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Details and Delays Bog Down FCC Bid to Try New Auction System

Former use of lottery fails to build base for new technologies

THE Federal Communications Commission (FCC) is a small government agency that churns out the red tape that keeps the nation's communications industries in line.

But every so often, in doling out pieces of the radio spectrum for new technologies, the agency has conducted amazing lotteries where virtually anyone - from AT&T to Al's Deli - could try to get a license.

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Sometimes, Al's Deli won the lottery but didn't build a new communications system. It would sell its license to whatever communications company offered the highest bid. No one really likes this system. ``This isn't Lotto America,'' an FCC staffer said. But starting this year, the FCC is auctioning spectrum instead.

Practically everyone applauds the move - in theory. The auctions should earn an estimated $10.2 billion over five years for the government. ``The way it was done in the past was basically to make people rich through luck,'' says William Bane, vice president at Mercer Management Consulting Inc., a New York-based consulting firm. ``It's hard to imagine that this [auction system] isn't better than that.''

The problem is, in trying to set up a new auction system, the FCC has run into a hornet's nest of details and delay. Firms and industry groups have filed 66 petitions asking the FCC to modify its plan to auction off spectrum for a new technology called personal communications services. Even ardent supporters are having second thoughts about it.

``We have so little experience in this, and we have so much at stake that [the auction] could create a quagmire,'' says Peter Huber, senior fellow at the Manhattan Institute for Policy Research in New York. ``The paramount objective should be to get the spectrum out so that the new industry can be developed.''

``I don't really care [how it's done] as long as they get the spectrum allocated,'' adds Kimball Brown, vice president of mobile computing at Dataquest Inc. in San Jose, Calif. ``They're playing all kinds of stupid games.''

Last week, the FCC set the bidding rules for the first auction in two-way wireless messaging, known as narrow-band personal communications services, or PCS. (In a separate action, the commission also set rules for an auction in a short-distance communications technology known as interactive video and data service.) Starting this summer, the commission will allow companies to bid for a narrow-band PCS license, which could set the stage for a new industry in hand-held data communicators.

But the auction with the most immediate impact will be in broadband PCS, which is a new kind of mobile-phone service. FCC Chairman Reed Hundt told Congress last week he expected the bidding for broadband PCS licenses to start this fall.

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PERSONAL communications services are widely expected to bring down the cost of mobile communications. They will compete against today's cellular-telephone operators, using better technology that's digital and also allows smaller mobile phones. But delays are allowing current cellular companies to try to catch up. They are revamping their own systems with digital technologies and signing up new customers at the rate of 14,000 a day.

``We're very much for getting the auction process going so we can have personal communications services out there and viable as soon as possible,'' says a spokeswoman for American Personal Communications, a Washington, D.C., company that has already built one of the first PCS systems in the United States.

Mr. Bane says bidding won't be done until next summer by the earliest. ``And there are a lot of people who think it will be a good deal longer than that.'' Once bidding is complete, it will take another 18 to 24 months for most firms to get their systems built.

Another challenge is fairness. If the highest bidder wins, then the richest companies are likely to come out ahead.The FCC has set aside part of the PCS spectrum to encourage women-owned, minority-owned, and small businesses to bid for licenses. But various groups are fighting over exactly how much preferential treatment these businesses should get.

The other conundrum is economic. PCS technology will be up to 10 times more expensive to build in rural areas for the same revenue generated by an urban area. But the FCC has rigid time frames for building the system to include these areas. If the rules aren't changed, Bane says some areas of the US won't get PCS service at all because they will be too expensive to build.

A related problem is that the FCC may be letting too many competitors in, he adds. Today's cellular operators have done very well because they only had one competitor in a service area. Under the new PCS proposals, however, each area could have a total of 10 companies competing: seven PCS competitors, plus the existing two cellular carriers, and a possible challenge from a new technology that Nextel Communications Inc. and MCI Communications propose to build.

``Definitely, that's too many,'' Bane says.

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