Betting on the Sky

By THOMAS McCARROLL

Until recently, mobile radio was to wireless communications what the Yugo was to transportation. With a motley clientele ranging from truckers using CBs to police armed with walkie-talkies to taxi drivers dispatched by radio, it was viewed as an unglamorous business and a technological backwater.

But specialized mobile radio, as it is known, has been rediscovered. It is now considered one of the biggest prizes in the all-out war for the public airwaves. The reason: high-tech companies have figured out how to profitably rebuild the antiquated dispatching system into an advanced cellular-telephone network that can take on the likes of AT&T and the giant Baby Bells. Upstart Nextel Communications sent shock waves through the industry last week when it agreed to buy Motorola's SMR frequencies for $1.8 billion.

With the 2,500 radio frequencies acquired from Motorola, Nextel will have the potential to serve 180 million customers in 21 states, including 45 of the 50 largest cities. That would give the Rutherford, New Jersey, company access to nearly three times the number of customers now covered by McCaw Cellular , Communications, the nation's biggest cellular operator, which is being acquired by AT&T for $12.6 billion. Even though it will cost at least $2.5 billion to rebuild the SMR system into a cellular network, Nextel, which is backed by Comcast Corp. and Japan's Matsushita & Nippon Telegraph and Telephone, intends to have a coast-to-coast wireless network up and running by 1995.

That could pose a serious threat to cellular hegemony. Although both systems are based on the same basic technology, SMR systems are digital and cover almost 25 times as much area as the average cellular network. SMR handsets won't work on cellular systems and tend to be bulkier than cellular phones, though they provide more features, like a digital pager service. And while cellular growth has tripled to some 13 million subscribers since 1990, the technology has been losing ground. It is running out of channel capacity so fast, in fact, that 40% of cellular calls in high-density areas like Manhattan and Los Angeles fail to be completed. SMRs have capacity to spare, and service could eventually be priced 10% to 15% less than cellular. Dispatchers predict they will have at least 10 million subscribers by the end of the decade. There are now about 1.5 million users of SMRs.

The addition of another contender to an already crowded field of telephone systems will surely multiply the confusion. By the year 2000, consumers will be able to choose from at least half a dozen vendors of a dizzying array of wireless-communications services, including pagers, voice mail, answering machines and cellular phones. Phone and cable-television operators, such as Bell South, MCI and Cox Enterprises, are developing so-called personal- communications networks, or PCNs, a highly advanced portable-phone system that is expected to cover a wider area, connect to a greater variety of services and be cheaper to operate than conventional cellular.

In perhaps the most ambitious project of all, Motorola plans to launch a wireless system called Iridium, which will consist of 66 satellites orbiting about 500 miles above the earth. The satellites would link together a network of special pocket phones, personal computers, fax machines and pagers anywhere in the world -- all for a subscription rate of $3 a minute. Iridium, which is also backed by Sprint and Raytheon, as well as companies in Canada, China, Japan, Italy and Russia, is expected to begin operation in 1998. It already faces competition from rival global-communications systems, including Comsat, Globalstar and TRW's Odyssey. American Mobile Satellite Corp., for instance, plans to use satellites to reach customers in regions not served by cellular.

Anticipating the wireless world, computer makers, like Apple, AT&T, IBM and AST Research, have recently introduced personal digital assistants, or PDAs, hand-held pen-based computers that can send wireless faxes, electronic mail and, in many cases, make phone calls. For the most part, though, many of these technologies will be overlapping, incompatible and, in some cases, even irrelevant. Says Clifford Bean, a wireless analyst at Arthur D. Little: " PCNs, PDAs and now SMRs. Consumers are going to face a maddening menu of choices. Many are going to get lost in the gobbledygook."

And many companies that have gambled on the wrong technological standards, and invested billions trying to develop the same markets, will undoubtedly lose a great deal of money before the shakeout is over. "The winners," says Nextel chairman Morgan O'Brien, "will be those who can make the choice for consumers easy." With all the anticipated confusion -- reminiscent of the early years of personal computers -- it is likely to be years before anyone calls the purchase of wireless products an "easy" choice.