02/17 19:48 U.S. raising billions in latest spectrum auction
By Aaron Pressman
WASHINGTON, Feb 17 (Reuters) - The Federal Communications
Commission opens bidding Wednesday on the rights to a broad swath of
airwaves, seeking to promote new competition against local phone and
cable television monopolies.
The "Local Multipoint Distribution Service," or LMDS, band of spectrum uses
microwaves to send high volumes of information between fixed points. That
makes it suitable for replacing cable television or telephone wires but not
mobile phones or pagers.
Initially, most companies that win licenses are expected to offer telephone
and high-speed Internet connections to small- and medium-sized businesses,
but once the networks are up and running residential customers will get linked
as well.
"Once you build out the network to 70 percent or so of the business market,
without even trying you can get 40 or 50 percent of households," said Dan
Ernst, an industry consultant with the Strategis Group in Washington.
The wireless bandwidth provided by a single LMDS license could carry
16,000 phone calls, vast amounts of computer data or 200 television
channels, FCC officials said.
Deregulation of the cable and telephone industries has thus far failed to
stimulate much competition to provide residential services, so the FCC is
increasingly looking to new mechanisms for breaking the grip of local
monopolies.
"Licensees could potentially be competitors to cable television systems,"
one FCC staffer said. "A lot depends on how the technology develops, but
we're confident that the licenses will be put to good use."
To ensure competition gets off the ground, the FCC prohibited local telephone
and cable companies from owning LMDS licences in their current service
areas for three years. The companies are permitted to hold up to a 20 percent
stake in a company that owns a license or to own a licenses outside their
areas.
The restrictions angered the local telephone carriers but two weeks ago a
federal appeals court here rejected their challenge to the rules.
The local telephone carriers could still end up dominating the new services
through resale agreements, according to Richard Bergen, a consultant with
Hardin & Associates advising several of the bidders.
"The real revenue streams from LMDS will be in resale," Bergen said. "The
incumbent local exchange carriers may be the largest users of the spectrum
at the end of the day."
Estimating the value of future service revenues, Ernst said the licenses are
worth about $4 billion but he declined to predict how much the FCC would
actually collect. Government budget analysts estimated proceeds of $500
million.
The estimates might be higher but the FCC revised its bidding rules for the
LMDS auction, after several high-profile winners in the $10.3 billion 1996
personal communications services auction declared bankruptcy.
No longer will the commission allow winning bidders to pay for licences on an
installment plan. New and smaller companies will get discounts of 25 to 45
percent but everyone will have to pay right away.
In part to avoid the specter of more bankrupt license holders, firms in the
LMDS auction had to make substantial upfront payments to qualify for
bidding.
WNP Communications, a private firm backed by venture capital funds, put up
$100 million -- by far the largest upfront sum.
Nextband Communications, owned in part by Nextel Communications
<NXTL.O>, put up $50 million and BCK/Rivgam LLC, a private group including
mutual fund manager Mario Gabelli, forked out $33 million.
Other qualified bidders included Actel Corp <ACTL.O>, SBC Communications
Corp's <SBC.N> video serices unit, US West <USW.N> and Winstar
Communications <WCII.O>.
The auction will be divided into large and small license rights in each of 493
distinct markets around the country. The auctions run indefinitely until no firm
wants to increase its bid.
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