Sprint and MCI Buy Into Wireless Cable -- and What It Means for ITFS

By John Schwartz

During the last couple of months, Sprint and MCI/WorldCom have contracted to buy most of the wireless cable industry, collectively acquiring service areas that contain about half the US population.   [See "Who's Buying What."]   In the process, they bid up the price of spectrum to levels not seen since the heady days of optimism about analog pay-TV service. 

Russ Robinson, Sprint's Director of Corporate Communications for Advanced Technologies, stated that his company is making the investments as a means bypassing the Baby Bells as it delivers two-way data services, specifically its Integrated On-demand Network (abbreviated ION).  The concept of ION is to converge many services into a single digital pipe: local phone service, long distance, internet data, videoconferencing, etc.  

Robert Finch, MCI/WorldCom Vice President for Strategic Development, revealed little about his company's intentions.  "We didn't focus on how we'd communicate with the world on this," he said.  "So far, we've been very low profile."   He added:  "We won't be underground forever." 

A May 20 Reuters story on the MCI/WorldCom annual meeting reported brief remarks from Chairman Bernie Ebbers on the company's plans, which sounded much like Sprint's.   "MCI WorldCom will use the spectrum to connect directly to small and medium-sized businesses. The spectrum has limited data transmission capability so it would not be used to serve large companies, Ebbers said. 'We build it out and we'll use it as an access vehicle to small and mid-sized businesses...in areas where we don't have our local facilities reaching out as far as we'd like...''' 

If ITFS systems are to deliver two-way data, they will have to reconfigure their technical facilities, often in thorough-going ways like cellularizing transmissions from multiple towers and operating upstream channels. 

Gerald Stevens-Kittner, CAI Wireless's Vice President - Spectrum Management, offered a detailed picture of his company's technical vision. He stated that CAI and others in the industry have developed a preferred spectrum plan which seeks to separate high-power downstream channels from lower power upstream transmissions.  He said that CAI would prefer to use the A and B channel groups for downstream video, using MPEG-2 digital compression for bandwidth efficiency.  In the alternative, high power one-way video could be placed at the top end of the ITFS band.  CAI would like to cellularize the remaining channels and use them for two-way data, Kittner indicated.  He explained that using the same frequencies for upstream transmission within a region would reduce interference between neighboring systems. 

It is unclear to what degree CAI's plan will be adopted by its new owner, since MCI/WorldCom  is not yet ready to comment.  Sprint spokesman Robinson said that he had no comment on technical architecture, as he was unfamiliar with the subject.   Indeed, he did not recognize the acronym ITFS until the term was explained to him.   He referred technical questions to an executive at People's Choice TV, one of the firms Sprint is slated to acquire.   PCTV Senior VP Todd Rowley stated that Sprint has assembled a team made up of its own staff, personnel from the various wireless companies it is buying, and outside consultants to devise and execute the transition to two-way.  

In many ways, one is left to wonder what Sprint and WorldCom are buying. They will inherit the MMDS licenses now held by wireless cable companies; in certain metropolitan areas, the incumbent wireless operator holds most or all of the 11 MMDS and 2 MDS channels.   However, these are the minority of channels now used by wireless cable companies, and, under current FCC interference rules, five of the 11 MMDS channels cannot be cellularized or used for upstream purposes without the consent of the adjacent-channel ITFS licensee. 

With respect to ITFS channels and the remaining MDS/MMDS channels, the buyer at best will gain only leases.  Steve Schaffer, a Washington lawyer who represents many ITFS clients, observes that very few ITFS leases permit two-way digital operation.   Indeed, a quick---and possibly unrepresentative---survey found only that a small percentage of  ITFS leases had been amended for two-way data use out of hundreds.   [See "An ITFS Lease Renegotiation Scorecard."] 

It is clear that ITFS licensees occupy a very influential position with respect to the possible conversion of the wireless cable industry to two-way operation.  But there remains a lively assortment of views about the implications.   

PCTV's Rowley acknowledges the pivotal role of ITFS.  He says that Sprint and MCI are buying "what wireless operators have been putting together over the last 10 years: lease rights and relationships...  Do [ITFS] lessors want to move forward?   Generally, yes.  Wireless operators have a pretty good history to move forward with their lessors on a win-win basis." 

Washington lawyer Ed Lavergne thinks that the impact of the Sprint and MCI/WorldCom acquisitions means that the value of ITFS spectrum has increased dramatically.   "Thus ITFS licensees entering into lease negotiations are sitting on more valuable assets than they were a year ago." 

MCI/WorldCom VP Robert Finch, in one of his few on-the-record comments, did not disagree.   "You have a tremendously valuable resource and we need to find a way to cooperate," he stated. 

Washington lawyer Todd Gray, who has perhaps the longest roster of ITFS clients, said "Anything that reflects an increased interest in our frequencies is good for us.   The principal thing holding us back has been the lack of resources of the people we were working with [wireless cable operators].  To have a couple of companies with the level of resources of Sprint and MCI is a good thing." 

However, Gray also expressed a concern "that Sprint and MCI may not understand the licensing and contractual structure of ITFS frequencies.  Do they have any idea that it takes years to develop a relationship of trust with the licensees, inform them of technical plans, and get institutional approvals?" he asked.  He added, "I wonder if they have anyone advising them who understands the ITFS industry." 

The likelihood that the FCC will open a filing window this year for two-way applications lends a pressure cooker-like intensity to technical and contractual negotiations. 

Gray goes on to state: "The filing window could be the world's most difficult period for negotiating on short notice or the world's greatest bust because no one is ready to file."  He expressed concern that "sudden and ill-conceived proposals will be submitted on short notice, and ill-will will result from licensees' refusal to file them." 

Attorney Lavergne also predicts a last-minute deluge, but is more philosophical.   "At the filing window, this will all come down in one big crunch.  We'll be amending leases as well."  He adds: "It's human nature. I'm taking it in stride." 

PCTV's Rowley agrees that "there is an awful lot of work to be done... in a relatively short period of time."   "It will take a tremendous amount of communication," he adds,  recommending early contact between licensees and wireless operators. 

The National ITFS Association and a number of prominent licensees have urged that ITFS licensees to take a series of steps that will help avert last-minute crises.  One NIA recommendation is that "ITFS licensees notify the commercial operators in their market area and in adjacent market areas that they wish to be active participants in the development of the ITFS/MMDS spectrum and that they wish to meet with the commercial operator to discuss their respective plans as soon as possible." 

NIA also has urged all ITFS licensees to notify their lessees and other industry stakeholders that they will refuse to consider technical modifications or interference consents which are proposed less than 30 days in advance of any filing window.  It also recommends that such proposals be independently reviewed by the ITFS licensee's own legal and engineering advisors. 

However, even as two-way proponents need to allow adequate lead time, an ITFS licensee needs to speed up its internal decision-making to mesh with the fast-moving commercial data and telecommunications world---unless the ITFS entity chooses to eschew commercial relationships.  It will be easier to move decisively, and aptly,  if an ITFS licensee first defines its own objectives, enlisting expert legal, engineering, and business advisors as needed.  How much educational video service will the ITFS operator need to deliver?  If it wants to add instructional data service, how much throughput will be required?  Is a commercial lease relationship the best way for it to develop two-way ITFS services?  If it decides to lease two-way capacity, how can its facilities be deployed in a manner which can survive the expiration or termination of a lease?  (This last question is critical, as FCC two-way rules do not offer comprehensive protection.) What is its  "bottom line" on financial compensation for the commercial use of ITFS spectrum? 

Not all assessments of the future are rosy, especially in view of the fact that conversion of ITFS to two-way may face numerous obstacles.  Some observers well remember that wireless pay-TV developed so slowly that it missed its window of opportunity, and that several Baby Bells pulled back after investing considerable sums in the industry.   Such memories produce visions of a darker hue. 

Attorney Gray says: "A concern is what happens if [Sprint and MCI] get into wireless cable and then decide it won't work and get out, as Bell Atlantic and NYNEX did.  I'd hate to see that happen again." 

Tom Pyle, executive director of one of the country's largest ITFS operators, states: "With the new two-way rules, it seems like we are slowing down in terms of implementation...  I have no doubts about the possibilities of two-way, but has serious doubts about the new investors' willingness to move forward, as opposed to warehousing capacity."  He recommends that ITFS licensees build performance requirements into their two-way contracts. 

This site powered by Contentor.