Battling for a Slice of Thin Air

It was an extraordinary display of last-minute dealmaking, even for an industry that has seen more than its share of shotgun weddings and broken marriages. For the past few weeks, the giants of the telecommunications industry have engaged in a high-stakes game of corporate musical beds that left some of the most eligible partners sleeping alone and created some awfully strange bedfellows.

The immediate cause of all this was an obscure bit of rulemaking from the Federal Communications Commission. The FCC for the past four months has been selling off slices of the broadcast spectrum -- the radio bands used for everything from dispatching taxis to broadcasting Rush Limbaugh's belly laughs. And in preparation for a big auction scheduled to begin in December, the agency required that all companies seeking to bid on this latest piece of electromagnetic real estate disclose the names of their business partners by last Friday.

The deadline triggered a frenzy of late-night telephone calls among local phone companies (the so-called Baby Bells), the major long-distance phone companies, the big cable-TV operators and a bunch of cellular-phone start-ups. When the dust settled, the biggest player on the field -- the partnership of AT&T and McCaw Cellular Communications -- was being challenged by two other behemoths: a joint venture formed by Sprint and a trio of cable TV operators; and a foursome of Baby Bells made up of Bell Atlantic, NYNEX, US West and the cellular spin-off of Pacific Telesis. After being wooed and spurned by a variety of players, MCI, the second largest long-distance carrier, decided to go it alone.

Why so much interest in what is, after all, only a slice of thin air? Because that thin air has been set aside to create "personal communication ! services" that may someday connect everybody to everybody else -- like the phone system does today, but without those constricting telephone wires. Through streams of digital data, PCS providers could deliver all kinds of exotic services, from smart cars that call for help when they've been stolen to vending machines that order their own refills. They could be the foundation for a wireless electronic-mail network -- a kind of information highway of the airwaves -- through which people could send and receive messages anywhere, anytime. In futuristic scenarios, these networks would be populated by software "agents" that look after their owners' interests, calling them up when a stock plummets, a flight is canceled or a spouse is running late.

It was clear last week, however, that the companies maneuvering for position in the upcoming PCS auction had a much more mundane use in mind. Each major bidder, for its own reason, was focused on what is known in the business as pots -- plain old telephone service, or in this case, plain old wireless telephone service. The Baby Bells want to use wireless PCS phones to extend their reach outside their local regions. The long-distance carriers want to use them to connect to customers without having to pay monopoly rates (45 cents on every dollar) to the Baby Bells. And the cable-TV operators need the revenues from wireless telephone to defray the cost of turning aging, one-way cable systems into modern, switched two-way networks. Said Tele-Communications Inc. CEO John Malone last week: "In effect, we are starting a new national telephone company."