THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, July 16, 1994 TAG: 9407160215
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By GAGE HARTER, STAFF WRITER
LENGTH: Medium: 66 lines
Specialized Mobile Radio, a technology touted as an alternative to cellular phones, is being hailed as a wave of the future. But despite its promise, investors need to be cautious before buying in, warns the Better Business Bureau.
Some firms may be misrepresenting the profitability of owning and operating SMR systems. They may also be downplaying the risk involved and subsequent investment required to build and maintain such a system, the BBB warns.
Melissa Brown, a BBB trade practice specialist in New York City, said such firms may charge individual investors as much as $10,000 to obtain a license for an SMR frequency, even though the application fee will be $125 starting July 18.
``(Firms) market and advertise their services through infomercial,'' Brown said. ``Some ads are pretty slick and professional.''
SMR licenses were first issued by the FCC in the mid-1970s to help meet the growing demand for commercial radio services such as fleet dispatching. Recently, SMR has been touted as a potential cheaper alternative to cellular phones.
The Federal Communications Commission grants SMR licenses on a first-come, first-served basis. It also has a use-it-or-lose-it policy for keeping SMR licenses - a potential pitfall for unwary investors.
The FCC requires channel license holders to construct a system within eight months of purchase. That means investors must find a site and buy the equipment necessary to operate the channel, such as antennas and broadcast equipment. A small SMR system could cost hundreds of thousands of dollars to build.
John Harris, chairman of Commercial Radio Service Corp. of Norfolk, is among a number of SMR operators that have filed to take over unused SMR channels. He's obtained two channels that way.
Harris is building a SMR network from Roanoke to Georgia that includes a number of towers that could be used by rival networks. But Harris said he is not willing to lease tower space to potential competitors. Instead, he wants them to turn over their channels to his network in return for a minority stake in the operation.
``Many investors do not know what it takes to maintain the channels,'' said George McClellan, who owns Land Air Communications & Electronics Inc., a Virginia Beach-based SMR network operator. ``SMR is not a field for the inexperienced or the blue-haired grandmother.''
Brown agrees, adding that the firms may have a disclaimer in the contract stating that there are no guarantees.
What actions are being taken against these firms?
In January, the Federal Trade Commission filed charges against five firms - four in New York City and one in Florida - claiming that they used a deceptive two-phase scheme to sell SMR investments. The firms identified by the FTC are Metropolitan Communications, Columbia Communications Services Corp., Nationwide Digital Data Corp., Stephens Sinclair Ltd. and Meehan Marketing Group Inc. The Meehan Marketing Group of South Miami agreed on Thursday to pay $205,000 to settle its case.
So what should potential investors do to get into SMR?
They should identify a site, Harris said, then investigate it by talking to the local radio communication shops. This will help the investor know the area and know who are the key players.
KEYWORDS: MOBILE PHONE MOBILE RADIO by CNB