Analysts Say Wireless Cable Has Become Ripe for Fraud : Technology: Demand for the promising new service is likely to grow. But the unregulated industry may breed scams.
Wireless cable, which uses microwaves to beam TV programming to homes that conventional television cables can’t or don’t yet reach, is a technology with a bright future, analysts and industry insiders say.
Because the service can be offered inexpensively in areas either too remote or too densely populated to make installation of conventional TV cables practical, demand is likely to grow. More than 150 wireless cable systems already serve more than 500,000 subscribers nationwide, said Bruce Dickinson, senior vice president of Daniels & Associates, a Denver wireless cable broker.
“There’s a general perception in the industry,” Dickinson said, that licenses for such wireless broadcasting “are only going to become more valuable.”
That possibility has investors--including broadcasters, independent phone companies and entrepreneurs--scrambling to build markets. But because wireless cable is new and largely unregulated, the industry has become ripe for fraud.
On Monday, regulators raided and shut down several operations in Orange, Los Angeles and San Diego counties that were selling wireless cable investments by phone, alleging that they were scams.
“This is a burden on the industry, which is a very promising technology,” said Andrew Kreig, a spokesman for the Wireless Cable Assn., a lobbying organization in Washington. “Unfortunately, its promise is inflated by these people on the edges. It’s that way with a lot of new high tech.”
A primary target of the raids was Marrco Communications Inc. in Newport Beach, which does business as Micro-Lite Television. Jon H. Marple, president and chief executive, said that his company is legitimate and predicted that it will be “exonerated of any wrongdoing.”
In August, American Wireless Systems Inc., which was then based in Irvine, became the target of probes by federal investigators and state securities regulators. The company has since moved to Phoenix and has met the federal requirements to sell its shares publicly.
In the past year, the Securities and Exchange Commission and the Federal Trade Commission have both sued wireless operators, alleging that they have deceived investors. Indiana, one of the most active states, has halted sales by a dozen wireless entrepreneurs.
Yet wireless is a viable industry, proponents say, and a legitimately profitable one.
Cross Country Wireless Systems in Riverside, for example, has 42,000 subscribers in San Bernardino and Riverside counties. And the company says that, in areas where its service overlaps that of regular cable companies, the competition has prompted them to lower their prices by as much as $7 a month and provide better service.
Analysts typically view wireless cable as a niche business that will supplement but not replace cable television as the predominant supplier of home entertainment. At the high end, industry observers estimate that wireless cable will attract as many as 20% of the potential customers in any given market.
“My estimate is 12%,” one Wall Street analyst said Tuesday. “It’s a real industry with real potential to it.”
Wireless cable businesses are much cheaper to set up than conventional cable companies, which have to lay miles of wires first, then install and maintain expensive equipment. Wireless cable can therefore undercut conventional prices by 15% to 30% for services such as HBO, MTV and CNN, analysts say.
The biggest drawback to this wireless system is that its antenna towers, which communicate to rooftop antennas, cannot reach into some canyons or obstructed areas.
The technology itself isn’t new; it has been around for 20 years. Until the 1992 Cable Act was enacted, however, the wireless industry was denied access to much programming. With that barrier removed, wireless companies could begin to solicit investors.
The industry’s potential has been limited, too, because the Federal Communications Commission allocated a spectrum of only 33 frequencies to wireless cable in any given market. But, with digital compression technology, wireless cable companies are predicting that they will be able to offer 150 channels eventually if the demand is there.
Cable Without Wires
Wireless cable, like its coaxial cousin, has the ability to offer subscribers a multiplicity of channels--without the hard-wire intrusion. The system does have some disadvantages, though. Here’s how it works:
1. Programming is beamed via satellite to a receive/transmit station.
2. Signal is converted for multichannel, multi-point distribution. Signal is transmitted via microwave.
3. Signal, picked up by antenna and converter, travels to a decoder box atop television, where it is unscrambled for viewing.
ADVANTAGES * Less downgrading of signal in transmission. * Less equipment to malfunction and increase costs.
DISADVANTAGES Microwaves travel in straight lines, so antenna must be placed in line of sight of transmitter. Limited programming.
Thinking of Investing in Wireless Cable?
The Wireless Cable Assn. recommends that prospective investors seek professional investment advice or consult a lawyer before proceeding. Other suggestions:
* Beware of telephone solicitors. They may promise huge returns on small investments. Some are boiler-room operations raising money for a firm that does not yet, or may never, exist.
* Read carefully. Ask for background materials, and ask questions about anything you don’t understand.
* If you suspect fraud. Turn over the solicitor’s name, company name, address and telephone number to the police.
WHAT TO ASK THE INVESTMENT REPRESENTATIVE
* How much of the investment will be spent on plants and equipment to operate the system, and how much will be spent for other purposes, such as commissions and other payments to the promoters of the investment opportunity?
* Does the operator own or lease a minimum of 20 of the 32 FCC-approved channels needed for a viable operation?
* Does the operator have enough experience in subscription-TV management to make a success of the business?
WHAT TO ASK YOURSELF
* If the offering is for shares in a general partnership, limited liability corporation or other investment vehicle that is not registered with federal or state regulators and not subject to full disclosure laws, do you have sufficient knowledge about the business to make an informed decision?
Source: Wireless Cable Assn.; Researched by JANICE L. JONES / Los Angeles Times
