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Wireless battle pits old guard against high tech

It's essentially an old-fashioned real estate fight, with both sides tussling over space worth billions of dollars. But this space is the wireless spectrum--the invisible, intangible "airwaves" that carry TV signals, radio waves and wireless phone calls.

SAN FRANCISCO---A few blocks away from this city's financial district, Big Dog City taxi driver Khalil Aboudamous pushes a button on his radio to talk to his dispatcher. The radio crackles, and a voice on the other end blurts out new orders for the cabbie.

There's a reason they're not using ordinary cell phones. Taxi services--like many railroads, utilities and construction companies--have their own private wireless communications systems. That fact is now forcing an old guard of transportation, gas and other utility companies into battle with the ambitious new wireless broadband industry.

It's essentially an old-fashioned real estate fight, with both sides tussling over space worth billions of dollars. But this space is the wireless spectrum--the invisible, intangible "airwaves" that carry TV signals, radio waves and wireless phone calls. Owners of the private systems are asking federal regulators for more air space of their own, while young broadband companies are fighting to win rights to the same air space so they can offer profitable new high-speed data and communication services.

At the heart of this battle are critical questions about the wireless future: Can new broadband wireless companies serve everybody, from grandmothers in Tucson, Ariz., to line workers on the Alaska gas pipeline? Or should the government keep stepping in to help a few companies maintain their own private wireless networks?

Harried by high-tech lobbyists in Washington D.C., owners of the private networks say their systems are critical to public safety. High speed pipe dreams? Forcing them to use the mobile phone systems offered to consumers like AT&T Wireless or Nextel Communications simply wouldn't work, they claim.

"These are systems in mines, in the middle of nowhere, underground at airports," said Sharpe Smith, a spokesman for the Industrial Telecommunications Association, an industry trade group that represents the communications systems. "I would venture to guess that those are areas where commercial carriers don't want to get involved. They can't make money there."

Competition for wireless spectrum has existed as long as radio and TV have been around. In order to keep TV, radio and other signals from interfering with each other, the Federal Communications Commission (FCC) has long given out control of different pieces of the spectrum to specific companies. The most familiar form of these giveaways has been TV channels and radio stations.

But wireless phone and Internet connections need their own "channels," increasing the potential to spin spectrum into gold. Thus, competition has increased for a piece of the airwaves. Analysts estimate that 80 million to 100 million wireless devices will be connected to the Internet worldwide by the year 2002, and companies large and small want a piece of those revenues.

Since 1994, U.S. regulators have auctioned off large slices of spectrum to wireless phone and other companies, raising close to $20 billion in the process. They've got another auction coming up this year, in which Congress plans to raise at least $2.4 billion, which has already set wireless broadband companies and the private industrial wireless systems' owners at each others' throats.

The private communications networks date back decades, established long before commercial wireless phone companies existed. They've made investments in their own infrastructure that now total more than $25 billion, according to one industry association.

The systems allow company employees to communicate instantly, individually or in large groups, often in remote areas or dangerous environments such as oil refineries where traditional cell phone use is impossible, supporters say. That means they still need their own systems, operators say, and companies like Sprint PCS or AT&T Wireless can't provide the services they need.

But critics say too much of the badly needed wireless spectrum is already being used by the private radio systems, which got their access for free in the days before auctions. The systems do use a relatively small proportion of the whole spectrum, but critics estimate the private companies' spectrum would now be worth billions of dollars on the open market.

"It's the stupidest policy in the world," said Reed Hundt, the former chairman of the FCC, now a venture capitalist with Benchmark Capital. "The FCC doesn't have the political will to get their spectrum back and put it on the (auction) block."

Hundt, who was a frequent opponent of the private company systems when he was in the FCC, isn't in the mainstream, however. The current FCC leadership isn't looking seriously at phasing out the private systems, at least in the short term, and the private operators still have powerful backers in Congress.

"(The private systems) are not going to go away," said Herschel Shosteck, chief executive of wireless consulting firm Herschel Shosteck Associates. "They have an arguable case that they're vital to the welfare of the U.S. infrastructure."

FCC staff won't officially comment on the issue, because the private communications systems are part of an upcoming ruling. A recent policy statement said the agency planned to allocate new bits of the airwaves to the private companies, which say they're running short of space.

But a few private See related newsmaker: William Kennard operators are undermining this argument: they're selling their communications services on the open market, competing with the likes of AT&T or Nextel.

Southern Energy, a large power company in the Southeast United States, is reselling its own internal wireless communications system as a service dubbed "Southern LINC." It's offering a package allowing group calls, email and Web access, and marketing it outside its own energy business.

Most of the private land radio companies look down on this practice, noting that most other companies don't have enough spectrum to use for their own needs. But there is nothing the groups who oversee the private systems can do about it, Smith said

Some analysts expect that trying to profit from the supposedly private systems will backfire, possibly even undermining the entire private communications system model.

"Once they start gaining significant revenues, political pressure will likely grow to dismantle the system," Shosteck said. "But at the present point, that is not an issue."

The current debate is focused on this year's auction, in which Congress has ordered the FCC to sell off new chunks of the airwaves initially valued at about $2.4 billion.

The private system interests have asked that some of this be reserved for them, though they're willing to pay for the airwaves this time around. But they're fighting hard against a Silicon Valley company called FreeSpace Communications, which wants to use the same piece of spectrum for a new broadband wireless service.

"Our position is that the FCC should not set the spectrum's use," said Charles Logan, an attorney representing FreeSpace. "Congress instructed them to reallocate this to commercial use."

The FCC will iron out that dispute early this year, with the winner going into the upcoming spectrum auction with a vastly strengthened hand. But many say it's likely to be just a hint of the sparks that will fly as other high-tech companies try to latch on to the broadband wireless gold mine.

"I think this will always be a tough battle," said the ITA's Smith, noting that the high-tech interests have more lobbying power and a more appealing public image.

"They've got the cool guys who are flipping their hair and dancing while using a cell phone. We're just the two-way radios used by the sweaty guys."