THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, March 18, 1995 TAG: 9503180210
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Long : 164 lines
Why would some of the nation's biggest telecommunications companies pay the federal government $7.7 billion for, well, air?
That's a question that some of the companies' stock investors are fretting about now that the Federal Communications Commission has completed the biggest-ever auction of government property: a slice of the radio spectrum.
But as the FCC called a halt this week to its three-month-long auction of 99 licenses for so-called Personal Communications Services, the winning bidders predicted their big bets will pay off many times over.
``This is really the dawn of the mass market for wireless communications,'' said Nancy Stark, a spokeswoman for Bell Atlantic Corp., which joined with three other regional phone companies to pay $1.1 billion for PCS licenses covering 100 million people.
Whatever one calls it, cellular or personal communications, a wireless phone ``is no longer going to be perceived as a toy for rich people,'' Stark said.
Since the government authorized cellular phone service a decade ago, it has kept the industry under tight control: two providers per territory. That's helped keep the services pricey.
But with the just-concluded PCS auction and another round of bidding for thousands of smaller PCS licenses later this year, as many as six additional wireless providers will be battling in each market.
Hampton Roads is typical. Consumers here will have at least four major wireless competitors to choose from. On the cellular side are Sprint and GTE Corp.'s Contel. Joining in on the PCS side within 18 months to two years will be the Bell Atlantic group and AT&T Corp. The latter two paid $33 million and $33.7 million, respectively, for licenses covering a region stretching from Virginia Beach to Roanoke.
As the field of providers grows more crowded, analysts say wireless usage charges - which generally range from 20 to 40 cents a minute for cellular - could be cut by as much as half.
By decade's end, they say, the rate-cutting will add tens of millions of new wireless subscribers to the 25 million already using cellular. If providers are able to deliver on the loftiest of their promises, to give consumers one number that they can take with them anywhere their whole lives, analysts say some people may drop their plain old telephone service altogether.
``It's going to be great for consumers,'' said David Goodtree, senior analyst for Forrester Research Inc. in Cambridge, Mass.
Less clear is whether the wireless boom will be a boon for the companies providing the services.
By some estimates, it could cost the nation's telecommunications providers another $50 billion over the next several years to build out their wireless networks.
Investors in some of the more aggressive PCS bidders have grown concerned about the cost. The stock of Sprint Corp., for instance, nose-dived in recent months. A consortium that it led was the most aggressive of the PCS bidders, paying $2.2 billion for licenses.
The wireless gamblers contend that their bets are smart. They say the risk of not participating is even greater as consumers rush to sign up for services. The companies hope their customer rolls will grow so vast that they'll be able to afford the cutthroat pricing analysts predict.
Indeed, by combining their newly acquired PCS licenses with their existing cellular holdings, several companies or groups of companies now have the workings for what they say will ultimately be nationwide wireless networks.
AT&T Corp. is the closest to that goal, with combined cellular/PCS licenses for about 80 percent of the U.S. population. It paid $1.7 billion for PCS licenses.
Sprint and its partners - cable-TV operators Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. - claim coverage of about 68 percent. The Baby Bell group covers about 63 percent. Besides Bell Atlantic, its partners are NYNEX Corp., U S West Inc. and AirTouch Communications Inc.
Analysts say they expect all three national contenders to add to their coverage areas by teaming with or buying other players. But they say that there may still be room for another national wireless network formed around some of the remaining midsized providers - companies like GTE and BellSouth Corp.
It's not clear how MCI Communications Corp. will enter the fray. It didn't bid for PCS licenses and has no cellular operations, but few doubt that the company will eventually become a big wireless player.
Plus, Nextel Communications Inc. is trying to assemble a nationwide cellularlike service from its hodgepodge of fleet-dispatch licenses acquired over the past several years.
When the government first announced its plan to auction PCS licenses, there was much talk about how winners of the licenses would use their radio spectrum to steal customers away from cellular.
Analyst Goodtree said that's not a big issue now - since the major cellular providers themselves dominated PCS bidding.
``There won't be PCS, there won't be cellular,'' he said. ``There will be wireless, which will be a mishmash of technologies.''
There will also be rough spots on the wireless way.
A federal appeals court in Washington this week stayed the FCC's plan to favor minorities, women and small businesses in bidding for the next round of PCS licenses later this year. The FCC might hold up approval of all PCS construction plans until the issue is resolved.
Meanwhile, Goodtree said there are technological hurdles to overcome. PCS is in the 1.9-gigahertz range of the radio spectrum, compared to about 850 megahertz for cellular. And it will be all-digital from the start. Many cellular providers haven't yet completed the conversion from analog to digital networks. They'll have to accelerate that conversion now and resolve differences over which of several digital platforms to use.
Ultimately, for customers to move seamlessly from a cellular system to a PCS system, providers will have to develop dual-mode phones, said Robert Ratliffe, a senior vice president of AT&T's McCaw Cellular unit.
``Our goal,'' he said, ``is for you to move ubiquitously throughout our network with your ever knowing you've switched.''
Ratliffe said prices for new dual-mode phones could be higher initially than current top-of-the-line cellular models. But he predicted that prices will steadily fall as usage increases, even while more and more features are added.
What will distinguish one wireless provider from another? The types of services they offer, how reliably their networks operate and how much of the country they cover, Goodtree said.
If you're tired of all the high-pitched phone advertising now on TV, wait until the wireless competitors crank up.
Goodtree said they'll bombard consumers with their pitches. ``Advertising that shifts just a tenth of a percent of market share will mean millions of dollars to the bottom lines of these companies,'' he said. ILLUSTRATION: THE GROWTH OF WIRELESS COMMUNICATION
Gambling On Air
An Unwired Nation
JANET SHAUGHNESSY/Staff
Graphic
SOURCES: Personal Communications Industry Association, Federal
Communications Commission, staff reports.
[For a copy of the graphic, see microfilm for this date.]
Nationwide players:
AT&T Corp. With its McCaw Cellular holdings and new PCS licenses,
it now covers a territory of 199 million people. Big territorial
holes: Milwaukee, Indianapolis, New Orleans.
Wirelessco L.P. (Sprint Corp., Tele-Communications Inc., Comcast
Corp., Cox Communications Inc.). Combined cellular/PCS coverage of
170 million people. Big holes: Chicago, Washington, Atlanta.
PCS PrimeCo L.P. (Bell Atlantic Corp., NYNEX Corp., U S West
Inc., AirTouch Communications Inc.). Cellular/PCS coverage of 157
million. Big holes: St. Louis, Indianapolis.
Midsized competitors:
GTE Corp. Cellular/PCS coverage of 71 million. Still missing in
big markets like New York and Chicago.
BellSouth Corp. Coverage of 63 million. Its holdings are largely
in the South.
Southwestern Bell Mobile Systems Inc. Coverage of 47 million.
Concentrated in the Southwest, but has Cellular One outposts in
major markets like Washington, Chicago.
Ameritech Corp. Coverage of 33 million. Major Midwest cellular
provider.
Wild cards:
Nextel Communications Inc. Has acquired fleet-dispatch licenses
for the entire country, and has converted those to cellularlike
services in California, New York City and Chicago, covering about 60
million people.
MCI Communications Corp. No wireless holdings. Has indicated it
plans to be a major player.
Paging services, wireless-data services. Hundreds of such
companies dot the landscape. Consolidation is expected to
accelerate.
by CNB