Telephone & Data Systems is a David among Goliaths in radio spectrum bidding

With more than 80 rounds complete in the Federal Communications Commission's biggest radio spectrum auction to date, the bidding for a much-coveted Baltimore-Washington area license has come down to the big boys: AT&T, GTE, the Baby Bells, TDS.

TDS?

Chicago-based Telephone & Data Systems Inc., operating under the name American Portable Telecommunications, has emerged as a David among the Goliaths struggling for the rights to the market for a new generation of wireless technology called personal communications services (PCS).

TDS, which remained relatively quiet through the first 67 rounds of bidding, jumped into the contest for the Baltimore-Washington license in the 68th round and has been matching mighty AT&T Corp. almost bid for bid ever since.

Last Wednesday, the upstart telephone and paging company, with $730 million in annual sales, pushed the bidding over the $200 million mark, exceeding a bid of $192 million by AT&T Corp., with annual sales of $75.1 billion. Earlier in the auction, AT&T's closest competitor had been GTE Corp., with $19.9 billion in annual sales.

By the end of the week, AT&T had moved back into the lead with a bid of $211 million, but since the FCC hasn't set a cutoff date, the auction could continue for several more weeks.

Nationwide, TDS hasn't been a bidder on the scale of AT&T, the consortium of Bell operating companies called PCS Primeco, or the alliance of long distance carrier Sprint Corp. and three large cable television companies. But as of last week, the Chicago company was hanging in as a serious competitor in at least nine markets, including Dallas, Minneapolis, Houston, Cincinnati and Pittsburgh.

So who are these guys?

Despite its Chicago headquarters, Telephone & Data Systems is rooted firmly in rural America. It got its start in 1969 as an operator of small, independent local telephone companies and later diversified into cellular telephone and paging services. The company is run by the father-and-son team of LeRoy T. Carlson and LeRoy T. Carlson Jr.

Since 1990, the company, which is publicly traded on the American Stock Exchange, has registered steady earnings increases and better than 20 percent annual growth in sales.

As of the end of 1994, TDS' local telephone companies operated about 392,500 access lines in 29 states, with four acquisitions pending.

United States Cellular Corp., an 81.3 percent-owned subsidiary, owned or controlled rights to cellular territories with a population of 25.2 million, making it the nation's seventh-largest cellular carrier by that measure. American Paging Inc., of which TDS owns 82.5 percent, served 652,800 pagers.

Craig W. Ellis, an analyst with Wheat First Butcher Singer in Richmond, said he was not surprised that TDS would bid boldly in the PCS auctions. He said the company was an early and successful player in the cellular business and thus appreciates the value of the radio spectrum.

"They have a history of being aggressive," he said.

Rudy Hornacek, president of TDS' American Portable Telecommunications venture, said his company has decided to compete for licenses in territories with a cumulative population of 34 million.

"As a corporate entity we think that wireless communications is the wave of the future, and we're trying to position ourselves to be a player in the long run," he said.

While some industry analysts have questioned the wisdom of taking on the vast cost of building PCS networks to compete with entrenched cellular carriers, Mr. Hornacek said TDS is confident there's money to be made.

"Life is a gamble. Our best business judgment is that at the moment we can pay the price in Washington that we've bid and still have a viable business," he said.

"Come back in five years and we'll tell you," Mr. Hornacek added.