The Federal Communications Commission's Sept. 17
ruling allowing wireless cable operators to provide two-way Internet access to their
customers may include a hidden, and possibly more lucrative, benefit for the struggling
wireless cable industry -- telephony.
Although the FCC ruling may have been intended to
kick-start wireless cable companies, it may also have made them more attractive to
telephone-service providers, which could use the wireless spectrum for additional capacity
for their own networks.
The FCC ruling was targeted at
multipoint-distribution-service and instructional-television-fixed-service licensees.
Although wireless cable companies have tested two-way Internet systems in limited markets
in the past, this regulation opens the door for them to provide two-way access across
their systems.
"This [ruling] allows for broadband two-way service of
the kind that the commission and the public have been asking for," said Andrew Kreig,
president of the Wireless Communications Association International (WCA). "It gives
the MDS and ITFS spectrum the capabilities that have been widely pursued for flexibility
and deregulation and that have been touted for other technologies."
Although wireless cable Internet access has been around for
quite a while, it has been hampered by its one-way characteristics. While a subscriber
could download Internet data at speeds of more than 10 megabits per second -- more than 50
times faster than a traditional telephone modem -- that subscriber could only transmit
back to the headend via a telephone line and its considerably slower speed.
But that has changed with the FCC's ruling, which may
have even forced telephone companies to look at MDS in a new light.
"This [FCC ruling] allows us to turn that
high-speed-data system around and move off the [telephone-company] network," said
Michael J. Whalen, vice president of finance and acquisitions for People's Choice TV
Corp., a wireless cable provider in Shelton, Conn.
"From a strategic perspective, there is minimal or
little interest in those companies that are looking at data products, but relying on
another telecommunications company," Whalen added. "Two-way [MDS] dramatically
enhances that business plan."
Whalen, who said PCTV will launch a two-way Internet
service in the next six months, added that MDS companies are already beginning to attract
the attention of telephone companies.
"There definitely has been some interest by
long-distance carriers," Whalen said. "They can bypass a local-exchange
carrier's telecommunications network."
Telephony is definitely on Ernest Yates' mind. The
chief operating officer of Wireless One Inc., a wireless cable provider in Jackson, Miss.,
said his company is actively looking for a strategic partner in the telephone industry.
"We are developing a business plan as a
broadband-wireless-access provider, forming strategic relationships with companies like
CLECs [competitive LECs], traditional ILECs [incumbent LECs] and a variety of
companies," Yates said. "We are certainly in discussions with a number of
possible partners."
Yates would not name names, and no deals are pending yet,
but he added that Wireless One would be most interested in leasing out portions of its
spectrum to telephone companies, rather than selling outright.
"We're not looking for a buyer: We're
looking for customers," he said.
David Yedwab, an analyst for Eastern Management Group, a
telecommunications-research firm in Parsippany, N.J., said the jury is still out on MDS
applications in the telephone industry. However, he added that excess capacity and
bypassing the LEC is a top priority for many long-distance providers.
"For the long-distance guys, dealing with the RBOCs
[regional Bell operating companies] has been very difficult," Yedwab said. "They
are looking at every alternative to get the last mile covered."
But Yedwab cautioned that forming a relationship between
MDS operators and LDCs will ultimately hinge on cost.
"It really depends on the economics of the
situation," Yedwab said. "If there is already a wireless cable company in the
geography that they want to serve, then it would make sense to do a share
arrangement."
But while Yedwab is optimistic, another analyst believes
that telephony applications in the MDS spectrum are few and far between.
"[MDS companies] have been doing one-way [Internet
service], and it hasn't been a big hit," said Jim Wahl, an analyst for The
Yankee Group, a Boston-based research firm. "This is not a technology that works for
100 percent of the areas that it covers. MDS is a technology that never has been and never
was."
However, that hasn't damped the attitudes of wireless
cable providers.
Wireless One has been providing two-way Internet access for
more than one year, through its combination of MDS and wireless-communications-systems
channels. The service has primarily been marketed to small and midsized businesses and to
the small-office/home-office (SOHO) market. And that's just where an MDS-based
telephony service would be most popular, Yates said.
"In tier-two and tier-three cities, there is a hunger
for high-speed access," Yates added.
David Sentman, senior vice president and chief financial
officer of American Telecasting Inc., a Colorado Springs, Colo.-based wireless cable
company, also believes that MDS has significant applications in telephony.
He added that ATI plans to introduce a two-way Internet
service, and that the company is already testing it in Eugene, Ore., and in Seattle.
Sentman said the FCC is expected to come out with the full
text of the ruling soon. After that, wireless cable companies would have to file
applications with the commission to provide the service.
He anticipated that the next FCC filing window would be
opened in late 1998 or early 1999. As a result, any two-way Internet service from ATI
would not be rolled out until sometime next year.
Sentman added that the FCC ruling could help wireless cable
companies to attract outside investment based on the increased values of their MDS
spectrum.
"On balance, [the FCC ruling] makes the spectrum much
more flexible and attractive for two-way and voice applications," Sentman said.
"We think that down the road, it will be reflected in the value of the spectrum, but
we won't see an instantaneous increase."
However, he added that increased spectrum value is just one
of the necessary components to attract new investment.
"It could aid us in attracting fresh capital, but it
is only one of several preconditions" to receiving new financing, Sentman said.
"We definitely needed two-way, but we need to address the high level of debt that
wireless companies have. We need to attract one or two strategic partners. The two-way
ruling was part of preparing the flower bed for seeding. It alone is not enough."
