LMDS promises a wireless alternative to fiber and coaxial cables. It has the potential to replace the existing wired networks, and it may prove to be the easiest way to deliver high-speed data and two-way video service. Its capability of handling thousands of voice channels with the existing bandwidth makes it a good contestant in the voice industry. With current industry trends that are tending to merge the telecommunications and networking industries, LMDS seems to be a solution that suits all their needs. For the recent digital TV world, LMDS is a very good choice considering the fact that LMDS was designed with digital TV broadcast in mind.

Auctions

The LMDS auction ended on March 25, 1998, netting only $578.7 million after entrepreneurial discounts for the largest block of spectrum ever allocated and leaving even the winners stunned at how it all came out. The technology underlying what the FCC calls local multipoint distribution service (LMDS) originally was perceived by the commission to be a means of driving competition in the local telecommunications and cable markets. The outcome of the auction left in doubt the pace and scale of deployment and thus the impact this segment of the wireless broadband sector might have on competition in the United States

It is no longer a question of who owns the spectrum but of who the service providers will be. With much of the LMDS spectrum (which is located at the 28- and 31-GHz tiers) now in the hands of venture capital firms and entrepreneurs rather than established operating concerns, it will take some time to sort out the answer to this question. If you had to predict who would participate in use of the spectrum, you should not discount the interexchange carriers, the ILECs, cable companies, competitive local exchange carriers (CLECs), and personal communications services (PCS) providers—in other words, the people already in the business.

Executives masterminding the strategy at the leading auction winner, WNP Communications, Inc., made it clear that they were going to take their time figuring out where to go from here, especially since they never expected to win as much spectrum as they ended up with. After 128 rounds of bidding that began on February 18, 1998, WNP was top bidder for 39 A-block licenses (1.15 GHz) and one B-block (150 MHz), representing more than 91 percent of the population in the top 12 basic trading areas, two-thirds of the population in the top 75 markets, and 41 percent of the entire U.S. population. The company won 11 of the top 12 markets, excluding only Los Angeles.

Dodging Obsolescence

Under the FCC's liberal licensing rules, LMDS providers have up to 10 years from the point of getting their licenses to offer substantial amounts of service in their markets. While WNP believes first-to-market advantage is important, the firm will not be in a rush to build infrastructure, preferring instead to make sure it chooses a technical platform that will not be outdated soon after it is built.

WNP also must raise money to build the infrastructure and put together a full management and operations team, which it expects to do through direct hiring rather than partnering with outside entities. While the firm is likely to seek vendor financing, it also will rely on other sources to avoid being too much under the sway of manufacturers.

Because there is so much spectrum, licensees will have the opportunity to divide the larger piece up among multiple providers for various applications within geographic subsections of each of the 493 basic trading areas covered by the licenses. Yet, for all the flexibility to deliver voice, data, and video services at such scales, the auction failed to come close to the level of participation anticipated as the final preparations were being made at the commission. Overall, 181 basic trading areas (out of a nationwide total of 493) representing 77.4 million people, or 32 percent of the total, were won with a single bid. Another 109 markets representing 10 percent of the population received no bids at all. After discounts to designated entities, including WNP's 45 percent discount, the government's take in the LMDS auction netted out at just $1.85 per person in the A-block.

FCC officials termed the auction a success. The marketplace now has 104 new LMDS players. However, A-block licenses covering two-thirds of the population were held by only three companies—WNP with 41 percent share of the A-block, NextBand Communications LLC with 12 percent (including the Los Angeles basic trading areas), and WinStar LMDS LLC with 7 percent. No one else had more than 5 percent.

WinStar in some respects may have been the biggest winner, since it already holds considerable spectrum nationwide at the 38-GHz tier and can use both spectrum tiers for provision of point-to-multipoint services in its markets, although the propagation characteristics are such that 38-GHz transmitter cell radiuses are somewhat shorter, meaning WinStar's buildout in a given market will be denser than would be the case in a pure LMDS play.

With its A-block wins covering Greensboro, NC, New Orleans, Norfolk, VA, Oakland, San Francisco, San Jose, Orlando, FL, and Salt Lake City, WinStar's spectrum holdings now average more than 750 MHz in the top 30 markets and approximately 740 MHz in the top 50, according to officials. WinStar, like Teligent, Inc., which holds smaller spectrum blocks averaging less than 400 MHz at the 24-GHz tier, has already begun using the new point-to-multipoint technology underlying LMDS in some of its commercial operations and thus has a big head start over the LMDS players in bringing fixed wireless services to market.