Justice Department Investigates PCS Alliances

The frenzied mating dances appear to have produced inappropriate offspring

The U.S. Department of Justice has launched an investigation of the mega-alliances created to bid for the right to offer "personal communications services," a move that could put the future of that telecom technology on hold.

On December 5, the FCC will begin auctioning off radio spectrum for this next generation of wireless services.

"We are looking at those alliances," said Gina Talamona, a Justice Department spokeswoman. "We want to make sure that the auction is competitive, the alliances are competitive and the outcome is competitive."

The largest alliances came about after the FCC ordered interested parties to disclose their PCS bid-mates by Oct. 28. The FCC's September edict set off a mating frenzy among the nation's largest telephone and cable companies reaching a fevered pitch in the fortnight prior to the deadline when ephemeral alliances made headlines on an almost daily basis.

Four cellular Baby Bells, NYNEX Communications, Bell Atlantic Mobile Systems, US West Cellular and Air Touch (a Pacific Telesis spin-off) announced their intention to submit joint PCS bids.

Previously, Bell Atlantic/ Nynex and US West/Airtouch had already agreed to merge their respective cellular systems.

Meanwhile, long distance carrier Sprint said it would team up with cable giants TCI, Cox and Comcast to bid at the auctions. And don't forget the $11.5 billion merger between AT&T and McCaw Cellular, which created the nation's largest cellular carrier, and another big PCS bidder.

What effect will the Justice Department's investigation have on the auctions and these alliances?

Ironically, none of the players contacted are even aware of the DOJ probe. "We are not yet aware that they are looking," said a Sprint spokesman. "But if they are, we will cooperate fully." Spokesmen for both Bell Atlantic and AT&T also said they were unaware of the investigation and had no comment.

"I don't think it will delay the auctions," said Becky Diercks, a wireless analyst with the Business Research Group. "But it may have an impact on some of the bidders."

The repercussions, she said, could include the prevention of some players from bidding, or Justice stepping in after the fact.

David Goodtree, a senior analyst with Forrester Research, said it's important for the government to examine these alliances, but unlikely it will do so before the auctions, adding that the timing doesn't really matter.

"The Federal Government reserves the right to speak its mind after the fact and that could certainly have an impact on the results of the auctions or what happens prior to the auctions," he said.

For example, he cited the AT&T/McCaw merger and British Telecom's purchase of a 20 percent stake in MCI. Justice conducted lengthy discussions with all parties involved in those transactions, he said, and approval of both deals was subject to government preconditions.

"If they want to play, they will have to negotiate with the government to reach mutually agreeable terms," Goodtree said.

More than anything, said Bob Rosenberg, president of Insight Research Corp., the Justice investigation reflects an antitrust division flexing its muscles after being kept on an extraordinarily tight leash during the Reagan/ Bush years. Moreover, he said, the department has to find something to do for all the extra lawyers it hired.

If the once crowded automotive field was allowed to consolidate into three corporations dominating the nation's largest industry, he pointed, out, there is no reason why a handful of companies will not be allowed similar supremacy over the telecom industry.

"Ultimately, I don't think the DOJ investigations will derail this vertical integration freight train," Rosenberg said.

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