Spectrum of Possibilities

Rural Cellular President & CEO Rick Ekstrand isn't worried about wireless powerhouses invading his largely bucolic turf because of the FCC's new 55MHz cap on rural CMRS spectrum.

"In the Midwest, as well as in the Northeast, particularly in New England where we operate, we've taken a run at all the heavy hitters: AT&T, AirTouch, Bell Atlantic, Frontier, United States Cellular ...," Ekstrand said. "We've always been the underdog in the fight."

But then, rural carriers such as Ekstrand aren't exactly the type of dog large carriers were looking to beat. Rural Cellular's urban share is limited. And though the added spectrum is potentially valuable to a larger carrier, the FCC would nix any deal if the purchaser already holds license to 45MHz of spectrum, with its decision to retain urban cap levels.

In fact, large carriers bent on participating in the flurry of mega-mergers face the prospect of giving up spectrum.

For example, a combined Bell Atlantic and GTE will find its wireless operations over the 45MHz spectrum cap in such major markets as Richmond, VA, and Tampa, FL. Some analysts suggest that the Bell Atlantic-Vodafone-AirTouch merger may have been slowed while the companies awaited the FCC's decision on spectrum caps. However, the combined company's market overlap should be minimized because AirTouch has a largely western U.S. footprint. Bell Atlantic Mobile serves only parts of the southwest United States.

CTIA argues that urban caps hinder competition and prevent enhanced wireless services from reaching consumers. It worries that FCC stinginess with spectrum will hamper deployment of 3G services. CTIA estimates it would take 18 months to ready added bandwidth for 3G services.

CTIA, however, is pleased that the FCC is providing some relief to carriers in regulatory limbo because of cross-ownership and market overlaps. Potential FCC waivers of spectrum-cap limits on a case-by-case basis also help. But the procedure for securing an FCC waiver concerns CTIA because it amounts, it says, to a government-approved business plan.

"You can develop the best business case in the world before the proceedings, and then you've got to submit it and cross your fingers and do the hokey-pokey dance hoping that the FCC will grant the waiver," said CTIA spokesperson Jeff Nelson. "The other problem is that in order to apply for a waiver, you have to submit a business case to the FCC that is fully discloseable. So you have to open up all of your economics and rationale and business scenarios to your competitors."

PCIA also believes spectrum caps should be lifted, just not yet. Otherwise, it said, cellular carriers will gobble up remaining urban spectrum before the 3-year-old PCS industry can bring lower wireless prices to consumers. It pointed to a Yankee Group study that suggests consumer costs in top 25 markets dropped 10% when one PCS carrier entered an urban market and another 25% when a second PCS carrier entered the fray.

Meanwhile, Rural Cellular's Ekstrand is excited about the opportunities added spectrum creates for his company, which ended its first year in 1992 with 1,500 customers and today serves about 225,000.

"Whether it be fixed wireless; whether it be expanded mobile data; whether it be e-commerce, or mobile m-commerce," Ekstrand said, "it is clear the demand for wireless in the future goes beyond voice services, not only in the metropolitan areas, but certainly in the rural areas as well."