MCI to Invest $1.3 Billion in Wireless Firm : Telecommunications: The deal with Nextel makes the long-distance company a key player on information superhighway.
Hoping to beat the cellular phone industry to the punch in offering the next generation of wireless communications, MCI Communications Corp. on Monday said it will invest $1.3 billion in one of the nation’s largest mobile radio companies.
The investment in Nextel Communications Inc. of Rutherford, N.J., makes the nation’s No. 2 long-distance company a key competitor in the market for wireless telephone, paging and data transmission services, which together have been adding more than 1,000 new customers a day.
Such wireless services are expected to become a key component of the emerging information superhighway. Telephone and computer engineers, among others, are rushing to develop products that will allow users to send and receive faxes, phone calls, video and other information from devices as portable and unobtrusive as a wristwatch.
Before MCI’s announcement, AT&T; had made itself into the major player in the wireless market with its planned $12.6-billion takeover of McCaw Cellular Communications, the nation’s leading cellular phone provider. Besides keeping MCI abreast of arch-rival AT&T;, it makes Washington-based MCI a prospective competitor for every local cellular company.
MCI’s wireless venture, which uses a portion of the airwaves now employed mainly by taxi dispatchers, is also significant because it should speed digital wireless services to the market. Digital systems convert voice and other communications into numerical codes, with less distortion and much greater capacity than today’s standard telecommunication systems.
Existing analog cellular phones, for example, do not have the flexibility or capacity to provide voice, data and paging services simultaneously in a single device.
Like the Nextel-MCI system, the digital cellular systems currently being introduced in Los Angeles and other cities offer improved voice communications, but they don’t allow paging and other services.
Other digital wireless services are emerging--including ones that will make real the comic-book dream of go-anywhere communications through devices as small as a wristwatch. But the introduction of those systems remains a year or more away.
“Wireless communications is becoming an integral part of our daily lives, and demand is growing rapidly,” MCI Chairman Bert C. Roberts Jr. said at a Washington news conference announcing the alliance. “Customers have been asking us to provide a totally portable communications service that meets their needs anytime, anywhere.”
Monday’s announcement comes only weeks after digital mobile radio service was introduced in Los Angeles by Nextel. The company’s digital phones are manufactured by Motorola and currently cost about $625, according to Nextel Treasurer Beth Long. They have up to six times the voice-carrying capacity of existing cellular phone networks and can receive paging messages of up to 140 characters.
Nextel Chairman Morgan E. O’Brien said MCI’s investment will enable his firm to expand the Los Angeles system across California and into metropolitan New York, Chicago, Dallas and Houston within the next few months. The system should be available nationally by 1996, he added. At that point, consumers will be able to use the new mobile phones to place and receive calls and other communications anywhere in the country.
The fast-growing cellular industry has been constrained by phones that transmit calls using distortion-prone analog technology much like that used in AM and FM radio broadcasts. Most cellular phone users are plagued by interference during calls. And they cannot receive calls if they travel to areas not served by their cellular phone company. What’s more, users often have to carry a separate device to receive paging messages.
The third party in the MCI-Nextel deal is Comcast Corp., the nation’s fourth-largest cable company. The 3 million people served by Comcast cable systems eventually could be able to make and receive phone calls and link into data services through their TV cables. That would make possible interactive video games, home shopping and other futuristic services.
Experts said MCI’s wireless venture is likely to pose a considerable competitive threat to the cellular industry, which generally consists of just two competing firms in each local market. Cellular providers will feel more pressure to lower prices, standardize their technology and introduce phones that use digital transceivers rather than analog ones, analysts said.
On the other hand, the growing array of wireless technologies will present a marketing challenge for providers, said Gerald Belson, director of the wireless industry task force in the Washington office of the Deloitte & Touche accounting firm.
“Carriers need to be concerned that the (wireless) technology they select will evolve into at least one of the national standards; they don’t want to end up marketing the Betamax of wireless standards,” said Belson, citing Sony Corp.’s now obsolete video cassette format.
Despite the prospect that MCI may race ahead of cellular providers in setting the wireless standard, Thomas E. Wheeler, president of the Cellular Telecommunications Industry Assn., issued a statement Monday praising the venture.
“The investment in Nextel by MCI is still another vote of confidence in the wireless future,” Wheeler said. “Wireless telecommunications is competitive telecommunications.”
How It Works
How the wireless system to be developed by MCI will work:
* Telephone calls could be delivered through a mix of wireless technology (radio signals) and wired technology, such as fiber-optic, coaxial cable and copper wires.
* If a call is made from Washington, for example, to another part of the city, the call will travel on radio frequencies relayed by transmission towers.
* If a call is made from Washington to Los Angeles, the call will travel on radio signals--bypassing the local telephone company--and be picked up by MCI. It will then be carried on its long-distance lines and handed off to radio frequencies as it approaches Los Angeles.
Associated Press contributed to this story.
