From...

May 3, 1999
Web posted at: 12:10 p.m. EDT (1610 GMT)

by Jason K. Krause

(IDG) -- While AT&T is buying its way into your home via cable, MCI and Sprint have found a cheap end run into the residential and small-business market.

Today, both companies have to pay the Baby Bells for access to that final golden mile. But they may have found a useful alternative: wireless cable, an obscure broadcast technology.

Wireless cable is an odd business that's been suffering a slow death for the better part of the 1990s. The wireless-cable industry, based on the Multichannel Multipoint Distribution System, or MMDS, spectrum, has been in use for analog TV since the 1960s. The original idea was that educational institutions would use these frequencies for long-distance learning. But this part of the spectrum, with the capacity for roughly 30 analog TV stations, was later deployed by private companies planning to compete with cable franchises.

The industry looked promising in the early '90s and launched some of the hottest public offerings in pre-Internet times. However, the companies ended up hemorrhaging money for years in the struggle to compete with cable TV. "We tried to give the cable monopolies a run for their money, but by the time we could deploy the capital raised by going public, it was too late," says Matt Oristano, CEO of Phoenix-based SpeedChoice, a company that Sprint purchased a few weeks ago. "Then, between 1993 and 1995 all the wireless-cable companies, us included, raised high-yield debts."

Many wireless companies succumbed to their high-cost borrowings. But, in 1995, the FCC deregulated the spectrum and enabled some companies to leap into digital-data services. Two weeks ago, a small bidding war erupted between Sprint and MCI for the most attractive companies.

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MCI quietly started buying up more than $200 million of SpeedChoice's debt. Sprint retaliated by buying SpeedChoice's parent company, People's Choice TV. Then MCI agreed to buy CAI Wireless Systems at $24 a share – and a week later increased the offer to $28. Sprint followed suit by agreeing to buy American Telecasting of Colorado Springs, Colo., for $167.8 million and the assumption of $281 million in debt.

The time is ripe for telcos to snap up MMDS companies. The FCC has largely deregulated the industry, the technology has matured and the companies are saddled with debts they incurred earlier in the decade, which makes them relatively easy acquisition targets. In 1996, SpeedChoice downsized from 900 to 300 employees while transitioning away from the TV business. CAI emerged from Chapter 11 protection last October.

The wireless-cable spectrum is useful because it is wide enough to carry high-bandwidth data applications, including video-over-data and voice-over-data. It has drawbacks as a shared spectrum, though; if too many people are logged on, they sap bandwidth from each other. So the spectrum's best implementation is small-business and residential access. The nearest complementary standard is the Local Multipoint Distribution System, which is useful for serving large, concentrated numbers of customers. However, LMDS is a more expensive technology. MCI and Sprint will probably deploy both standards as wireless networks evolve.

Sprint plans to use SpeedChoice to access wireless broadband for its ION network to homes and small businesses. DSL technology is still preferred, but the regional Bell companies make it difficult to roll out DSL. As a result, Sprint and MCI depend on a wireless alternative. And it doesn't hurt that MMDS offers several times the bandwidth of DSL. It's also flexible enough to be an alternative to T1 data lines, a carrier for phone service and a cellular-phone technology. Service starts at $50 a month, and is unaffected by nasty weather.

One problem with MMDS is that it creates a local monopoly. Once one company gets the rights to the spectrum in a region, it has an exclusive hold on that franchise. Analysts expect that either the FCC will deregulate the industry further to encourage competition or Sprint and MCI will form a joint venture to provide national coverage with the wireless spectrum.

AT&T's own Project Angel, a wireless technology many outsiders assumed the company had shelved, is apparently alive and well. It's slower than MMDS, and will only be used where no land lines exist, but even AT&T now wants to hedge its bets with wireless data.