MCIs MMDS Play Buys Cheap Spectrum

MCI WorldCom appears to be making a big play for wireless
cable companies in an effort to secure enough bandwidth to bypass local telephone
companies for Internet services, and possibly for its own brand of local telephony.

MCI -- the second-largest long-distance carrier behind
AT&T Corp. -- has been buying hundreds of millions of dollars worth of bonds in such
wireless cable providers as CAI Wireless Systems Inc., CS Wireless Systems Inc.,
People's Choice TV Corp. (PCTV) and Wireless One Inc., sources said last week. MCI
has declined to comment.

MCI apparently sees the wireless cable spectrum as its
chance to break the grip of the local phone companies in providing the
"last-mile" connection from its national network to individual customers'

By gaining control of the companies, MCI would gain control
of their wireless-spectrum licenses, giving it access to bandwidth to deliver high-speed
Internet and other telephony services from its network directly to the customer premises.

John Mansell, a private-cable analyst with Paul Kagan &
Associates Inc., said it is possible that by owning the bonds, MCI could end up with
between 40 percent and 60 percent ownership of the individual companies.

He added that the four companies together have access to
about one-half of the homes in the country.

Walter Eilers, a spokesman for Wireless One, declined
comment. CAI, CS Wireless and PCTV officials did not return calls.

Wireless cable systems use microwave technology to transmit
television signals through the air. Also called multichannel multipoint distribution
service, or MMDS, wireless cable uses spectrum that was originally earmarked to offer
analog and digital video service. However, most wireless cable companies have faced severe
cash crunches.

After the Federal Communications Commission recently
allowed for two-way high-speed-data transmission over the spectrum, wireless cable
companies have focused on providing high-speed Internet-access services and on the
potential for telephony.

They hoped to bring Internet providers and phone companies
in as strategic partners a strategy that paid off temporarily for some firms that
were backed by regional Bell operating companies in the mid-1990s.

But except for PCTV which has a high-speed service
called SpeedChoice up and running in Phoenix and Detroit most of the
wireless cable companies have been stymied when it comes to Internet access. Again, a lack
of necessary capital appears to be the culprit.

With MMDS operators' public stocks trading for pennies
apiece and their bonds also trading at low prices, MCI apparently thinks that it can buy
up the spectrum cheaply.

[MCI] has taken substantial positions in these
bonds, said one bond analyst, who asked not to be named. For the companies
that are going through a restructuring, owning the bonds is essentially owning the

It is believed that MCI is mainly interested in the
wireless spectrum for its UUNet Internet subsidiary, one of the largest Internet-service
providers in the country.

UUNet currently leases the T-1 lines that are needed to reach its customers' premises
from regional telephone companies. But if it were able to reach a large portion of those
customers through its own wireless network, its costs would be reduced substantially. The
same would go for MCI's local and long-distance telephone services.

The bonds were held mainly by Merrill Lynch Global
Allocation Fund, a unit of New York-based investment bank Merrill Lynch & Co., and by
Moore Capital, a New York-based global investment company.

In the case of CAI, the long-distance carrier has
apparently also purchased a large portion of the company's outstanding stock, which
was issued to Merrill Lynch and Moore as payment for past debt. Merrill Lynch and Moore
together own about 10.37 million shares of CAI common stock.

CAI stock, which is traded on the over-the-counter bulletin
board, leaped by more than $2.56 per share as news of the MCI deal leaked out. The
company's stock which had traded for as low as one penny during the past 52
weeks closed at $6.69 March 29.

The stock fell to $6 per share the next day, but it climbed
to $9.50 April 1, up $1.63 per share.

PCTV shares were up by 34 percent April 1, closing at
$4.13. Wireless One stock fell 4 cents to 63 cents per share April 1.

It is estimated that MCI has already spent between $200
million and $400 million for the debt, and more expenditures may follow. Several bond
analysts believe that MCI is also talking with Colorado Springs, Colo.-based American
Telecasting Inc. about buying at least a portion of its debt.

According to CAI's last quarterly financial statement,
filed with the U.S. Securities and Exchange Commission, Merrill Lynch owned about $80
million in CAI debt in February. The debt was part of an exit facility that allowed CAI to
emerge from Chapter 11 bankruptcy protection in October.

In other SEC filings unrelated to MCI, PCTV had about $300
million in debt, CS Wireless had about $400 million and Wireless One had $322 million.

To me, this signifies potentially the first major example of bottom-fishing [in the
wireless cable industry], said Dean Ericson, president of Media Management Services,
a communications consultant based in Englewood, Colo.

These are companies with balance sheets that have
been turned upside down, and that were in very difficult financial shape, Ericson
added. Here's a big player that sees an opportunity to jump into a licensing
situation at probably a very attractive price.

Andrew Kreig, president of the Wireless Communications
Association International (WCA), an industry trade group, said that if MCI is indeed
interested in MMDS spectrum, it would be a major boost for the wireless industry.

These reports would tend to validate the
strategies of the leading NASDAQ-traded MMDS companies, which have put enormous resources
into testing and regulatory efforts to make the spectrum fully two-way, Kreig added.

MMDS has its drawbacks, too. Once considered to be the
video medium of choice for most RBOCs Bell Atlantic Corp. was once a major investor
in CAI the technology fell out of favor as line-of-sight constraints became too
much of an obstacle.

Because it is a radio-based technology, MMDS must have a
clear transmission path from the main transmission tower to an antenna at the customer
premises. Without that clear path, customers are not able to receive the signal.

But although poor line-of-sight was a significant drawback
for wireless video, it may not pose as big a problem for Internet and telephony services.