AT&T into cable MCI & Sprint into wireless:
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Wireless cable makes a
surprise comeback
May 3, 1999
Web posted at: 12:10 p.m. EDT (1610 GMT)
by Jason K. Krause
(IDG) -- While AT&T is buying its
way into your home via cable, MCI
and Sprint have found a cheap end
run into the residential and
small-business market.
Today, both companies have to pay the Baby Bells for access to that final
golden mile. But they may have found a useful alternative: wireless cable, an
obscure broadcast technology.
Wireless cable is an odd business that's been suffering a slow death for the
better part of the 1990s. The wireless-cable industry, based on the
Multichannel Multipoint Distribution System, or MMDS, spectrum, has been
in use for analog TV since the 1960s. The original idea was that educational
institutions would use these frequencies for long-distance learning. But this
part of the spectrum, with the capacity for roughly 30 analog TV stations,
was later deployed by private companies planning to compete with cable
franchises.
The industry looked promising in the early '90s and launched some of the
hottest public offerings in pre-Internet times. However, the companies ended
up hemorrhaging money for years in the struggle to compete with cable TV.
"We tried to give the cable monopolies a run for their money, but by the time
we could deploy the capital raised by going public, it was too late," says
Matt Oristano, CEO of Phoenix-based SpeedChoice, a company that
Sprint purchased a few weeks ago. "Then, between 1993 and 1995 all the
wireless-cable companies, us included, raised high-yield debts."
Many wireless companies succumbed to their high-cost borrowings. But, in
1995, the FCC deregulated the spectrum and enabled some companies to
leap into digital-data services. Two weeks ago, a small bidding war erupted
between Sprint and MCI for the most attractive companies.
MCI quietly started buying up more than
$200 million of SpeedChoice's debt. Sprint
retaliated by buying SpeedChoice's parent
company, People's Choice TV. Then MCI
agreed to buy CAI Wireless Systems at
$24 a share – and a week later increased
the offer to $28. Sprint followed suit by
agreeing to buy American Telecasting of
Colorado Springs, Colo., for $167.8 million
and the assumption of $281 million in debt.
The time is ripe for telcos to snap up
MMDS companies. The FCC has largely
deregulated the industry, the technology has
matured and the companies are saddled
with debts they incurred earlier in the
decade, which makes them relatively easy
acquisition targets. In 1996, SpeedChoice
downsized from 900 to 300 employees
while transitioning away from the TV
business. CAI emerged from Chapter 11
protection last October.
The wireless-cable spectrum is useful because it is wide enough to carry
high-bandwidth data applications, including video-over-data and
voice-over-data. It has drawbacks as a shared spectrum, though; if too
many people are logged on, they sap bandwidth from each other. So the
spectrum's best implementation is small-business and residential access. The
nearest complementary standard is the Local Multipoint Distribution System,
which is useful for serving large, concentrated numbers of customers.
However, LMDS is a more expensive technology. MCI and Sprint will
probably deploy both standards as wireless networks evolve.
Sprint plans to use SpeedChoice to access wireless broadband for its ION
network to homes and small businesses. DSL technology is still preferred,
but the regional Bell companies make it difficult to roll out DSL. As a result,
Sprint and MCI depend on a wireless alternative. And it doesn't hurt that
MMDS offers several times the bandwidth of DSL. It's also flexible enough
to be an alternative to T1 data lines, a carrier for phone service and a
cellular-phone technology. Service starts at $50 a month, and is unaffected
by nasty weather.
One problem with MMDS is that it creates a local monopoly. Once one
company gets the rights to the spectrum in a region, it has an exclusive hold
on that franchise. Analysts expect that either the FCC will deregulate the
industry further to encourage competition or Sprint and MCI will form a joint
venture to provide national coverage with the wireless spectrum.
AT&T's own Project Angel, a wireless technology many outsiders assumed
the company had shelved, is apparently alive and well. It's slower than
MMDS, and will only be used where no land lines exist, but even AT&T
now wants to hedge its bets with wireless data.
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