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Spectrum off-limits after attack

Last week's terrorist attacks could make it hard for companies to gain the right to use more of the potential airwaves, a fact that could spark a wave of consolidation.

Wireless-industry analysts say last week's terrorist attacks will make it hard for wireless companies to gain the right to use a larger portion of potential airwaves, and that could spark a wave of consolidation.

Wireless companies such as Verizon Wireless , Sprint PCS, Cingular Wireless, AT&T Wireless and Nextel Communications have long sought to gain licenses from the Federal Communications Commission for more wireless spectrum that would allow them to support so-called 3G, or third-generation, wireless services.

But the Sept. 11 terrorist attack on the World Trade Center has made that scenario very unlikely, since the additional spectrum would most likely come from the U.S. military. The recent events are widely viewed as a tragedy that will spur the need for better national security, of which communications would play a central role.

"They can kiss that spectrum goodbye," said analyst Roger Entner of The Yankee Group. "After what happened last Tuesday, if you just mumble the words 'national security,' that would override commercial and industry needs."

The military now uses some prime spectrum that wireless companies covet, and the two sides have long battled over its use. The military has successfully dominated debate thus far--even before the terrorist attacks.

Analysts now say the industry will just have to face the fact that more spectrum is not on the table for the foreseeable future. But the government will most likely try to compensate the industry in some way, namely by lifting spectrum cap restrictions, according to analysts.

The government allocates airwave spectrum to different industries, including the television as well as the wireless industry, and also restricts how much spectrum a wireless company can own in each geographic market.

"This increases pressure on the FCC to do what it can to lessen the restrictions on the usage and control of existing spectrum," said analyst Rudy Baca of the Precursor Group.

Lifting the cap would basically remove one major barrier that blocked larger wireless companies from acquiring smaller operators for their spectrum in certain areas and cities.

Changing the rules could even give the green light for larger acquisitions, as companies seek to buy one another for spectrum--since getting it from other sources is no longer an option. Entner believes that even large companies could unite.

"One of the things that stops them right now is the spectrum cap, because it doesn't make sense (since) they would have to sell what they bought" to comply with existing spectrum-cap rules, said Entner.

Both analysts think the FCC will make a vote on the issue by the end of year, if not sooner.