MCI WorldCom, the No. 2 long-distance carrier, has fired a
return shot in the battle for wireless spectrum with its agreement to purchase CAI
Wireless Systems Inc., an Albany, N.Y.-based wireless cable-television provider, for as
much as $408 million.
It has been rumored for weeks that MCI purchased a large
portion of CAI's debt, which the Albany company acknowledged in announcing the deal.
An MCI spokeswoman confirmed the company's intention
to purchase CAI, but she declined further comment. CAI officials did not return phone
calls.
Aside from its position in CAI debt -- which was confirmed
last week -- MCI has also been said to have substantial portions of debt from other
wireless cable providers, including Wireless One Inc., People's Choice TV Corp.
(PCTV) and American Telecasting Inc.
Sprint Corp. agreed to buy PCTV earlier this month for
about $126 million.
MCI plans to use CAI's wireless spectrum for the
"last-mile" connection between its network and its customers. Currently, MCI and
other LDCs have to pay access fees to local telephone companies for access to the customer
premises.
CAI operates wireless cable systems in six markets in the
Northeast, and it owns licenses for another eight areas, passing a total of 16.1 million
homes.
The company also owns a 94 percent stake in CS Wireless
Systems, Inc., a wireless cable operator based in Plano, Texas, which passes 7.7 million
homes.
MCI is buying the shares from Merrill Lynch Global
Allocation Fund, a unit of Merrill Lynch & Co., and Murray Capital Management, a New
York investment bank.
Although neither company would reveal how much of its stock
it would sell, according to past CAI proxy statements, MLGAF and Murray owned a combined
58 percent of CAI stock.
With CAI, MCI would also get a substantial piece of CS
Wireless, a wireless cable firm that CAI owns with Nucentrix Broadband Networks Inc.
(formerly Heartland Wireless Communications Inc.). CAI and Nucentrix have set up
partnerships in the past for wireless cable licenses.
Wireless Communications Association International (WCA)
president Andrew Krieg said MCI's plan for wireless cable was anybody's guess.
"All options are on the table -- and that includes digital video -- until the
companies say what they want to do," Krieg said.
CAI has to hope that being bought by an interexchange
carrier works out better than the company's past experience with local-exchange
carriers.
In 1997, Bell Atlantic Corp. purchased options on 48
percent of CAI stock in a partnership with Nynex Corp. valued at about $300 million. Bell
Atlantic -- which later bought Nynex -- wanted to deliver digital video over wireless
spectrum.
But line-of-sight constraints -- microwave technology needs
a clear path to the customer premises to be successful -- and a decision to back away from
the video business prompted Bell Atlantic to bail out of CAI, sending CAI and other
wireless cable stocks that had risen sharply on telco interest into a tailspin.
Ultimately, CAI and some other wireless cable firms
reorganized under bankruptcy law. After emerging from a Chapter 11 reorganization earlier
this year, CAI basically abandoned video in favor of high-speed Internet service.
