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FCC Steps Up Airwave Hunt

Wireless: Regulators have intensified the search for bandwidth as carriers spend billions to expand calling capacity but try to avert financial downfall.

July 05, 2002|JUBE SHIVER Jr. | TIMES STAFF WRITER

WASHINGTON — Federal regulators and industry officials have stepped up their search for more airwaves for the beleaguered wireless industry as carriers try to stave off the financial carnage that has engulfed the rest of the telecom industry.

A shortage of airwaves has forced Sprint PCS Group, VoiceStream Wireless and other companies to borrow heavily to handle calls placed by the nation's 128 million mobile phone users.

Although wireless companies are spending nearly $10 billion this year to expand calling capacity and provide new high-speed data services, revenue per minute of mobile telephone use has plummeted to 14 cents, from 53 cents in 1992, according to industry figures.

That's because the industry's titans, in an effort to gain market share, have been underpricing their services relative to their costs.

For The Record
Los Angeles Times Wednesday July 10, 2002 Home Edition Main News Part A Page 2 National Desk 10 inches; 382 words Type of Material: Correction
Nextel's cash--A story in Friday's Business section about a shortage of airwaves for the wireless industry incorrectly reported that Nextel Communications Inc. had $1 billion in cash. The company has $3 billion in cash.
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"There's a basic rule of economics: If you sell something for $1 that costs you $1.05, you can't make money," said Herschel Shosteck, president of Shosteck Group, a Wheaton, Md., telecommunications consulting firm.

A major spectrum expansion is critical if the industry is to avert an erosion in the quality of cell phone service or a financial meltdown in the next two years, analysts said. At stake are the pace of innovation in a key industry sector and tens of thousands of jobs. That's particularly true in California, the industry's nerve center and home to Qualcomm Inc. and about 2,000 other wireless firms employing 60,000 workers.

"There are so many types of events out there that could spell doom for the industry," said Adam Zawel, an analyst for Cambridge, Mass.-based Yankee Group, citing uncertain government policy, new competing wireless technologies and the economy. "But there are also still a heck of a lot of people out there without a cell phone," Zawel said. "The challenge is ... to get more phones into the market and get everyone to use advanced wireless services," which generate more revenue.

In a controversial move to alleviate the crunch, the Federal Communications Commission announced last week that it would auction 740 wireless licenses beginning Aug. 27. But those airwaves are currently used by television broadcasters, and some wireless firms and lawmakers have opposed an auction because carriers would then be forced to spend years and hundreds of millions of dollars to relocate broadcasters to other parts of the spectrum.

What's more, those airwaves represent only about 78 megahertz of spectrum, about one-third of the 200 MHz the industry says it needs to satisfy wireless demand.

"The wireless revolution is becoming a victim of its own success," said Thomas J. Sugrue, chief of the Federal Communications Commission's wireless bureau. "The simple truth is that as our society grows increasingly dependent on wireless technology and services, spectrum demand is stressing the supply, and that has made spectrum management difficult for government."

This bleak picture is a stark contrast with two years ago, when the wireless industry was flying high and aggressively building networks and pursuing acquisitions. But carriers have since found it more difficult to attract customers because most American consumers who want a mobile phone now have one. The remaining 50% of Americans who don't have one are mostly the elderly, the poor and children too young to own a phone.

Carriers have compounded their woes by following in the footsteps of dot-com and fiber-optic entrepreneurs, borrowing too heavily and building too aggressively in the face of slowing demand. The number of mobile phone subscribers will increase 14% this year--an all-time low rate, according to Prudential Securities Inc.

With less business to go around, experts predict the industry will shrink to no more than four major players within two years.

One likely combination, industry experts said, involves the nation's No. 3 carrier, AT&T Wireless, and No. 2 Cingular Wireless, which is owned by SBC Communications Inc. and BellSouth Corp. Because their networks share similar technology, the two firms could save billions of dollars by combining. Market leader Verizon Wireless could achieve a similar synergy by acquiring No. 4 Sprint PCS, experts said.

But Sprint may still be wary of a deal after the Justice Department's rejection of its proposed $115-billion merger with WorldCom Inc. two years ago. And federal regulators are likely to be skeptical of mergers that would leave 65% of the wireless market controlled by two companies owned by the regional Bells. The fear is that the Bells might then easily overwhelm the market's remaining two weaker competitors, Nextel Communications Inc. and VoiceStream.

The unpleasant options leave the industry's major players with little choice but to hunker down, for now.

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