP-ready equipment. "We expect that in the next two years, the demand for VoIP-enabled products will skyrocket because it offers such large cost reductions," said Glenn Adamo, vice-president Caribbean and Latin America for Polycom.

Network hardware manufacturer 3Com concurs with the experts on the expected demand for VoIP products. "By the year 2005, all telephony products will be based on Internet protocol, displacing anything that has to do with switch networks," said Roman Baudrit, regional manager Central America and Caribbean for 3Com.

A quick look at the wireless Industry

To jumpstart the wireless industry, the Federal Communications Commission (FCC) established the Omnibus Act in 1993 to give wireless carriers a slight advantage over other telecommunication services. The act prohibited regulatory entities–like the Telecom Regulatory Board (TRB)–from barring the entrance of wireless carriers to the local market or enforcing tariffs on them. That way, carriers were assured easy entry to establish a presence in the market and the possibility of competing with wireline or traditional telephone companies.

The results have been impressive so far. More than 120 new wireless companies have been TRB-certified since the Telecommunications Act opened the markets in 1996. This includes companies that offer a variety of services including cellular, fixed wireless, and pager services. But the real competition is in the cellular market segment.

"We have seen a reduction in the use of public phones and this is the result of the widespread use of cellular phones. People are getting used to having access to a phone all the time, anywhere," said TRB President Phoebe Forsythe. "We expect the market to continue growing at a slower pace. We also think there’s enough market for six companies to offer service. This is good for consumers as it lowers service costs."

Beginning this year, the number of local cellular users was estimated at 1.2 million, or a 30% market share penetration. Most industry experts believe that by yearend, penetration should jump between 37% and 39% for a total of more than 1.4 million users, easily surpassing the number of fixed lines available. This means Puerto Rico was close to the nationwide average penetration of cellular service at the beginning of year–estimated at 35.5%–and is growing even with the national rate.

Forsythe added that the market would probably get a further boost as Internet access through cellular handsets and other advanced applications become available.

"Puerto Rico is one of the most competitive wireless markets in the nation," said Mario Garcia, president Cingular-Puerto Rico. "In the States, you don’t see offers like free incoming calls, free calls from cellular to cellular, and free calls on weekends or nights. People feel free to use their cellular phones, often using it more than a regular phone. Some people prefer to just have a cellular phone."

Garcia also added that Puerto Ricans tend to talk more than stateside users. "Minutes consumed by our clients are growing exponentially," she said.

As a considerable number of companies strive to gain market share, it’s not inconceivable to think that some of them may merge. But a merge between wireless carriers was not a simple process, until now.

The spectrum cap for wireless companies, or how much of a specific frequency they could use, has been lifted by the FCC from the 45MHz in urban areas to 55 MHz. And in January of 2003 it will be eliminated all together. Unrestricted spectrum will permit the merge/buyout of wireless companies without concerns for FCC regulations over too much spectrum in a specific market.

"With the spectrum cap being lifted by the FCC, we will see more mergers, acquisitions and consolidations from various companies in the industry. An Example is AT&T Wireless purchasing TeleCorp," said Burgos. —J.M.

Status of local telecommunications

If you feel local telecommunications have lagging behind the rest of the U.S., you’re probably right. But all of the upcoming new services and technologies are expected to bring Puerto Rico closer to stateside levels.

The island has fallen behind the States in deploying new technologies and services. Although the process has improved steadily, the prevalent high demand for cutting-edge telecommunications is forcing companies to expand their coverage throughout the island. This process has been the focal point of some fierce competition among the companies involved.

Since the deregulation of the telecommunications industry at a national level, more than 260 telecommunication companies in the areas of wireline, wireless, and cable television have been granted Puerto Rico Telecommunications Regulatory Board (TRB) authorization to do business locally.

And Puerto Rico serves as a springboard to Latin America for these companies. As a U.S. territory located between the mainland U.S. and Latin America, the island serves as a landing point for many telecommunication submarine cables, which makes it a strategic point for the industry.

According to Ivan Seidenberg, president and co-CEO of Puerto Rico Telephone (PRT) parent Verizon Communications, the markets that lie south of North America will be key for telecommunication companies in the next 20 years.

"PRT can be used as a hub and platform for an expansion into Latin America, which is a region we don’t have enough presence in," said Seidenberg.

The local wireless industry has seen fast growth not only in cellular-phone use but also in the number of companies entering the local market. Six carriers now provide wireless service in Puerto Rico, with new-kid-in-town Sprint PCS being the latest entry. This proliferation has resulted in competition that will make the services more affordable, as intended by deregulation.

The other side of the coin is wireline service–traditional wired telephone lines. The number of wireline providers, the services available, and their costs place Puerto Rico far behind the stateside average (See chart). On the other hand, the island leads Latin American in terms of wireline and wireless penetration.

According to the FCC, Puerto Rico has 1.3 million wired telephone lines served by the local exchange carriers. Incumbent local exchange carrier PRT provides 93% of these lines, now under Verizon’s control. Centennial of Puerto Rico, a competitive carrier, provides the remaining 7%, as well as wireless service and cable television.

PRT was the government monopoly that provided the last mile connection, or wired connection, between a home or business and the telephone company. So, its disproportionate control of local lines is not expected to change drastically in the near future. New companies will be able to expand the market, but gaining share in this area is highly unlikely.

But this brings a great opportunity for new telecommunication companies.

Since wireline penetration has more space to grow locally than it does in the States, telecom companies can find niches not serviced by PRT. This has been the case for Centennial, which now provides full wireline telecommunication services to new housing developments and commercial buildings around the island.

Another way to reach new customers is through cable-television infrastructure.

Once cable networks are upgraded to the latest two-way specifications, they will be able to provide voice, data, and video services. This will allow them to gain market share from voice and data carriers. —J.M.

This Caribbean Business article appears courtesy of Casiano Communications.
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