More LMDS...
Note: The following article suggests that CS Wireless is among 139 qualified bidders in the LMDS auction. The FCC's original list consisted of 138 bidders. Could CS have been added to this list? The FCC servers appear to be down today so I have been unable to confirm this.
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LMDS Auctions Could End Up Disappointing Congress, FCC
By FRED DAWSON
Broadband Week - VOLUME 19 NUMBER 7 FEBRUARY 16, 1998
multichannel.com
The contour of the local multipoint distribution service auctions shifted dramatically last week, with a revised -- and drastically reduced -- cast of bidders that raised questions of whether the outcome would meet expectations at the Federal Communications Commission and on Capitol Hill.
Gone were several companies that had initially signaled intentions to bid, including Comcast Corp. and RCN Corp. Also absent were several smaller designated entities, including CellularVision USA Inc. and WebCel Communications, resulting in a decline in the total number of bidders, from 190 to 139.
Among the companies that did step up were Adelphia Communications Corp., direct-broadcast satellite distributor EchoStar Communications Corp. and wireless cable operators American Telecasting Inc., CS Wireless Inc. and People's Choice TV Corp.
Capping the list of bidders was WNP Communications Inc., which is backed by several major venture-capital firms, including Chase Manhattan Venture Fund of New York, Norwest Capital, Providence Ventures of Rhode Island and others. WNP qualifies for a 45 percent bidding discount as a designated entity because its revenues averaged under $15 million annually over the past three years.
Former Providence Journal Co. president Trygve Myhren is a controlling principle in WNP.
WNP, at $100 million, paid twice as much as the entity paying the next-largest sum. That was $50 million deposited by NextBand Communications, a start-up affiliate of Nextel Communications Inc. and NextLink Communications Inc., in which cellular pioneer Craig McCaw is the dominant shareholder. NextBand does not qualify for a discount.
Other top bidders and the discounts that they qualified for were:
BCK/RNGAM LLC ($33 million/45 percent), an entity controlled by venture-capital-fund manager Mario Gabelli;
PCTV Gold ($20.25 million/35 percent), an affiliate of PCTV;
Cortelyou Communications ($20 million/none), an affiliate of CoreComm Inc.; and
WinStar LMDS LLC ($13 million/25 percent), an affiliate of 38-gigahertz wireless operator WinStar Communications.
Two regional Bell operating companies, U S West Communications Inc. and SBC Communications Inc., hung in -- paying $5 million and $3.8 million, respectively -- despite a U.S. Appeals Court ruling against their plea to have the ban lifted on telco ownership of A-block spectrum within their territories.
Cable operators are also banned from in-territory LMDS holdings.
But Adelphia, doing business as Baker Creek Communications L.P., put in an upfront payment of $10 million. EchoStar took a minority stand in a partnership, Alta Wireless Inc., for $6.2 million, and ATI put up $3 million.
The bidding for 1.3 GHz of LMDS spectrum is slated to get under way Wednesday (Feb. 18), and it is expected to last several weeks.
Providers will be able to use new radio technology to deliver two-way services of every description on a point-to-multipoint basis across cells measuring three to six miles in diameter.
CellularVision, WebCel and other start-ups that have been attempting to raise capital for the auctions pulled out after finding that there wasn't enough support within the investment community for their participation.
Some of these companies charged that they were forced into this situation because of the FCC's rules for determining which companies qualify for discounts. They said those guidelines were so "fuzzy" that it made it easy for venture-capital firms to qualify as discount bidders themselves, rather than backing entrepreneurial concerns that qualified as designated entities.
"By establishing revenues as the sole criterion for qualifying for discounts, rather than including assets, the commission has made it difficult for the very types of entities that were intended by Congress to qualify as designated entities to participate in the
auctions," said David Mallof, president of WebCel, which has asked the commission to delay the auctions.
Moreover, Mallof said, the absence of entrepreneurial entities with strong capital backing, combined with the failure of major telecommunications entities such as AT&T Corp. and WorldCom Inc. to show up for the auctions, has set the stage for a potentially disastrous showing.
WebCel's petition for a delay wasn't the only factor posing a potential problem for the LMDS auction. The United States Telephone Association, reacting angrily to the U.S. Appeals Court ruling, said it would "use every means possible," including court appeal and action from Congress, to overturn the telco ban.
A spokeswoman confirmed that the USTA would appeal the court ruling. She also said the organization would seek Congressional involvement, but she declined to provide details of its Capitol Hill strategy.
One key gauge of how uncompetitive an auction will be, Mallof noted, is the amount of prepayments submitted by bidders according to a per-POP (unit of population) formulation that starts at 90 cents per POP for the biggest BTAs (basic trading areas) and that goes down from there.
The total of all prepayments for the A (1.15-GHz) and B (150-megahertz) blocks nationwide was $357.9 million, which is only 1.74 times the minimum prepayment total of $205.7 million required to cover every POP. This means that prepayments don't add up to at least two bidders per block, per BTA.
"This ratio suggests that some markets won't be competitive at all," Mallof said. "In addition, 62 percent of all upfront payments were made by the top five, which means that the bidding will probably be strongly skewed among a handful of players."
FCC officials have previously indicated that bidding could top $4 billion and that a minimum of $2.4 billion would be needed to ensure a successful auction. But the absence of strong competition could lead to substantially lower bidding amounts.
Not everyone, however, believes that the shift in the bidding lineup will produce that outcome.
"I think that we're going to see a successful auction, even if some of the smaller players aren't in," said Shant Hovnanian, CEO of CellularVision.
He said his company opted not to bid when it realized that it could do far better for its shareholders by playing a role as an integrator of LMDS systems nationwide, building off its operational experience in the New York metropolitan region, where it holds a special 10-year license that was granted last year.
"There's going to be a need to tie LMDS systems together to facilitate their ability to provide high-speed data and other services," Hovnanian said. "We're talking with a lot of people about providing that kind of support."
There is also a strong possibility that companies such as WebCel and CellularVision will be able to become LMDS operators under management agreements signed with venture-capital entities that win spectrum. But Mallof said the creation of management teams and other maneuvers permitted under the liberal partitioning rules of LMDS could significantly delay the launch of services.
Bell Communications Research, in a new study of the market potential of LMDS, said an operator could get service under way in a midsized city within nine months of receiving its license from the FCC. Because of the low cost of infrastructure, LMDS could generate "net profit margins exceeding 30 percent" within six to seven years, the report said.
The study underscored the extent to which the market appears to be underplaying the LMDS potential. At a moment when major players of every description are looking for a way to get into the local-access market, LMDS offers the lowest-available facilities-based means to do so, with the potential to connect over 99 percent of all homes and
businesses to high-speed-data, video and voice services, Bellcore said.
One entity clearly in tune with the potential is Teligent LLC, the holder of licenses nationwide at the 24-GHz spectrum tier, which has filed to participate in the LMDS auction as AUCO Inc., with a prepayment of $5 million.
Teligent, with a market valuation of over $1 billion, qualifies for a 35 percent discount as a designated entity in the LMDS auctions.
Ted Hearn contributed to this story |
