MCI Communications Corp. said yesterday that it has entered an agreement with the start-up company Nextwave Telecom Inc. that would enable MCI to provide the next generation of wireless telecommunications services in most of the nation's largest cities.
The personal communications services, or PCS, would become available in mid-1997 in some markets, with broader coverage by the end of 1998.
PCS is a new kind of wireless service designed to be a less expensive, all digital, more reliable, alternative to cellular phone service.
Nextwave, a privately held company based in San Diego and New York, had bid $4.7 billion over the past two years in federal auctions to acquire wireless licenses capable of providing service to 110 million people in 63 markets, including 29 of the top 50 markets.
Unlike the other big long-distance providers, AT&T; Corp. and Sprint Corp., MCI remained on the sidelines of the PCS license auctions by the Federal Communications Commission, waiting to become a reseller of network services that would be offered by winning bidders such as Nextwave. MCI shares rose $1.25, to close at $26.75.
Analysts said the deal is a major win for Nextwave, which needs a customer of MCI's stature to validate its strategy of offering PCS services through resellers. The deal also should lend credibility to the company's plans for an initial public offering as soon as market conditions seem favorable.
"The advantage for MCI is they didn't have to bid in spectrum auctions or invest capital in developing a network; the downside is they are dependent on Nextwave to get the network up and running and that is out of their control," said Mark Lowenstein, an analyst with the Yankee Group in Cambridge.
"I think it's a sound strategy for MCI," he said, "and I'm sure they were able to negotiate very favorable terms with Nextwave."
Without disclosing those terms, MCI said it had agreed to purchase 10 billion minutes, or 166.7 million hours, of PCS capacity from Nextwave over 10 years.
MCI plans to market the PCS services under its own brand name, offering them in conjunction with other MCI communications services.
MCI, in turn, would provide telecommunications and other related services for Nextwave's PCS system.
It is not making an equity investment in Nextwave at this time, MCI said, although it retains certain rights to do so, and that there was no upfront payment.
Whitey Bluestein, MCI's vice president of wireless strategy and development, said in a telephone interview that the deal fit the company's strategy of reselling wireless services rather than investing in its own infrastructure.
MCI currently has similar arrangements with major cellular carriers in 17 markets across the country, covering about one-third of the population.
Nextwave's service, he said, would be fully integrated with MCI's existing network in a way that would be invisible to telephone users.
Allen Salmasi, Nextwave's chairman and chief executive, said the deal fit his company's goal of being a "carrier's carrier," providing services to established long-distance companies, regional Bell telephone companies and cable and paging companies.
Pub Date: 8/27/96