Will Wireless License Auction Sell Some Interests Short? : Technology: Critics ask whether it’s wise to sell the airwaves without seeing who might best serve the public interest.
Visions of a booming mass market in wireless communications have lured some of the biggest names in technology to the nation’s capital this week to ante up millions of dollars in the government’s first auction of the airwaves.
On Monday, the Federal Communications Commission will begin soliciting bids for 10 nationwide licenses for a new paging technology called narrow band personal communications service. It will also start auctioning about 600 licenses for a new wireless service called Interactive Video and Data Service (IVDS) that will allow viewers to respond to broadcast and cable programming.
The event, widely viewed as a litmus test of the value of wireless communications to the emerging information highway, is the first of a series of controversial license sales expected to generate $7 billion to $10 billion for the federal government over the next five years. Such sums would rival what Uncle Sam has raised over the past 40 years selling government offshore oil drilling rights.
The narrow-band PCS and IVDS auctions are the forerunners for the sale next year of licenses for even more advanced wireless services. One is called broad-band PCS, a cellular phone competitor that will offer two-way voice and data transmission through small, lightweight transceivers. The other is multipoint distribution service, a cellular-style video service that can provide interactive TV, data transmission and telephone service.
Experts believe the increasingly mobile American work force--and the proliferation of ever-more-powerful portable computers--will fuel demand for always-in-touch communications. Clinton Administration officials, including Commerce Secretary Ronald Brown and Vice President Al Gore, have championed wireless technologies as a source of hundreds of thousands of new jobs and increased American competitiveness. Experts say the wireless industry will mushroom into a $40-billion-a-year business with more than 90 million subscribers by the year 2004.
“We’re talking here about actually building a fast lane on the information superhighway--a technology that will be major part of the wireless networks of the future,” said Reed E. Hundt, chairman of the FCC. “This will be the biggest government auction in terms of sheer revenue generated.”
Hundt added that because of special bidding incentives offered to encourage disadvantaged groups, the auction will also “be the single most important economic opportunity made available to women or minorities in our country’s history.”
The lofty expectations have overshadowed some critics’ concerns about whether it is wise for the federal government to sell a public resource such as the airwaves to private companies without determining which provider might best serve the public interest--the standard applied to broadcasters and common carriers such as telephone companies. Questions also have been raised about whether women, minorities and small businesses will genuinely be beneficiaries of the auction.
In the past, the FCC has allocated communications licenses by lottery or by administrative hearings that compared competing applicants on the basis of ability to serve the public interest. So the prospect of an auction has not pleased critics who believe the Clinton Administration is looking at the FCC as a high-tech cash cow.
“I don’t think the (rules) go far enough to ensure there is going to be real diversity of ownership,” said Jeff Chester, executive director of the Center for Media Education, a Washington, D.C. public interest group. The new wireless technology, he added, looks as if “it’s going to end up in the hands of the present media industry.”
But some would-be entrepreneurs disagree.
Tony Batiste, a former Washington-based investment banker, is among the nine minority, women and small business PCS bidders hoping to get in on the ground floor of the telecommunications revolution.
“There is this idealism that we all have--that minorities participating in this capitalist system can improve their lives,” he said. “You can’t think you will be a millionaire tomorrow but it will be a great opportunity.”
The potential payoff of wireless technology has not been lost on some of telecommunications’ heaviest hitters, either--companies such as Microsoft, AT&T;, Motorola and BellSouth.
They are bidding on licenses through subsidiaries or have formed alliances with many of the 29 narrow-band PCS and 472 IVDS bidders who have already submitted deposits to the FCC totaling $30 million. The contestants hope to add a new interactive dimension to TV watching as well as to transform electronic pagers--now mostly identified with doctors, salespeople and drug dealers--into a consumer product.
Microsoft has teamed with Mobile Telecommunications Technologies Corp. in hopes of targeting “mobile professionals” with a narrow-band PCS service that will offer two-way messaging to users of laptop computers and special paging devices.
AT&T;, through its venture capital unit, has joined with Cell Net Data Systems of San Carlos to try and get PCS licenses for providing consumer paging as well as two-way communications for commercial equipment-monitoring.
Proponents foresee the day when parents routinely use pagers to keep in touch with their children. Businesses might use them to lower the cost of monitoring everything from security systems and utility meters to vending machines and other devices whose status can now only be gleaned through periodic--but expensive--on-site visits.
“Pagers aren’t a status symbol like cellular phones; the industry hasn’t done a good job of marketing them as a consumer product . . ., but I think that will change” with the advent of competing nationwide paging systems, said Stan Williams, director of corporate development for New York-based CCI Data Inc., which plans to participate in Monday’s auctions.
Narrow-band PCS will improve on today’s pagers by allowing them to become smaller and more powerful and by allowing the devices to acknowledge electronically that a message has been received. PCS pagers will also be able to send and receive data.
TV, too, will gain flexibility with IVDS, which uses radio waves and satellites to provide an electronic return path that viewers can use to respond to what they watch on television. The system, which will connect to TVs through a set-top box and display on-screen icons to prompt viewers, offers a rudimentary but low-cost way to provide interactive television.
Despite the promise of the two new technologies, some experts warn of a huge shakeout in the wireless industry a few years from now.
Prices for existing paging services, they note, have already begun to decline in anticipation of PCS. And following a recent award of wireless services in Britain, one of the victors gave back its license to the government, saying the market was not big enough to support four players, according to Lawrence Hickey, an analyst at First Analysis Corp. in Chicago.
Once PCS is up an running in the U.S., local markets may be choked with up to 10 wireless competitors apiece: two existing cellular phone providers, seven PCS providers and a new wireless mobile communications service that’s being launched by MCI Communications Corp. and Nextel Communications Inc. of Rutherford, N.J.
When the Lexington, Mass.-based consulting firm Mercer Management asked industry executives this spring how many wireless competitors each market would still have a decade from now, the consensus estimate was three.
“A lot of new (wireless) capacity is about to come on line, and there could be some fallout,” said R. Preston McAfee, a University of Texas economics professor who is an an expert on auctions. “The key to survival of the industry is going to be finding new uses for” paging services.
Although none of the bidders contacted by The Times would comment on its bidding strategy, companies such as Paging Network Inc. of Dallas have indicated that they will be aggressive bidders.
The PCS bids will be entered on computer terminals and conducted in simultaneous multiple rounds. That means participants will have the opportunity to raise their initial bids in subsequent rounds or drop out of competition should circumstances warrant.
The IVDS auctions will be conducted in old-fashioned style, where participants shout their bids to an auctioneer.
The 10 nationwide narrow band PCS licenses are expected to fetch around $4 million to $6 million apiece. The IVDS licenses, because they only offer regional coverage, will go for much less.
But the price of the licenses will just be the beginning of the huge capital expenditures that will be required to get the wireless technologies up and running.
Williams of CCI Data Inc. said that each of the transponders required to gather and transmit paging signals costs more than $30,000; thousands will be required to provide nationwide coverage. Microsoft and MTel have estimated that their nationwide system will cost at least $150 million.
“I think you have to be very pragmatic about this going in,” said Larsh Johnson, vice president of product development at Cell Net Data Systems.
Though his partner AT&T; has deep pockets, Johnson said he has been especially careful to prepare himself emotionally for the auction.
“Some investors have been enamored by the media hype, but others who have been in the business awhile and . . . know the challenges people face,” he said. “I know my limits; I’m not going to get swept up in the hype.”
Dividing the Airwaves
Radio waves of varying widths, or frequencies, are used to carry different kinds of communications signals, from radio and television broadcasts to cellular telephone calls to satellite communications. On Monday, the Federal Communications Commission will begin auctioning a portion of this spectrum--with frequencies between 1,850 megahertz and 1,990 megahertz--to be used for new telephone and paging systems known as Personal Communication Services.
Aeronautical beacons (3 Mhz)
TV channels 2-4 (54-72 Mhz)
TV channels 5-6 (76-88 Mhz)
FM radio stations (88-108 Mhz)
TV channels 7-13 (174-216 Mhz)
TV channels 14-69 (470-806 Mhz)
Cellular phones (824-893 Mhz)
Radio frequencies to be auctioned (1,850-1,990 Mhz)
Maritime radio navigation (2,900-3,000 Mhz)
Source: National Telecommunications and information Administration. Researched by ADAM S. BAUMAN / Los Angeles Times
