MCI Wins License for Satellite TV Service
A unit of long-distance carrier MCI Communications Corp. on Thursday won the right to offer a new nationwide satellite television service, one day after the nation’s biggest cable TV operator bowed out of bidding in a federal government auction.
MCI Telecommunications Corp., which has an alliance with one of the world’s most experienced satellite TV operators--News Corp. Chairman Rupert Murdoch--submitted a winning bid of $682.5 million in the two-day auction.
Jubilant Federal Communications Commission officials, who had been nervous that an auction among just three contestants might hold down bidding, said MCI’s bid was the largest single amount offered for a license in the history of auctioning wireless communications services. Those auctions, which began in the summer of 1994, have now raised more than $12 billion for the federal treasury.
MCI shares closed down 87.5 cents at $27 on Nasdaq.
Experts say MCI will have to spend $500 million to $1 billion to build a satellite and launch a video service to compete with the cable TV industry--and with the three direct-broadcast satellite, or DBS, firms that are already beaming movies, sports events and other video fare to home satellite dishes about the size of a bicycle wheel.
But MCI, flush with $4.3 billion in cash from the 1994 sale of 20% of its stock to British Telecom, said it and Murdoch are prepared to spend heavily to roll out a unique package of information and entertainment services for businesses and consumers within two years.
“This new venture is a perfect marriage of MCI’s sales and marketing skills, customer base and billing capabilities with News Corp.’s expertise in entertainment and information programming,” said Bert Roberts, chairman of MCI.
The satellite license won by MCI gives the company a 10-year right to an orbital satellite slot whose signal would reach from northern Canada to the southern tip of Argentina. Under FCC rules, MCI will have up to four years to launch its first satellite and up to six years to build out its system.
Still, MCI will be playing catch-up in the fledgling DBS field.
Long-distance rival AT&T; Corp. announced this week that it would invest $137.5 million for a 2.5% stake in Hughes Electronic Corp.’s DirecTv Inc.--and might eventually acquire as much as 30% of the El Segundo-based company. Other DBS competitors include United States Satellite Broadcasting Co. and Primestar Partners.
A fourth DBS entrant, Echostar Corp., launched a satellite three weeks ago and plans to offer service later this year. In addition, Primestar said last week it would add about 50 channels of programming to its current 90-channel lineup at the end of this year.
Roberts, however, said MCI’s offerings can’t be compared to anything currently on the market.
“We are not talking about [an] apples-to-apples” comparison, Roberts said. “We are talking about a range of new services for the business and home market.”
Roberts and Murdoch weren’t specific about their DBS service, but they did say more modern technology gives them the ability to offer as many as 300 channels of movies, sports and other shows--roughly twice as many as existing DBS services offer.
MCI also says it can offer high-speed data transmission, Internet connections, voice and other unspecified applications. Other DBS companies have similar abilities but none currently offer them.
The FCC auction was considered a big loss for cable giant Tele-Communications Inc., which pulled out of bidding Wednesday. The company--which had planned to buy the license for $40 million before the FCC decided to hold the auction--had been expected to mount a spirited battle for a license that would enable it to reach rural areas that are costly to reach by wire. In advance of the auction, TCI had nearly completed building two satellites at a cost of more than $500 million.
MCI also beat out Echostar DBS Corp. for the license.
Although the auction failed to generate the throngs of contestants expected by some FCC officials, MCI’s winning bid came out on the high side of what most analysts expected would be wagered. Even so, experts said MCI paid a fair price.
“It’s an investment that MCI could not afford not to make,” said David Roddy, chief telecommunications economist at the Deloitte & Touche consulting firm. “They need the diversification, and short of buying a cable firm, this was the best bet.”
“The price MCI paid was a bargain,” said Charles E. Ergen, chairman of Echostar. “It’s a very valuable spectrum.”
Ergen said his company chose not to try to top MCI’s offer because it felt that $650 million was the maximum amount it could finance. He predicted that MCI will “have a cost disadvantage” competing against current DBS operators, given the price it paid for the license.
Direct-broadcast satellite spectrum is primarily used for the delivery of audio and video programming transmitted by signals that are up-linked from huge Earth stations and bounced off an orbiting satellite. But it can also relay data and telephone calls, although the great distances the signals must travel often create objectionable delay in two-way communications.
* TELECOM REFORM
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