BellSouth, GTE Still in MMDS Game

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Multichannel-multipoint-distribution-system technology has
fallen on hard times lately.

Once the darling of Wall Street, wireless cable, as the
technology is also called, quickly became an investment pariah. But through it all, two
regional telephone companies stuck to their wireless guns, and only time will tell if
their decisions were correct.

Atlanta-based regional Bell operating company BellSouth
Corp. and Stamford, Conn.-based telco GTE Corp. bought into wireless cable a little more
than a year ago. Perhaps the best-known is BellSouth, which has deployed wireless cable
service in Atlanta and New Orleans. The company rolled out service in Orlando, Fla., last
month, and it plans to expand its offering in south Florida next year.

But after that deployment -- slated for Miami, Jacksonville
and Daytona, Fla. -- BellSouth may beg off wireless cable for a while, due to the
increasing difficulty of assembling enough wireless channels in a given market.

BellSouth has taken a cautious approach to wireless video,
launching the service in a few markets where the technology's line-of-sight
constraints do not present a major problem.

In the areas where the telco cannot reach customers with
its digital-wireless signal, traditional coaxial cable is being used.

So far, BellSouth has spent about $122.8 million on buying
wireless channel rights and deploying the network. That is a far cry from the billions of
dollars that are being spent by AT&T Corp. in its pending acquisition of
Tele-Communications Inc.; by SBC Communications Inc. in its acquisitions of Southern New
England Telecommunications Corp. and Ameritech Corp.; or by Bell Atlantic Corp. in its
pending purchase of GTE.

Both SNET and Ameritech are building their own fiber optic
cable systems in their respective territories.

BellSouth has embraced wireless technology for one main
reason -- cost. Deploying a wireless-video network is cheaper and, with new digital
technology, it can offer as many channels as a conventional hardwire system.

Elton Jones, director of corporate development for WAGA-TV,
the local Fox affiliate in New Orleans, said BellSouth's cable service has been
successful in his city. BellSouth has done some work with WAGA -- primarily rebroadcasting
the station's news over the wireless cable network. He estimated that BellSouth has
about 20,000 to 30,000 subscribers in New Orleans.

Jones said the BellSouth service is priced about the same
as that of the incumbent cable carrier, Cox Communications Inc. However, he thinks that
people are switching to wireless cable because of the digital picture and sound quality.

"There is a considerable viewership that does
recognize aesthetic differences," he said.

Jones added marketing efforts have been fairly minimal.

In Atlanta, subscriber figures are less available. However,
when BellSouth purchased the local wireless cable operator in the city in 1997, the system
had 9,000 subscribers.

David Wood, a spokesman for MediaOne, which provides cable
service in Atlanta, said BellSouth is considered to be competition to the incumbent, but
MediaOne competes by having a better product.

"Those who are in the right areas, with the right
line-of-sight, and who don't mind putting an antenna on their house -- those would be
the people [to switch]," Wood said. "But we aren't seeing any drastic move
from our product to theirs."

GTE also entered wireless cable through acquisition,
purchasing Oahu Wireless Cable in Oahu, Hawaii, in May 1997. In addition, GTE offers video
in Cerritos and Ventura County, Calif., and in the Tampa Bay area in Florida, via a hybrid
fiber-coaxial network. Those hardwire networks have about 90,000 subscribers.

GTE has not finalized plans to expand its wireless cable
offerings just yet. However, William D. Wilson, president of GTE Media Ventures, said
future offerings may include other islands in Hawaii.

Wilson said GTE decided to go with MMDS because it provided
a low-cost alternative to building a hardwire network. He added that MMDS also offered
advantages over direct-broadcast satellite.

Because of its location, it is almost impossible to get a
DBS signal in Hawaii, Wilson said.

He added that in other markets, DBS' inability to
carry local channels is also an obstacle.

"In Dallas, to offer a DBS product where you
couldn't get Cowboys football would be death," Wilson said.

The GTE wireless system is digital, meaning that it has
better picture quality and channel capacity than analog MMDS. GTE has also added enhanced
services to its MMDS system, like near-video-on-demand and time-shifted television
programming. And the company is investigating Internet data services over wireless.

GTE would not release subscriber figures for Hawaii, but it
said the service has been successful.

However, GTE's competition in Hawaii -- Oceanic Cable,
a Time Warner Cable system with 247,000 subscribers in Oahu -- has not yet felt any impact
from the service.

"We do see them as serious competition," said Kit
Beuret, a spokesman for Oceanic. "As far as I know, I don't know if they have
reached a point where they have as many customers as the old wireless company had."

Beuret also added that because of Hawaii's topography
-- it has many hills, mountains and valleys -- the LOS for wireless cable is not that

MMDS' LOS characteristics -- which prohibit
transmission of signals through obstacles like buildings or trees -- have been a big
problem for the technology over the years.

And telephone companies have been burned by wireless video
in the past: Bell Atlantic's plans for a nationwide wireless video service based on
CAI Wireless Systems Inc.'s network were scrapped in 1996, after the telco could not
overcome LOS problems.

But BellSouth and the others are not hinging all of their
bets on wireless. For example, BellSouth is using wireless video only in markets where it
has at least 70 percent LOS. For those homes that can't be reached via MMDS, the
telco is using a traditional hardwire strategy.

Despite BellSouth's and GTE's enthusiasm for the
technology, many analysts are not convinced.

"[MMDS] is a way into the market, but it's a
desperate way in," said Jim Wahl, a wireless analyst for The Yankee Group in Boston.
"Even when you go digital and you can provide the channel capacity [of the incumbent
hardwire-cable provider], it's still tough to make it successful."

Wahl added that even though MMDS costs less to launch than
deploying a hardwire cable network, it is not cheap enough to offer a significant discount
to consumers.

Wahl said that at best, wireless cable offerings are priced
between 10 percent and 15 percent lower than the incumbent cable provider's service.
At that marginal discount, wireless cable subscribers tend to be budget-minded individuals
who will drop the service the minute that they get a better deal from DBS, Wahl said.

So, if the technology is so bad, why are GTE and BellSouth
embracing it? Wahl believes that both companies jumped into wireless believing that their
significant resources and marketing know-how were enough to make it a success.

He added that initially, when consumers are asked if they
would switch cable companies if a wireless offering were priced at 15 percent less, a
large number say yes. But when they find out that they need to have antennae put on top of
their houses, they change their minds.

"I don't know if [BellSouth and GTE] thought that
through a lot," he said.