FCC Auction Escalates Wireless Battle

Wireless companies and integrators seek spectrum for communications technology

A little-known wireless technology that allows users to simultaneously transmit cable, telephone, video and Internet services is expected to shake up the Internet, cable and telephony markets as systems integrators begin making it a component of their services offerings.

The technology, called local multi-point distribution service (LMDS), needs a high-airwave frequency and is expected to compete directly against those offered by phone companies and Internet service providers, as well as cable television companies.

The Federal Communications Commission is now preparing to auction chunks of spectrum for the technology.

The block of airwaves is 40 times larger than that of the personal communications services allotment recently auctioned by the agency.

While LMDS has many capabilities, those involved are most excited to offer a new, faster way for Internet access.

"We're going to drive speed for everybody," said David Mallof, president of WebCel Communications Inc., Washington. WebCel is one of several companies expecting to bid on the spectrum. Mallof founded the company in March after 15 years in the systems integration and wireless industries, including seven years at MCI Communications Corp. and stints at Bell Atlantic Corp. and Computer Associates International Inc.

Now Mallof is working with integrators and developers to build the infrastructure necessary to deploy the technology. There are two major challenges, said Mallof: capital and technology. WebCel has been infused with seed money from Softbank, the owners of publisher Ziff-Davis and the trade fair Comdex. Intel Corp., Hewlett-Packard Co. and Texas Instruments Inc. are all investigating the new arena, executives said.

"We have been pursuing the LMDS market for three years," said Ed Cantwell, multipoint business director at Texas Instruments Corp., Dallas.

His company believes the market will become a significant niche for its systems integration services organization.

"It's a major commitment for us," he said. "It's a global market. The need for broadband digital is very attractive."

Texas Instruments now has a product and is working with companies that will bid for LMDS spectrum.

TI has already started building its infrastructure in Canada, where the technology is a few steps ahead of the United States. Cantwell predicts the American rollout will occur in late 1997.

But first the FCC must hold the auction. Companies such as WebCel and CellularVision USA, which have been testing the technology in New York, must bid and win licenses.

But it's not quite so simple. Over the past few months, Mallof has waged a war against regional local telephone companies GTE Corp. and the regional Bell operating companies to keep them from bidding. His argument, backed up in written testimony by the Justice Department, the Federal Trade Commission, 17 state attorneys general and the National Telecommunications and Information Administration, is that those companies already have a monopoly on local communication, so it would be unfair to let them compete in the new market at this point.

While the regional Bell operating companies certainly have lobbying power, it would be a mistake to underestimate the clout of Mallof's backers.

Industry watchers say the FCC is likely to forbid the Bell operating companies and GTE from bidding in their own regions. Later, after the market is well-established, they might be invited to join.

"...Social and private interests are likely to diverge if the asset to be auctioned can be used to bring increased competition to markets in which a firm is currently earning monopoly profits," wrote Donald J. Russell, chief of the telecommunications task force at the Justice Department's antitrust division, in an Aug. 22 statement.

One of the biggest worries is that a company already with control of the market could warehouse the spectrum or keep it from being used to compete with its own services.

Analysts are leaning against the Bell operating companies in part because FCC commissioners have already voiced such approval of the technology as a new, uncharted market.

"I'm excited about the LMDS' vision of offering its customers a rich package of services -- things like telephone service, broadcast and interactive video, video teleconferencing, high-speed, two-way data transmission and Internet access," said FCC Commissioner Rachelle Chong in a recent speech. "It's going to be an attractive offering, no doubt about it."

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