MCI deals for phones of the future

March 01, 1994|By Michael Dresser | Michael Dresser,Sun Staff Writer

MCI Communications Corp. and two other telecommunications companies have forged an alliance that could speed the day when telephone users can roam the country and still be reached through a single number.

The nation's second-largest long-distance carrier announced yesterday that it is investing $1.3 billion to join with Nextel Communications and Comcast Corp. to build a nationwide, digital wireless personal communications system within two years.

Because Nextel already has assembled a portfolio of special mobile radio (SMR) licenses that cover an estimated 95 percent of the U.S. population, the alliance will not have to buy space on the radio spectrum or wait for government approval to build its wireless network.

The move can be seen as MCI's answer to rival AT&T, which last year agreed to acquire McCaw Cellular Communications, the largest U.S. cellular phone service provider.

Nextel has had an all-digital wireless phone and data transmission system up and running in Los Angeles since August. The company expects to bring the rest of California, as well as Chicago and New York, on-line by the end of the year, with the Baltimore-Washington region by the end of 1995. By late 1996, Nextel will reach 95 percent of the U.S. population, the company said.

"We feel this will give us a two-year head start on the market," said Bert C. Roberts Jr., chief executive of Washington-based MCI, during a news conference yesterday. Mr. Roberts said the deal was part of his company's "networkMCI" program, which will include an effort to muscle its way into the local telephone service market, now dominated by the regional Bell companies.

"Wireless communication is becoming an integral part of our daily lives, and demand is growing rapidly," he said. "Customers have been asking us to provide a totally portable communications service that meets their needs any time, anywhere."

The ambitious joint venture is a model of the type of strategic alliance that many analysts believe will be far more successful in advancing telecommunications technology than mega-mergers such as the Bell Atlantic and Tele-Communications Inc. deal that collapsed last week.

"This is a much cleaner deal and therefore it should not distract the companies," said Michael Balhoff, telecommunications analyst with Legg Mason in Baltimore.

MCI will buy 17 percent of the stock in Rutherford, N.J.-based Nextel, giving the long-distance giant an equal share with Philadelphia-based Comcast. The technology driving the system will be provided by Motorola Inc., which is expected to take a 17.9 percent equity share in Nextel.

Each of the companies brings significant assets to the table, Mr. Balhoff said. MCI, with $12 billion in sales annually, brings tremendous marketing muscle, deep pockets, a sophisticated long-distance network and a widely recognized brand name, which it will lend to the Nextel technology.

Nextel was founded in 1987 on the concept that licenses to operate in the SMR band, off in the low-frequency slums of the radio spectrum, would some day become valuable.

SMR, which occupies part of the spectrum around 800 megahertz, is too low in frequency to handle two-way conversations under the traditional analog format, so it has been primarily used for such prosaic functions as dispatching taxicabs.

Nextel snapped up such licenses when they were cheap because its founders realized early that the SMR band would be "gentrified" by digital technology, which could carry two-way conversations despite the low frequency. In a digital format, information is transmitted as a stream of 1s and 0s.

Comcast, the parent of Comcast Cablevision, was an early believer in the Nextel concept. After taking a 30 percent stake in Nextel, it helped arrange the deal with MCI, which will dilute its interest but presumably make its investment more valuable.

As a major cable television and cellular telephone company, Comcast will also contribute its experience to the buildout of the Nextel market, said Ralph Roberts, the company's chief executive.

For MCI, the partnership represents a definitive choice to emphasize SMR technology over the personal communications services (PCS) part of the radio spectrum, which will be auctioned off by the Federal Communications Commission later this year.

"This is the die this company has cast," Bert Roberts said, adding that MCI might bid for some PCS licenses to fill in or supplement the Nextel SMR network.

Liam Burke, telecommunications analyst for Ferris Baker Watts in Baltimore, applauded the deal, saying it could benefit all the companies involved.

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