April 12, 1999 2:25 PM PDT

Wireless cable bidding war ahead?

A bidding war may be on the horizon for a handful of wireless cable TV companies, as long distance firms eye the group to support their high-speed Internet strategies.

For the last half-decade, wireless cable firms like People's Choice TV and American Telecasting have existed on the fringes, bleeding money while trying unsuccessfully to gain cable programming market share.

But Sprint's deal today to buy People's Choice heralds a new lease on life for these companies. As long distance companies expand their high-speed Internet services and other broadband offerings, many may look to other wireless cable firms as possible acquisition targets, analysts say.

"We're still very early in this entire cycle," said Tejas Securities analyst Michael Hidalgo, who follows the industry closely. "There's a lot of interested parties that have been talking to these companies."

People's Choice, American Telecasting, CAI Wireless, and other smaller firms were originally formed as wireless competitors to the established cable companies. However, their services never caught on with subscribers.

By mid-1996, most of the wireless cable companies were teetering on the edge of bankruptcy. The companies' executives then turned to the Internet for a new revenue source, shifting their focus to providing high-speed Net access.

Without much capital to invest, however, these services have been slow to emerge. Meanwhile, other fixed wireless Net and telephone companies like Teligent and WinStar have been building out their own well-funded business-focused services.

The wireless technology itself, while still in the very early stages of rollout, could provide a formidable competitor to cable network-based services like @Home or the Baby Bells' DSL services.

Long distance companies also see the advantage in wireless Net access, as it skirts local phone companies' networks as well as the fees charged to use them. AT&T is using traditional cable TV networks to avoid dealing with the Baby Bells, but the other long distance companies do not yet have widespread local networks of their own.

Unlike AT&T's Project Angel wireless plan, which provides download speeds roughly equivalent to ISDN, the wireless cable services reach download speeds of close to 10 megabits per second.

But the technology also has its limitations. Wireless transmissions are limited to line-of-sight, and signals can be interrupted if trees or homes block wireless antennas.

For these reasons, analysts say the technology is best suited for businesses, whose high-rise office buildings have fewer problems with line-of-sight interference.

"The Sprints and MCI WorldComs will focus on the business sector," said Elliot Hamilton, director of U.S. telecommunications consulting for the Strategis Group. "I don't see them going after the residential sector."

Bidding war on its way?
Analysts say that big telecommunications players, on both the service and hardware side, have been sniffing around the small wireless companies for some time.

MCI WorldCom tipped its hand late in March, buying up several of the biggest wireless cable TV companies' debt at a steeply discounted price from Merrill Lynch and Moore Capital.

That move spurred Sprint, analysts said, and the company agreed to buy People's Choice outright.

Sprint plans to use the People's Choice technology for its ION, or Integrated On-Demand Network program, which will offer high-speed Internet, telephone, and data services to businesses and home offices.

But People's Choice covers just 11 markets, with the bulk of the other U.S. metropolitan areas covered by American Telecast and CAI Wireless. Analysts said these firms, which have also struggled to recreate themselves in recent years, could be the subject of a bidding war as Sprint seeks to expand its territory, and as MCI WorldCom looks to expand its own high-speed wireless offerings.

Some analysts noted that the companies could go elsewhere for their wireless options, however.

"I don't expect a bidding war," Hamilton said. "The spectrum can be used selectively, and there are other options out there."

Wall Street reacted positively to the day's news, sending shares of CAI Wireless up more than 60 percent after the acquisition of People's Choice

 

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