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Facts for Consumers from the Federal Trade Commission
Investing in Wireless Cable TV -- November 1992
The lottery for wireless cable TV licenses has been suspended, pending revision of current FCC rules. It is not known when the lottery will resume. Until then, beware of companies soliciting lottery applications.
Is a wireless cable TV station a good investment? Some companies say it is and, for a fee, will help you prepare an application to obtain a license to build and operate one. Before you invest, you should understand that licenses for wireless cable--Multichannel Multipoint Distribution Service (MMDS)--are awarded on a lottery basis by the Federal Communications Commission (FCC). But even if you win an MMDS lottery, you still could lose your entire investment. This brochure tells you why. It explains what a wireless cable TV station is, how the FCC lottery works, and what risks are involved. It also warns you against claims made by some application preparation services.
The Wireless Cable Station
A wireless cable TV station uses microwave technology to transmit video programming to the rooftop antennas of subscribers. Its signal operates via a line of sight transmission, which means obstacles such as hills, woods, and large buildings can interfere with it. Although no wires need to be laid, it can cost over $100,000 to build a wireless cable system and $400 or more per rooftop antenna to hook up subscribers.
The FCC Lottery
To participate in an MMDS lottery, you must file an application with the FCC. A license application is lengthy and complex. It must include detailed engineering and interference studies for the station you propose to construct. This is why many investors hire companies to prepare their application documents.
The FCC awards two MMDS licenses in each market area, and each license is for 4 channels. You can file in as many markets as you wish. However, for each 4-channel group, you must file a separate application with the FCC, paying a $155 fee.
To be eligible for the lottery, the FCC must receive your application within 24 hours after it has accepted the first qualified application for a particular market. After that, the market is closed. Because of this short time period, it may not be possible to find out if the market you want to file for has been closed.
Most likely, there will be competing applications for the same 4-channel group in a market. The FCC conducts a random chance lottery to choose a tentative selectee. The lottery "winner" is awarded a conditional license if it survives possible challenges by lottery losers and if it remedies any deficiency in its application.
Competing applicants can form an alliance, or a settlement group, after applications have been filed, but before a lottery is held. Alliance members agree to share a license and have as many chances to win a lottery as its members would have had individually. If there are no holdouts (applicants who refuse to join an alliance), the alliance is granted a conditional license once it forwards a single application acceptable to the FCC. A license is automatically forfeited if the wireless cable station is not constructed and made operational within a maximum of one year, or as specified.
MMDS Markets
There may be thousands of market areas for wireless cable. However, most of the biggest markets in the country were closed in 1983 when the FCC opened filing for one day only and received more than 16,000 applications. Since 1988, when the FCC again started accepting applications for the remaining open markets, more than 13,000 applications have been filed.
Unlike FCC cellular telephone lotteries, where markets remained open for a fixed period regardless of how many qualified applications were filed, MMDS markets can close at any time. As stated earlier, an open market closes at midnight on the day the first acceptable application is submitted.
However, because of the time required to process applications and the volume of applications that the FCC receives, it could be months before the public learns a formerly open market has been closed. Applications filed for a closed market will be rejected and the $155 filing fee will not be returned.
Application Preparation Services
Companies that sell application services for MMDS licenses use the telephone, mail, and TV and radio advertisements to reach potential investors, and they usually charge thousands of dollars for their services. The Federal Trade Commission (FTC), in cooperation with the FCC, is investigating claims made by some of these companies. The FTC has brought three separate lawsuits alleging that the companies misrepresented the value of an MMDS license, the likelihood of winning the license, and the risk involved.
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In addition to the risk of having competition from other applicants, you may be paying thousands of dollars to a company to prepare your application for a market that is closed. Even if you win the lottery, you still may lose your investment if you are challenged by lottery losers and found to be unqualified to receive an MMDS license. A wireless cable license also may be worthless for other reasons.
It may be difficult, or even impossible, to secure financing to construct and operate the station.
Many small communities would not have enough subscribers to support a wireless cable TV station.
There may be no buyers for a wireless cable TV station once it is made operational.
Other Considerations
Make sure you understand exactly what it means to invest in an application for wireless cable. Before you apply for a wireless cable license, consider these points.
It could take months before the FCC is able to process your application.
Although 33 channels are possible for use in an MMDS system, a successful MMDS applicant wins only four. To get more, you may have to negotiate with as many as 26 other licensees.
A wireless cable system is not likely to return profits for at least the first several years of operation.
Wireless cable TV has heavy competition from conventional cable and TV stations, home satellite dishes, Direct Broadcast Satellite, and other wireless cable TV channels in the same market.
The value of a wireless cable TV station is not comparable to that of a cable TV station. Cable TV has approximately 50 million subscribers whereas wireless cable TV has about 350,000 subscribers. The biggest wireless cable operator in the country--with licenses in Detroit, New York, and Washington, D.C.--filed for bankruptcy in December 1989.
For More information
If you have questions about the wireless cable lottery, write to the FCC, 1919 M Street, Washington, D.C. 20554. If you have a complaint about an application service, write to: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580.
FTC CONSUMER & SMALL BUSINESS ADVISORY - PUBLIC DOCUMENT
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