Utahns should be on the watch for abusive and misleading sales tactics from high-pressure salesmen offering participation in the federal cellular phone lottery.
The Federal Communications Commission opened a lottery in July for licenses to start cellular phone systems in rural areas around the country. About 500 licenses will be awarded.Salesmen are apparently calling Utahns, telling them they have the license "in the bag" and urging them to invest in the phone system they will be starting.
The Utah Securities Division and the FCC have joined in warning consumers that investment in a cellular phone system is a high-risk investment.
"For sophisticated investors who can afford the risk, the FCC cellular telephone lottery may make sense," said John Baldwin, director of the Utah Securities Division. "But small investors should understand that this is not like walking into a 7-Eleven and buying a lottery ticket. There are great risks and responsibilities involved, including a requirement that license winners have the financial wherewithal to begin construction of the phone system at a cost of $750,000 or more."
Investors would not see profits for at least five years, if ever, Baldwin said.
Additionally, those claiming to have licenses "in the bag" are basing that claim on an assumption of "extremely low levels of participation by others," Baldwin said.
"In Utah alone, the odds of receiving the license are more than 500 to 1. With so many investors chasing so few markets, investor losses are going to add up to (between) $300 million and $1 billion nationwide," he said.
Only six licenses will be granted in Utah, he said. A cellular telephone is a mobile, wireless telephone found most often in automobiles. The FCC's lottery is intended to grant 482 licenses to "generally less lucrative" areas.
"In Utah, all areas on the Wasatch Front have been previously awarded," Baldwin's press release said. "With around 75 percent of the population in the state on the Wasatch Front, the probability of profits in the near future looks chancy."
The FTC and the North American Securities Administrators Association has produced an "Alert for Consumers" flier that outlines the cellular telephone lottery system.