A company controlled by Craig McCaw, who made a fortune as a cellular telephone pioneer, has bought, apparently at bargain basement rates, rights to launch a new wireless phone service in the Chicago area.
NextBand Communications Inc. won the Chicago rights to a new wireless service for $6.96 million in an auction just concluded by the Federal Communications Commission.
That works out to about 85 cents per potential customer, or POP, in the phone industry vernacular.
That sum, typical of what bidders spent for big city licenses, is a small fraction of the $30 a POP that AT&T Corp. and PrimeCo Personal Communications paid for their wireless Chicago licenses in an FCC auction a few years ago, or the $38-a-POP bid by Pocket Communications for a Chicago license. AT&T and PrimeCo have launched wireless products here, but Pocket went into bankruptcy.
The difference may stem from uncertainties about the new bandwidth’s applications. Personal communications systems are basically a new generation of cellular phones, and their potential value was obvious to bidders. Indeed, bidders became so enthusiastic that in subsequent auctions many overextended themselves and were unable to pay.
The new radio spectrum auctioned by the FCC is for a local multipoint distribution service, or LMDS, and while the amount of radio spectrum involved is large, bidding was much lower than expected. The auction reaped $578.7 million, way less than the $1 billion to $4 billion observers had predicted. A total of 986 licenses were sold, although many rural markets attracted no bidders.
“The bidders who won will reap a true benefit,” said Thomas Gutierrez, a Washington-based attorney who specializes in wireless communications. “This spectrum will be worth a bundle in the future.”
LMDS technology should enable companies to transmit video, high-speed data or voice communications over short distances, possibly providing competition to existing wireline telephone and cable television operators. But the technology has some limitations that aren’t completely understood, which also may have dampened bidding.
In general, LMDS receivers must have a clear view of the transmitter and be no more than three miles distant. Rain, snow or even leaves on trees may disrupt the signal.
The winner of one chunk of LMDS bandwidth in Chicago, NextBand, is a joint venture between Nextel Communications Inc. and NextLink Communications Inc. The biggest investor in both those companies is McCaw, who made billions of dollars selling his cellular phone network to AT&T.
Nextel markets wireless communications tailored for business customers and NextLink offers phone and data services to business customers. The NextBand LMDS service in Chicago will provide support to both Nextel and NextLink, said Bob Ratliffe, a spokesman for the joint venture.
The new network could let the partners avoid leasing lines from AT&T, Ameritech Corp. or other phone companies, he said.
“NextLink may also use it as a wireless alternative,” said Ratliffe. “When it doesn’t make sense to dig up a road to lay cable, maybe we can use point-to-point wireless.”
But as far as its main application goes or timetable for building the network, NextBand is keeping a low profile.
“We have a team of experienced people planning how to make the most from this investment, but we won’t disclose our plans now,” Ratliffe said.
A second firm, WNP Communications Inc., of Earlysville, Va., won in bidding for another Chicago LMDS license.
Many telecommunications consultants have speculated that LMDS will be used initially to provide high-speed Internet connections and other data links to businesses in densely populated areas like downtown Chicago, but the technology may have several other uses as well.
“This is one of those wireless pathways that could be available for the future of intelligent appliances we’re all awaiting,” said Jeffrey Kagan, an Atlanta-based telecommunications consultant. “Maybe this is how your smart dishwashing machine tells headquarters when it needs more detergent.”
However the new radio spectrum is used, it looks like a real bargain, said Robert Rosenberg, president of Insight Research Corp., based in Parsippany, N.J.
“Of all the new technologies, LMDS is the one that may do it all–voice, video and data. It’s no killer application because there is no killer application, but it is very interesting.”
There was no discernible pattern to the bidding, said Larry Winfield, of Hardin & Associates, an engineering consultancy based in Roswell, Ga. Some bidders in some markets paid more than $15 a POP and others paid under $1.
Discounts granted by the FCC to some bidders who met preset conditions but denied to others helped to complicate the bidding, Winfield said.
