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SMALL SMRS SHARE DISMAL CMRS BOND

Small- and medium-sized dispatch radio operators gathering at the 21st annual International Wireless Communications Expo this week in Las Vegas will recognize each other as the fierce competitors they are by day.

But many, whether they know it or not, share a common bond: They’re the lost and forgotten generation of wireless pioneers caught in the middle of the auction-driven regulatory regime established by Congress in 1993 and known as Commercial Mobile Radio Service. CMRS, for short.

And they’re suffering for it today, particularly the 800 MHz SMR licensees.

Nowhere to run, no place to go. But down.

The Federal Communications Commission, which has churned out thousands of paging and mobile telephone auction licenses in recent years, has kept specialized mobile radio operators in a deep freeze since August 1994.

While hundreds of thousands of paging and mobile phone subscribers sign up each day, 800 MHz SMRs have been forced to stand on the sidelines. They cannot run or expand their businesses because of the two-and-a-half-year-old licensing freeze.

“From operators to manufacturers, a licensing freeze doesn’t do anybody any good when you’re trying to grow a business,” said Steve Virostek, an SMR industry analyst with The Strategis Group.

Federal regulators imposed the SMR licensing moratorium to buy time to rewrite rules calling for the auction of geographic licenses, a move they believed reflected a trend toward wide-area, cellular-like dispatch systems that Nextel Communications Inc. created and benefits most by today.

It was a mighty quick and convenient move by the FCC, which has dropped nearly everything since 1993-save telecom act and digital TV implementation-to sell $22 billion of mostly digital paging and pocket telephone licenses. That’s after the FCC reallocated 120 megahertz to licensed and unlicensed personal communications services.

The value of the PCS companies that bought that spectrum and the value of the spectrum itself has since gone south.

The FCC got 900 MHz SMR auction licensing off the ground last, but that followed several years of regulatory inertia.

Not surprisingly, Nextel dominated the 900 MHz SMR auction. Another successful bidder turned out to be Paging Network Inc., the nation’s top paging company-proving the deep pockets auction argument while calling into question the highest and best use theory parroted by auction advocates.

Problem is, efforts to accommodate Nextel and other would-be enhanced SMRs, or ESMRs, have turned into no less than a complete and embarrassing disaster for federal regulators.

For small- and medium-built SMRs and customers of limited means, it’s worse.

Today, Nextel is the ESMR industry. The company controls nearly half of the entire dispatch radio business in the United States. And its market share is certain to get bigger if the travails of the other major SMR, Geotek Communications Inc., are not fixed.

For sure, Nextel-with regulatory, Wall Street and manufacturing help from Motorola Inc.-has pushed the edge of the envelope. Its advanced technology, which combines dispatch, mobile telephony and data messaging with a nationwide coverage, and its sophisticated marketing, has set the standard for SMR in the next century.

But the Nextel ESMR revolution begs the question: Progress at what price?

The three-year transition to the CMRS regime has passed, and the FCC still has not issued 800 MHz auction licensing rules.

To its credit, the SMR industry has tried to make a bad situation better.

The industry donated computer software and hardware, programming time and manpower to help the FCC break the 800 MHz licensing logjam, which tied up 60,000 applications in Gettysburg, Pa.

After swallowing the bitter pill of auction licensing and accompanying dislocations, small SMRs, Nextel and the lead SMR trade group-the American Mobile Telecommunications Association-submitted a consensus plan last year to ease the pain of all involved and get the FCC off the hook as well.

The FCC rejected the plan because it didn’t include enough auctioning.

“It really damns the small incumbent,” said Alan Shark, president of AMTA.

Today, the FCC continues to say what it has repeated to the SMR industry for the past 12 months when asked when 800 MHz SMR auction rules will be out: next week.

“The uncertainly is killing us,” said Shark, who wants a green light for licensing and 10 megahertz more to accommodate SMR growth.

A total of 2.3 million SMR units were in service at the end of 1996, and despite the regulatory delay, the industry grew 11 percent last year.

But the numbers are deceiving. Most of the upturn is attributed to Nextel digital sales. And growth on the analog side has been buoyed by Nextel analog customers who rejected the conversion to digital and switched rather than fight.

“My guess is we could have four times that if we hadn’t been in a regulatory nowhere land,” Shark quipped.

Strategis’ Virostek believes that, all considered, the SMR industry deserves credit for staying afloat. “I think they’re doing an admirable job of signing up customers.”

But, he notes, “It’s definitely an industry led by one large company.”

To this day, the FCC has yet to settle on a regulatory carve-out for traditional analog SMRs that want to avoid many of the common carrier obligations intended for mass market ESMRs, paging operators and mobile telephone service providers.

Shark’s frustration is only surpassed by his anger over treatment of small business SMRs under CMRS. Asked how SMRs have fared under CMRS, Shark declares: “Unequivocally miserably.”

“We’ve been held captive to the benefit of the largest and well capitalized [firms],” snapped Shark. “I do not think auctions alone translate to most efficient use of spectrum and alone don’t replace the FCC’s responsibility to oversee sound public policy regarding telecommunications services,” he said.

FCC Chairman Reed Hundt’s strong reliance on market forces has been met with resistance from his fellow commissioners and from the wireless industry.

Hundt is cool to the idea of spectrum lease fees for private wireless spectrum licensing as an alternative to auctions.

“The economists have kind of taken control of this thing. It’s very frightening,” Shark said.

Shark said the FCC adds insult to injury by thumbing its nose at shows like IWCE, attended by small SMRs and private wireless licensees.

“Where is the FCC? They’re not here. They’re at every other major [wireless] show,” he said.

Sheldon Moss, government relations manager of the Personal Communications Industry Association, shares Shark’s lament.

“We’re not too enthusiastic about what happened to SMR operations. They have not been well served by the freeze or helped by the commission not moving in timely manner to enact rules for the 800 MHz licensing,” said Moss.

“It has not been a good time for SMR operations.”

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