On Feb. 18, the Federal Communications Commission willcommence auctions for the largest blocks of licensed spectrum ever offered to the public.The local multipoint distribution services 'A' block consists of 1,150 megahertzof spectrum, located in three bands from 27.5 gigahertz to 31.3 GHz.
In addition, the LMDS 'B' block consists of twobands of 75 MHz each within the spectrum from 31 GHz to 31.3 GHz. The FCC, viewing LMDS asa vehicle to spur competition in the local loop, has adopted a flexible service definitionfor LMDS that encompasses a wide variety of services, including both video services andtelephony and data services. The lack of service clarity has prompted a great deal ofspeculation as to the service targets of LMDS applicants, as well as clouding estimates ofspectrum value.
In November, the FCC delayed the LMDS auction from itsthen-scheduled date of Dec. 10 to the current date of Feb. 18. In its statement, the FCCcommented that the delay was to allow greater bidder participation and to allow potentialbidders additional time to access sources of capital.
The FCC proposed that potential bidders could pursueadditional sources of financing and investment under the World Trade Organizationagreement. The WTO agreement greatly increases the percentage of foreign ownership in theU.S. telecommunications market. As a result, the upcoming LMDS-auction activity mayforetell the competitive direction of the local telecommunications market.
To date, LMDS operations in the United States, as well asinternationally, have centered upon analog video services, directly competing with thelocally franchised cable operator. However, these operations have not grown significantmarket share, nor generally reflected profitability.
Increasingly, applications now tend to take advantage oftwo formidable attributes of LMDS; bidirectionality and breadth of bandwidth. In addition,double-digit growth rates and high margins in high-speed-data communications make this anattractive target market for the LMDS operator.
Business models have reflected the anticipated higherprofitability of high-speed voice and data services. The FCC naturally sees LMDS as animmediate vehicle to spur competition to the local cable and telephony franchises.
PRESENT VISION OF LMDS
LMDS is situated in the Ka spectrum band, surrounded bysatellite-based services. It is affected by heavy rain and, therefore, it requirescellularization to limit rain attenuation and to provide adequate coverage.
Foliage and other obstacles provide signal blockages,limiting customers to a clear line of sight from the cell transmitter. Most LMDS-equipmentproviders have designed systems that use both frequency and polarization discrimination tolimit radio interference. In addition, the customer-premises equipment is designed usingnarrow-beamwidth receivers, also to limit radio interference. These design tools allow theLMDS operator to have link-availability specifications sufficient to achievehigh-speed-data-reliability expectations.
Most LMDS equipment providers are basing serviceapplications on using asynchronous-transfer-mode multiplexing. ATM multiplexing permitsconservation of bandwidth, which is relevant for high-capacity network architectures. Italso permits the LMDS operator to provide bandwidth-on-demand services, which are notgenerally available today. LMDS customers using ATM may pay only for data transmitted,rather than paying a fixed fee for a traditional full-period circuit.
The local data-communications market will continue toexpand and, correspondingly, to grow more competitive. This competition will result inhigher customer churn rates. The LMDS operators see this increasing churn as an asset, asthe CPE is portable and it can be used where service is demanded. Thewireline-telecommunications-service provider will be greatly affected by customer churn,resulting in underutilized and stranded plants.
Internet access is clearly an LMDS market target.Cable-modem equivalency is clearly deliverable in an LMDS service set, as well as fullEthernet services and even symmetric local area network-to-LAN connections. In fact, mostLMDS architectures now encompass the delivery of bidirectional OC-1(51.84-megabit-per-second) rate service.
Wireless telecommunications technology tends to have lowerfixed-network costs and higher variable-network costs than wireline technology. However,LMDS uses a cellular topology, resulting in a greater fixed-cost structure than AMPS orpersonal-communications-services operators.
In addition, an LMDS cell is relatively expensive, as itinvolves the retransmission of broadband facilities over 5-kilometer-or-less-radius cells.Digital LMDS video will necessitate the more expensive digital set-top converters, similarto direct-broadcast satellite and digital MMDS. Thus, LMDS business models reflect therequirement to achieve considerable market share to become profitable.
Most potential LMDS operators do not consider analog videoeconomically attractive, in light of increasing competition from the multiple DBSoperators, as well as from cable operators that are expanding channel capacity.
However, business models that forecast successfulstand-alone voice and data operations can successfully add digital video at a later date,serving as a full-service-network provider. Still, for the cable operator seeking entryinto voice and data services, LMDS will clearly become a formidable competitor.
Interestingly, many LMDS business plans are built aroundthe resale of service. This resale opportunity may provide a unique format whereby cableoperators can lease future LMDS service to expand their service offerings to voice anddata.
The LMDS auction will consist of 493 basic trading areasfor each of the 'A' and 'B' blocks. Participants may bid in either orboth spectrum blocks. Incumbent local-exchange carriers and MSOs that serve greater than10 percent of the BTA's population may not participate in the 'A' block auction.That prohibition is currently being challenged in the courts. CRMS and MMDS operators maybid in the 'A' block auction.
The LMDS 'B' block -- 150 MHz from 31 to 31.075GHz and 31.225 to 31.3 GHz -- will share the band with incumbent licensees. Astelecommunications incumbents can participate in this auction, many are expected to do so.
While the declared LMDS auction participants generally arenot existing telecommunications-service providers, it is expected that many existingservice providers will emerge. Those service providers -- having existingtelecommunications infrastructures, such as AMPS and PCS operators -- will have theadvantages of not having to construct basic switching, networking and operationsfacilities. In addition, these operators will have a customer base and cash flow fromwhich to leverage.
A network topology will evolve over the next several yearsthat will provide wireless-broadband access to the business and residential customer.
While generally not video, the technology will providecompetition to wireline cable operators seeking to leverage existing hybrid fiber-coaxialcable systems for voice and data services. Cable operators need to become aware that LMDScan and will provide lower-cost access to interactive broadband services in a highlyreliable network. Cable operators may consider the leasing of LMDS spectrum as analternative to upgrades of existing cable plant to provide a greater range oftelecommunications services.
Richard S. Bergen is president of LMDS services, broadbandgroup for Hardin & Associates Inc., a wireless-communications-consulting firm based inRoswell, Ga.