Airwaves go for $7 billion Expect wireless service in '96 Airwaves go for $7 billion Expect wireless service in '96

Mercury News Wire Services WASHINGTON --

The federal government completed the biggest auction in history Monday, selling off part of the nation's airwaves for $7 billion to a handful of giant companies that plan to blanket the nation with new wireless communications networks for telephones and computers.

After three-months of heated bidding, three groups -- Sprint Corp. and its cable partners; AT&T Corp.; and a coalition of three Baby Bells and Airtouch Communications Inc. -- topped the list of winners of the licenses to offer the personal communications services, or PCS.

Together, the three posted winning bids for 62 of the 99 licenses auctioned by the government, bringing them each one step closer to providing nationwide wireless phone service.

Sprint said it could begin to offer service in Los Angeles and Washington by early next year. Elsewhere, it is expected to be closer to two years before any services become available.

Personal communications services is a catch-all phrase that includes a new generation of cellular telephones as well as two-way wireless links for portable computers, electronic notebooks and new information services delivered over the air.

Monday's totals put the Federal Communications Commission within reach of its goal of raising an estimated $10 billion in its wireless auctions -- for spectrum rights the government used to give away. An auction last summer raised nearly $2 billion for paging and interactive television licenses. In the months ahead are several more auctions for smaller blocks of wireless telephone licenses.

FCC Chairman Reed Hundt said the results would be a ``triple win'' for the economy, consumers and taxpayers.

He also noted that the auction means that cable TV operators might well become the country's biggest operators of wireless communications as well.

Sprint's bidding group, which calls itself Wirelessco L.P., involved the cable companies Tele-Communications Inc., Comcast Corp. and Cox Communications.

``The auctions just created the single largest wireless company in the world, and it's the cable television industry,'' Hundt said. ``This is the place where actual convergence between telephone, cable and long distance is taking place.''

The auction completed Monday had all along been expected to be the one for the high rollers. Indeed, the bidding got so high that even Craig McCaw, the billionaire and wireless communications entrepreneur, dropped out last week.

Epic risks

Only 30 participants entered the auction at the outset, and the numbers dwindled to 18 as the bidding grew richer. MCI Communications Corp., the nation's second-largest long-distance provider, never even entered the auction process.

For all the winning bidders, the opportunities and the risks are epic in scale.

The cellular telephone business, now 11 years old, has 25 million customers and has been growing at an annual rate of nearly 50 percent. The new services are likely to continue, expanding the base of wireless customers, adding at least two new services in every major market within about three years.

Staggering costs But the costs will be staggering, too. The Sprint coalition will pay $442 million just for the license that covers the New York metropolitan area.

Winning bidders' capital costs for the new wireless networks may run as high as $50 billion on top of what they pay for their licenses, FCC officials predict.

``This may represent the greatest one-time private sector investment in any single industry in the nation's peacetime history,'' Hundt said.

And when they do switch on those costly new networks, they will face intense competition from existing cellular carriers, which have been girding for battles in their home markets.

Most of the bidding was in line with expectations. The most expensive license in the country was that covering the region from Los Angeles through San Diego, which was acquired by Pacific Telesis Group for $493.5 million.

`Pioneer' licenses

Only one license for that region was available, even though there are two for each region, because the other had been awarded to Cox Enterprises as a result of what the commission deemed its ``pioneering'' technology development. A similar situation prevailed in New York, where a small company called Omnipoint Communications had been promised a ``pioneer's'' license as well.

Those companies -- along with American Personal Communications, which won a license for the Washington market -- will pay 85 percent of the average bid per potential subscriber for the top 10 markets.

McCaw's role The biggest wild card in the auction was McCaw. His persistent bidding more than doubled the price Sprint had to pay to win the New York license. Pacific Telesis Group ended up paying eight times as much as it would have for the Los Angeles license had McCaw not upped the ante.

``Craig cost Pac Tel a little over a half-billion dollars,'' said Wayne Perry, vice chairman of AT&T Corp.'s wireless unit.

Under the FCC's bidding rules, the auction was declared over when no new bids were entered in what had been stepped up to three-times-a-day bidding. The absence of new bids came in Monday's third round, which was the 112th in the series.

The next round of auctions, set to begin in about six weeks, will cover hundreds of licenses that are reserved for small businesses and companies owned by minorities or women.

The New York Times and Bloomberg Business News contributed to this report. Published 3/14/95 in the San Jose Mercury News.

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