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Broadband underdogs take aim at AT&T

MCI WorldCom and Sprint are betting that wireless cable will help them compete with Ma Bell's growing cable networks and its bundled packages of voice, video, and high-speed Net services.

In a one-two purchase punch this week, MCI WorldCom and Sprint agreed to buy three of the top four national wireless cable TV companies, closing a bidding war for the biggest of the struggling firms.

The long distance companies are betting that wireless cable will help them compete with Ma Bell's growing cable broadband networks and the bundled packages of voice, video, and high-speed Net services that AT&T is rolling out through those high-speed pipes.

It may be a long-odds gamble. Wireless cable companies, which have focused on providing video programming to compete with traditional cable TV, have failed to make a dent in the market and have flirted with bankruptcy for several years.

But the technology is said to be able to deliver video, voice, and high-speed Internet services at speeds that cruise past the average cable TV or telephone wire-based system. And together, MCI WorldCom and Sprint have speedily built up a patchwork of networks that could provide stiff competition to AT&T's cable networks.

"This is the same thing as AT&T's purchases. It's the same end result, but though different pipes," said Cahners In-Stat analyst Ray Jodoin. "I think this is very competitive with cable offerings."

Wireless cable works much like cellular telephones. Transmission towers set atop high areas can broadcast a video or data feed to individual subscribers' homes or offices. An antenna, attached to a home or office, captures the signals.

But wireless cable technology, dubbed MMDS, offers far more bandwidth than ordinary wireless connections, allowing video feeds and telephone service, in addition to Internet connections of up to 10 mbps.

Until late last year, federal regulations didn't allow two-way transmissions, making the systems difficult to use for Internet access. But last fall, regulators changed the rules, opening up the possibility of fast Net uploads as well as downloads.

Big industry players have reportedly been sniffing around the industry since then. But the dam broke this month, when MCI WorldCom began buying up debt from the major players at discounted rates.

Sprint made a quick move, buying People's Choice TV. MCI WorldCom agreed to buy CAI Wireless, the largest of the big four, which also has a 94 percent stake in smaller player CS Wireless. That early bid unraveled after CAI Wireless received other offers--which industry insiders say was most likely from Sprint.

But MCI WorldCom recovered, finally agreeing Monday to solidify its bid for CAI Wireless at a price $4 per share higher than its original $24 per share bid. The $482.8 million purchase will give it control of CAI Wireless and CS Wireless.

Sprint closed the bidding war yesterday, agreeing to acquire American Telecasting for $448.8 million in cash and assumed debt.

Patchwork competition
None of the purchases will give the wireless cable newcomers a reach anywhere close to what AT&T is developing with its cable bids, however.

At the end of last year, the Tele-Communications Incorporated cable infrastructure, now owned by AT&T, passed close to 17 million homes. Time Warner cable, with which AT&T has struck a telephone and broadband joint venture, passes 20 million homes. And if AT&T is successful in its bid for MediaOne, another 8.5 million potential customers will be added to the mix.

By the numbers
Companies Potential homes reached
MCI WorldCom* 23.8 million
Sprint* 17.8 million
AT&T (TCI) 17 million
Time Warner 20.6 million
MediaOne 8.5 million
Comcast 7.4 million
Cox 6 million
*represents wireless cable coverage
Source: Sprint, CAI Wireless, Dataquest
The scale of AT&T's cable operations, which would give the firm access to well over 50 percent of U.S. homes if all its pending deals are completed, has prompted antitrust concerns from some policymakers and competitors.

But the wireless cable purchases will also give Sprint and MCI WorldCom access to a significant slice of U.S. consumers and businesses, providing new competition for high-speed Internet business in markets from New York to Seattle.

CAI Wireless and CS Wireless together can reach about 23.8 million households, according to the company. Sprint's new wireless acquisitions will give it access to about 17. 8 million households, a company spokesman said.

And while the wireless operations do have disadvantages--the feed is limited to line of sight, hampering access for people in hilly areas or close to heavy foliage--cable systems are far more difficult to upgrade than wireless systems are to install, analysts said.

Consumers and businesses are for the most part unfamiliar with the wireless services and MCI WorldCom and Sprint will have to invest significant amounts of money marketing the technology, some analysts added.

Yet considering that all the firms have to do is set up transmitting towers and install an antenna in a customer's home, wireless cable may be a faster alternative to AT&T's two-way cable, which won't be available in many areas until the end of 2000, analysts said.

"I look at [wireless cable] as a rapid deployment system," Jodoin said. "There is no reason why this can not be rolled out more easily than cable."

Analysts do expect Sprint and MCI WorldCom to target businesses most heavily with their wireless systems. But some of their new purchases already offer consumer packages--People's Choice, for example, offers a high-speed Internet service in Phoenix for about $44 a month, with start-up costs similar to cable modem services.

Other analysts note that the technology has not yet proven it can be a mass market winner, however.

"I'd have to characterize this as somewhat of a technology hedge," said Boyd Peterson, a telecommunications analyst with the Yankee Group. "I wouldn't say it's unproven, but its not necessarily robust enough for widespread deployment to the last mile."

The acquisition deals for the wireless cable companies still must be approved by regulators and stockholders, and are expected to close in late fall.