Small to mid-sized telcos need to collaborate more fully to effectively compete with cable and wireless companies, the newest telco CEO on the block announced Monday at TelecomNext.

Compared with its competition, the local telephone industry is “fractious,” said Dan Hesse, named president and CEO of Embarq, the local service spinoff of Sprint Nextel.

“Mid-sized and small companies can achieve much more if we collaborate more than we do now,” he said.

Sprint had earlier announced Embarq’s first major new initiative, a mesh WiFi trial with the city of Henderson, Nev., that could lead to future WiFi initiatives with other cities. The company has set up a trial in two locations within Henderson of about one square mile each in which it will test a mesh WiFi network for both city applications such as remote access and public safety, and for general Internet access.

“There are many different models out there, and we wanted to explore what those models are and what the potential is,” said Rob Kermode, director of emerging technologies. “We are trying to figure this out.”

The trial will also allow the new local services company to explore what the practical issues are to operating a mesh WiFi network, including cost, maintenance and public usage patterns. One application will enable local police officers to do seamless roaming from their squad cars to the police station.

Today, their narrowband wireless service lets them share information but a broadband service will let them share streaming video, said Brian Koenig, manager, emerging technologies for the data solutions division.

“Henderson is one of the fastest growing cities in the country,” Kermode said. “And the pace of their infrastructure growth is fast. Among other things, they want to enable building inspectors to use wireless access to file reports. And they want to improve the overall quality of life.”

At this point, Kermode said, Embarq isn’t committing to pursuing the muni WiFi business but, if the company proceeds, it will be in cooperation with local governments.

Hesse said his new company also is poised to offer new services including smart phones, unified messaging, IP Centrex and VoIP for consumers and small businesses.

“We can innovate together,” he told the TelecomNext crowd. “We can come together to create scale and partner with – and lead -- our suppliers.”

Hesse also hopes smaller telcos can unite to battle current regulations which he said create an unfair competitive environment. Specifically, he would like to see elimination of regulations designed to protect consumers which actually add cost and complexities to the local service business unnecessarily. While VoIP providers pay seven one-hundredths of a cent per call for local reciprocal compensation, local phone companies pay seven cents for terminating access and six cents for the Universal Service Fund, on a per-call basis.

“We pay 19 times more than they do, purely on regulatory arbitrage,” Hess said.

In addition, local telcos pay heavier taxes than the cable companies now moving into VoIP, he said, citing local tax rates in Ohio and Kansas which bill telcos at more than two times the rate as cable companies.

“We need a level playing field,” Hesse said.

Finally, he said, statewide averaging of costs means that companies that have a mixture of high-cost service territories and non high-cost areas don’t get the assistance they need.