Cellular phone industry gets set for new competition.

Some 11 bidders line up for local FCC license auction

The battle is expected to be intense -- and expensive -- next month when 11 bidders square off to win the rights to enter the already highly competitive Southern California cellular phone market.

Bidding for the one Federal Communications Commission license available in the local market is expected to start at just under $1 billion and could go much higher before there is a winner.

The bidding is scheduled to begin Dec. 5 via computer from Washington, D.C., and will continue until only one bidder is left standing. Hence, the license will undoubtedly end up costing a lot of money for one of the 11 bidders, each of which has already agreed to pay a minimum deposit of $11.5 million just to participate.

The bidding for the Southland license is part of a nationwide auction of "personal communications services" licenses being conducted by the Federal Communications Commission. "Personal communications services," or PCS, is a generic term used by the FCC to describe wireless communications systems.

In all, 99 PCS licenses are scheduled to be auctioned off to the highest bidders.

Specifically, the licenses will entitle the winner to use assigned broadcast airwaves for paging services, dispatch systems and cellular phones. In the past, there was far less competition for such licenses, which kept the prices down.

Seventy-four entities -- 73 businesses and one individual -- have submitted applications and agreed to pay the required deposit to bid on the 99 available licenses in 51 markets in the U.S. and its territories. One of the biggest and most-coveted prizes is the single license that will be available for Southern California, where cellular phones have become as much a part of the culture as roller blades and convertibles. (In some markets, two or three licenses will be auctioned off.)

The FCC is conducting the auction to promote competition in wireless communications, to further development of high technology, and to make some money for the federal government. By most industry estimates, the auction of all 99 licenses will net the government about $10 billion, which will go directly into the general fund of the United States.

Crown jewel 

Along with the license for the New York City market -- which includes northern New Jersey, Long Island and portions of New England extending north into Vermont -- the Southland PCS license is one of the crown jewels of the auction. The Southland market encompasses all of California between San Luis Obispo and the Mexican border, as well as small portions of Nevada and Arizona. It is a market with an estimated 19 million potential customers, according to industry sources. That is why the competition is expected to be intense and why the price could escalate well beyond the $1 billion mark.

Three bidders are considered by industry sources to be front-runners to win the Southland license, primarily because they are supported by large companies with deep pockets. The three are ALAACR Communications Inc., GTE Macro Communications Corp. and Pacific Telesis Mobile Services. ALAACR is affiliated with Craig McCaw, former chairman of McCaw Cellular Communications Inc. and a telecommunications industry tycoon. GTE Macro is a unit of GTE Corp., a large telecommunications company based in Connecticut. And Pacific Telesis Mobile is a unit of San Francisco-based Pacific Telesis Group, operator of the Pacific Bell telephone system.

Other bidders for the Southland license are Air Link Inc., American Portable Telecommunications Inc., Associated VenCap Corp., Continental Cable Vision Inc., J & M Partners, Radiofone NationWide Paging Services Inc., Uninterruptable Business Power Inc. and Vivian Warner.

Warner, the only individual bidding in the auction, is from Crossville, Tenn., and has applied to bid on all 99 available licenses in all 51 markets.

Craig McCaw, through various companies, applied to bid on licenses in 22 of the 51 markets. And AT&T, which recently acquired McCaw Cellular Communications, has applied to bid for licenses in 30 markets. But AT&T has not applied to bid for the Southern California license.

Pacific Telesis will be very aggressive when it comes to bidding on the Southland license, according to a company spokesman. He declined to say how much the company is prepared to pay for the license.

Existing market

"There are 13 people in the company who know how high we'll go, and I'm not one of them. Even if I did know, though, I wouldn't tell you," said spokesman Michael Runzler. "But I can tell you that we're going after it. We're the hometown company. This is our territory."

In addition to operating the Pacific Bell telephone system, Pacific Telesis used to operate PacTel Cellular in the Southland. Earlier this year, Pacific Telesis spun off its cellular operation, at which point the "new" company changed its name to AirTouch Communications.

AirTouch Cellular competes head to head with Los Angeles Cellular Telephone Co., better known as L.A. Cellular, in Los Angeles County. A third company, Nextel Communications Inc., recently started offering cellular phone service in the county. Both L.A. Cellular and AirTouch, under its former name, have been doing business in Los Angeles County for about 10 years.

"It's going to be fiscal suicide" for the new player in the hotly contested Los Angeles market, said Herschel Shosteck, a leading cellular phone industry expert.

"By the time the new company actually gets started, it's going to be very difficult for them to catch the other three," said Shosteck, who owns and operates an independent consulting firm in Wheaton, Md.

He said the new entrant's only way to succeed would be to find a market niche, such as servicing the hotel industry and health care providers.

But Michael Callison, vice president of Wireless Plus in Culver City, said the new entrant would have a good chance of success because it would be coming into the market with the latest technology.

"Whoever wins, it will probably be far ahead of the others in what they can do and provide," said Callison. Wireless Plus is a distributor and wholesaler of telecommunications equipment.