Wireless Cable Ops Opt for Data

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Washington -- Faltering wireless cable companies are
turning away from their roots, looking to grow along with the burgeoning high-speed
Internet industry.

Long defined by its oxymoronic name, wireless cable is
moving away from video services and into high-speed Internet access.

This transition was most clearly demonstrated by the recent
acquisition of wireless cable systems and spectrum by long-distance carriers Sprint Corp.
and MCI WorldCom.

Both companies have indicated that they plan to use the
spectrum they acquired -- a total of three companies for Sprint and one for MCI in the
past month -- for high-speed Internet and data services.

MCI will focus on using the
multichannel-multipoint-distribution-service spectrum to roll out those services for
businesses, while Sprint will use its acquisitions to fill in gaps in its Integrated
On-Demand Network (ION) broadband service for residential and business customers.

MCI is also negotiating to buy Prime One's digital
wireless cable system that is up and running in Los Angeles, according to sources.

"All of this validates the strategy of leading
companies in pursuing two-way services through this band," said Andrew Kreig,
president of the Wireless Communications Association International (WCA), the trade group
representing the industry. "It has had an enormous impact on both the stock values
and perception of the utility of this band."

Financially, these companies have done well for themselves.
CAI Wireless Systems Inc., which emerged from bankruptcy last fall, agreed to sell to MCI
for $28 per share -- $4 more than the original proposal of $24 -- or an estimated $476
million.

Sprint has announced proposals to acquire Videotron USA,
American Telecasting Inc. and People's Choice TV Corp. (PCTV). In late April, Sprint
agreed to purchase PCTV for $10 per share, or about $125 million, compared with its
original offer of $8 per share.

The relatively expensive price tags on these companies
could be considered surprising -- wireless cable has not fared well in recent years.
Trying to compete in the multichannel-video market against cable television was, for most
companies, not a successful strategy.

Wireless cable had two key technological problems in
rolling out video services: limited channel capacity and problems with establishing line
of sight, said Jim Tenhune, an analyst at The Yankee Group.

The line-of-sight problem is crucial: While MMDS signals
can penetrate through trees, they can't get past buildings and other large
structures.

Wireless cable was originally thought to be a way for the
regional phone companies to compete with cable, but many of the companies that sprang up
around five years ago eventually declared bankruptcy, Tenhune said.

Of course, Kreig pointed out that a few companies, such as
BellSouth Corp., have been able to operate successful systems, using digital technology to
offer more channels.

But all indications are that broadband is the future.
Anticipating this development two years ago, wireless cable companies petitioned the
Federal Communications Commission to allow two-way transmissions over MMDS spectrum, Kreig
said.

Last fall, the FCC adopted rules that would allow for
two-way service. The agency is currently considering a couple of petitions, but the final
rules are expected to be issued this summer, said Paul Sinderbrand, a partner in
Washington, D.C.-based law firm Wilkinson, Barker & Knauer LLP.

The recent acquisitions, Sinderbrand added, could validate
what the FCC expected to happen once two-way was authorized.

"It was clear that existing operators did not have the
funding on hand to fully build out the new services. Strategic partners would need to come
in and make acquisitions," he said.

Wireless operators needed to align themselves with bigger,
better-funded companies. And MCI and Sprint needed to work out getting access to the last
mile into homes and businesses.

Over the next several years, cable has the advantage in
rolling out broadband services, perhaps winning 77 percent of the $8.8 billion in
estimated consumer broadband spending in 2003, according to a recent report by Forrester
Research Inc.

AT&T Corp. is particularly well situated with its
acquisition of cable giant Tele-Communications Inc. and its recent proposal to acquire
MediaOne Group Inc., Tenhune said.

Wireless cable could serve as a temporary fix for MCI and
Sprint, helping to keep the companies in the broadband business until they are able to
deploy other technologies, such as digital subscriber line, he added.

So far, MCI has been vague about its plans for CAI
Wireless, which owns analog video systems in six Northeastern markets, as well as spectrum
in eight other markets. MCI has only indicated that it plans to use fixed wireless systems
to service the business market.

Sprint has more public plans for its wireless acquisitions,
indicating that the LDC plans to use fixed wireless technology to help roll out its ION
broadband service.

The ION service can be used in both homes and businesses.
For residential customers, Sprint wants to provide a single connection on which people can
simultaneously make telephone calls, send faxes and navigate the Internet. For businesses,
Sprint also provides integrated services with one network -- a service already offered in
the large-business market.

Sprint plans to use fixed wireless to reach 25 million
homes by the end of 2000, spokesman Russ Robinson said.

The company already owns a hefty number of towers around
the country because of its Sprint PCS personal-communications-services venture, and it can
equip those towers with MMDS transmitters. Houses with a line of sight to the towers will
be hooked up through antennas mounted to roofs.

Robinson estimated that about 80 percent of households in
its markets will be able to use a wireless connection. The other 20 percent -- blocked
from line of sight by buildings or other obstructions -- could be served with DSL
connections.

With some overlap with its wireless availability, Sprint
also plans to make DSL service available to 34 million homes by the end of 2000.

One wireless company -- Wireless One in Jackson, Miss. --
is already offering its own high-speed Internet services in three Southern cities:
Jackson; Baton Rouge, La.; and Memphis, Tenn. Wireless One plans to serve 900 business
subscribers by the end of the year.

Although the FCC rules are not yet finalized, Wireless One
built its all-wireless system using MMDS spectrum one way and wireless-communications
spectrum the other way.

"We have used these three markets to prove that
broadband wireless access can work with two-way data," Wireless One vice president
for public relations Walt Eilers said. "There is a great need for [broadband] access,
particularly in the small and midsized business community."

States News Service

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