MCI Communications Corp. bought a piece of the sky yesterday as its $682.5 million bid prevailed in the Federal Communications Commission's auction of the last remaining slot for satellite television service to the entire continental United States.
After 19 rounds, MCI's deep pockets overcame the determined bidding by EchoStar Communications Corp., a small direct-broadcast satellite (DBS) provider from Colorado. EchoStar dropped out when the bidding hit $650 million.
Washington-based MCI thus becomes the second large long distance provider to jump into the DBS business this week. On Monday, AT&T; Corp. announced that it would pay $137.5 million for a 2.5 percent stake in DirecTV as part of a deal under which it agreed to market the venture's programming to its 90 million customers.
After winning the slot yesterday, MCI announced that it would join with Rupert Murdoch's News Corp. in a 50-50 joint venture to provide entertainment and information services over an estimated 180 channels. In addition to conventional video and audio, the DBS spectrum could be used for advanced data services and software delivery, the companies said.
The new DBS service will be the first major initiative to result from the broad strategic partnership MCI and News Corp. announced last May. As part of that deal, MCI agreed to invest up to $2 billion to become the largest outside shareowner in News Corp.
DBS has been a runaway hit since DirecTV and USSB began offering programming over Hughes Electronics Corp.'s satellite system about 18 months ago. An estimated 1.2 million subscribers have signed up for DirecTV despite the high cost of the 18-inch satellite dishes needed to receive the digital signals. EchoStar, which launched its first satellite last month, is expected to begin offering nationwide service in March. If EchoStar had won yesterday's auction, it would have roughly doubled its DBS capacity.
Telecommunications analysts said MCI paid a steep price for its ticket into show business.
"It is about as high as it could possibly be imagined," said Jimmy Schaeffler, a DBS analyst with the Carmel Group in Carmel, Calif.
FCC Chairman Reed Hundt hailed the result as "a fair return" for the American taxpayer.
MCI got its opportunity to bid when the FCC revoked the license of a Virginia company that controlled the spectrum but failed to build a system within the required period. The company had planned to sell the slot to Tempo, a subsidiary of Tele-Communications Inc. that had already begun construction of two satellites.
L TCI, the third bidder in the auction, dropped out Wednesday.
Mr. Schaeffler said that while the price was high, MCI had good reason to bid aggressively.
"There is not another comparable orbital assignment, so that's why it went for such a high price," he said. But he added that MCI, by publicly stating how high it would be willing to bid, might have allowed EchoStar to drive up the price.
David Roddy, chief telecommunications economist at the Deloitte & Touche Consulting Group, estimated that it will take an additional $500 million to $1 billion to build and launch the satellites and bring the system on line.
Mr. Schaeffler said it would probably take about two years for MCI and News Corp. to build and launch a system from scratch.
"If they were able to do a deal with TCI's [satellites], which are well on their way to completion, it should be quicker," he said.
Nevertheless, whenever MCI begins offering its service, it will be playing a game of catch-up with DirecTV, EchoStar and the cable industry's PrimeStar. Mr. Schaeffler said it could be 10 to 15 years before MCI knows whether its investment has paid off.
"There are going to be a lot of MCI stockholders who think this was not such a good idea," Mr. Schaeffler said.
MCI stock dropped 87 1/2 cents yesterday to close at $27.