Wireless Firm Splicing Competition Into the Cable TV Business : Technology: Irvine firm installs microwave radio systems to provide an alternative in communities where a wired system has been the only choice.
In parts of the country, American Wireless Systems Inc. is bringing something to the cable TV industry that consumers have been complaining about for years: competition.
To the delight of those who think that cable rates are too high, dozens of companies such as American Wireless in Irvine are installing microwave radio systems to provide an alternative in communities where the only choice has been to pay cable operators’ rates or do without the service.
“Wireless cable is just a different delivery system for pay television, an alternative to cable,” said Jeffrey D. Howes, president of the privately held company and a former investment banker.
Such talk would not have bothered cable operators a few years ago, when the wireless TV industry was in its infancy. But in recent years, wireless operators have received support from the Federal Communications Commission and Congress, which has backed wireless technology to increase cable competition.
Also, cable operators are facing new regulatory pushes aimed at controlling rates.
The wireless industry has gained credibility with successful service in a few cities: Riverside, San Bernardino and Corpus Christi, Tex.
Seventy U.S. wireless systems are in place today, with more than 450,000 subscribers, said Richard Amons, spokesman for the Wireless Cable Assn., a lobbying group in Washington. The systems can broadcast up to 33 pay-TV channels into homes for an estimated 15% to 30% less than the average cable TV operator, supporters say.
“The customer doesn’t care how he gets his television broadcasts,” said Steven G. Johnson, American Wireless’ chief operating officer. “He just cares about service, quality and price.”
American Wireless will test that theory in June, when it starts service in Fort Worth.
Microwave technology has been around for decades. MCI Communications uses a microwave system to transmit calls across regions where stringing fiber-optic cable is too difficult.
“From a technology standpoint, it’s not rocket science,” said Howes, 44, one of three founders of American Wireless.
A wireless cable system involves a transmitting station to beam microwave radio signals to small parabolic dishes mounted on the roofs of subscribers’ homes. Depending on the height of the station, a microwave station could beam cable TV to homes in a 30-mile radius or more.
American Wireless expects to invest about $15 million to build its system in Fort Worth, or perhaps $400 per subscriber, based on a projected 37,500 subscribers. Analysts estimate that this cost contrasts with an industry average of about $816 per subscriber for new cable installations. So American Wireless could charge 15% to 30% less than a typical cable operator, Howes said.
By 1995, wireless cable could garner about 683,000 subscribers, according to consulting firm Paul Kagan Associates in Carmel. That will still be a small chunk of the cable industry, which has 55.7 million subscribers, according to the National Cable Television Assn., a Washington-based trade group.
But cable TV industry officials say they believe that they can continue to win new subscribers with rates that average $18.34 a month for 34 channels, regardless of competition from wireless cable, according to an NCTA spokeswoman.
Wireless cable has some disadvantages. It takes up to 10 FCC licenses to cover a 40-mile radius in a big city. Prices have nearly doubled in the past year for licenses in major markets, Howes said.
There are also drawbacks to the technology. Not unlike the problems that plague cellular phone customers, microwave TV transmissions can be obscured by buildings, trees or mountains. The systems work best in cities where the geography is relatively flat.
Until 1983, the FCC limited the radio wave spectrum to just one microwave radio channel, allocating the rest of the band to different technologies. The FCC changed that, setting aside enough space to microwave operators to allow them to squeeze 33 channels into a given area.
By comparison, some cable operators offer up to 150 channels, though the average is 35.
Much of the radio spectrum is used by universities for education. In Southern California, such use is so widespread that wireless cable will not be installed in most of the region, Howes said, either because the schools will not give up the airwaves or the price of buying it would be prohibitive.
Within a few years, the available airwaves will be owned by various wireless cable companies. American Wireless is racing against competitors to accumulate spectrum.
A shortage of capital for financing ventures has hindered industry growth, Amons said.
Eventually, technological advances should enable wireless operators to squeeze 100 channels into the spectrum, more than triple the current number of channels.
“That should level the playing field,” Howes said.
Funded as a limited partnership by private investors, American Wireless has been buying licenses for the past 18 months. But some other companies have a head start on the firm.
In Riverside County, Cross Country Wireless Cable of New Jersey started a wireless system in May and has about 25,000 subscribers, said Paul Gadzinski, general manager.
Potential competition also comes from the direct-broadcast satellite industry, which provides TV service by setting up satellite dishes at customers’ homes. Phone companies, some of which are planning to offer broadcast services to homes through fiber-optic cable, could also be future rivals.
To keep up with competitors, American Wireless has been expanding. The company employs 100 people in Irvine and is adding about two employees a week. It also has a microwave research laboratory in Phoenix with 14 people.
Howes estimated that the company will need 10,000 subscribers to break even in Fort Worth. But the company’s goals are more ambitious: 60,000 subscribers, or 20% of the market.
American Wireless will vie for subscribers with Sammons Cable, which has 92,000 subscribers in Fort Worth. Sammons officials declined to comment on American Wireless’ plans.
But Steve Berkoff, a market researcher for Wireless Technologies in College Station, Tex., said Howes’ goals are achievable.
“It’s almost a given that a wireless company can get 20% of a market,” he said.
Besides the Fort Worth investment, American Wireless plans to spend $25 million in Pittsburgh and $30 million in Minneapolis. The company also plans to build systems in a half a dozen smaller markets, and it is bidding on licenses in two of the top 20 markets, Howes said.
By 1997, American Wireless hopes to have 500,000 subscribers, generating $162 million in annual sales for the company. In each of the markets, the company hopes to subscribe about 20% of the cable business.
“We don’t expect to be a dominant force,” Howes said. “It would be like cellular (phone networks), where you’d have competition between two providers of the same service. . . .
“Cable has an image problem. We’re like knights riding in on white horses,” he said.
Wireless Cable at a Glance
The cost to build a wireless cable system is about $400 per subscriber, while wired cable systems--the most common type--typically cost two to five times more.
Subscription costs tend to be less expensive for wireless than wired cable. In Riverside, for instance, basic cable, HBO, Cinemax, a remote control and access to pay-per-view is about $27; the equivalent package from wired cable companies is $39 to $47.
Wireless cable tends to have fewer service problems. Because of heavy rain or other natural occurrences, underground wired cable tends to deteriorate with time--resulting in weaker signals--and needs to be replaced roughly once a decade.
One drawback to wireless is that its transmission signal can be obstructed by hills, mountains or tall buildings; wired cable does not have an obstruction problem, because signals are sent via underground cable.
Wireless operators say picture quality is equal to or better than wired cable; wired cable operators say theirs is also equal to or better than wireless cable.
Source: Wireless Cable Assn. International, various cable companies and industry specialists Researched by DALLAS M. JACKSON / Los Angeles Times
