Wireless PCS raises stakes in technology wars

November 25, 1994|By Dow Jones News Service

NEW YORK -- Talk may be cheap, but new wireless personal communications services -- a nascent technology that one day may replace conventional means of communicating -- will cost billions to develop.

Proponents of the technology, known as PCS, believe it will integrate voice, video and data with digital technology in seamless networks, giving users a single telephone number for life.

Next year, companies are expected to sell an estimated $5 billion of debt securities to finance the development of PCS technology. But where the money will come from isn't clear.

Although the U.S. cellular telephone subscriber base is surging at 40 percent a year, many investors are uncertain about the future of PCS and its role in the telecommunications and media industries.

"I'm very skeptical about PCS," says Charles Pluckhahn, who manages a stock fund at State Street Research & Management Co. of Boston. "It's going to be years before they will be able to knit together something that will offer attractive value for the institutional investing community, let alone the general public."

But PCS pioneers are moving ahead. Next month, the Federal Communications Commission will auction chunks of the radio spectrum for PCS use by telephone companies and cable operators. Bidders include AT&T Corp., Bell Atlantic Corp., Nynex Corp., U S West Inc., Tele-Communications Inc. and Pacific Telesis Group, among others.

After December's FCC auctions, some large PCS players are expected to raise money through loans, bonds and stock offerings.

Smaller cable and wireless communication firms may seek private funding after separate licensing auctions that are set aside for entrepreneurs next spring, analysts say.

As telecommunications companies boost borrowings, their credit ratings may come under pressure, and prices of outstanding issues could weaken further.

"Clearly each company has a finite amount of debt it can take on to finance PCS license purchases within their respective rating category," says Richard Siderman, head of the telecommunications department at Standard & Poor's Ratings Group. "If they make big bids [at the FCC auction], their ratings could go down."

The telecommunications and media industries have about $60 billion in outstanding debt, analysts estimate. Prices of such bond issues lost ground this fall, as investors began to focus on the PCS auctions.

PCS market players will encounter competition from current wireless technologies. Competition also is expected from satellite operators, as well as another breed of wireless communications known as specialized mobile radio.

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