Short forms are due today for designated entities, marking a giant and-finally-tangible step toward the Federal Communications Commission’s C-block auction of nearly 500 personal communications services licenses set for Dec. 11.
About 25 DEs will actually make it to auction, and only a handful will win more than 5 key basic trading areas, predicts the Yankee Group in a white paper authored by Mark Lowenstein, director of the wireless/mobile research program. The Cambridge, Mass.-based research and consulting firm predicts heavy bidding activity in the top 50 BTAs, each claiming at least 1 million potential subscribers. The top 100 BTAs cover about two-thirds of the U.S. population, noted the firm.
The Yankee Group interviewed most DEs it considers major players, as well as others, and categorized them by investment value and by market strategy and orientation. The latter include “total telco,” “targeted and differentiated,” “front for a big player,” “umbrella organization,” and “niche player” classifications.
The total telcos are the “DE Big Three,” GO Communications Corp., U S AirWaves Inc. and DCR Communications Inc., each which has accrued more than $50 million in committed funds to date, said the Yankee Group. The trio of experienced players has raised the most support from strategic investors. They intend to win top BTAs, targeting 50 million to 75 million pops. These contenders want their own brand name, time to market is deemed critical and they plan to aggressively build after the auction. Aiming to generate network traffic, the three firms may try adding landline telephony to their wireless portfolios, the Yankee Group said.
The big three also may become umbrella organizations, said the Yankee Group, where other DEs would join them to achieve greater coverage, reduce costs and buy airtime in bulk rates.
Alltel Mobile Communications has invested in GO and will provide billing and systems integration services to the Vienna, Va.-based firm, which has more than $100 million in support, said the Yankee Group. Headed up by former MCI Corp. executive Steven Zecola, GO plans to use Global System for Mobile communications technology with Northern Telecom Ltd. and Nokia Corp. as suppliers.
A husband-wife team in the Washington, D.C., area, DCR secured Westinghouse Inc. as an investor and systems integration provider. Also a key DCR investor is Masa Telecom Inc., a consortium of Japanese, Korean and other Asian investors formed specifically to bid in the U.S. PCS market.
“Japanese and Korean electronics firms are leading the DE strategic investment charge, as to ensure a role in the U.S. PCS market and not miss the boat as they did in cellular,” stated the Yankee Group. No more than 25 percent of a DE can be owned by foreign companies. Owners Dan and Janis Riker have secured $90 million in financing to date.
Hyundai Electronics America has committed up to $50 million in U.S. AirWaves, headed by former U S West NewVector Group chief John DeFeo. Hyundai hopes “to use investment as a springboard to be a CDMA terminal device player,” stated the Yankee Group.
In the next lower financial tier are companies currently backed with between $20 million and $50 million, including NextWave, General Wireless, Telecorp, Omnipoint Corp. and Cook Inlet, reported the Yankee Group. The former three, noted Lowenstein, have a chance to break $50 million by auction time.
NextWave is piloted by Allen Salmasi, formerly of Qualcomm Inc., and Janice Obuchowski, previously of the National Telecommunications and Information Administration. The company has not yet announced strategic investors. Known funding comes from personal investors and Qualcomm seed money.
“This is a relatively new DE that is quickly building momentum,” said the Yankee Group. “NextWave [is] the hottest new prospect in the investor community.” The Washington, D.C., company plans operating a CDMA-based network.
General Wireless-formed by Roger Linquist and Malcolm Lorang who both previously worked at Pacific Telesis Group and PageMart Inc.-has “a good shot of hitting the $50 million level by auction time,” reported the Yankee Group. Mitsui of Japan is among its investors. The Dallas-based company is leaning toward GSM technology, noted the Yankee Group.
NextWave and General Wireless along with National Telecom-founded by Jack Robinson and operated by former APC executive Albert Grimes-fall into the Yankee Group’s “targeted and differentiated” group, characterized for a conservative and targeted network approach, flat-rate pricing and a differentiated distribution strategy.
Also in the D.C., area is Telecorp, which “has had difficulty raising significant capital,” said the Yankee Group, “but a deal with a large A/B [block] license winner could be in the offing.” Telecorp is funded by venture capital money. Telecorp may be interested in filling Sprint Telecommunications Venture’s coverage gaps, said the Yankee Group, and it’s possible STV would provide them capital.
BellSouth Corp. has planted $50 million in Cook Inlet, which is expected to bid in 10 to 15 BTAs that are gaps in BellSouth’s PCS and cellular footprint. Cook Inlet is expected to favor GSM technology.
Telecorp and Cook Inlet obviously fit the bill as “front for big player.” QuestCom in San Francisco, lead by Robert Kyle, formerly of U S West and currently chairman of the Small Business PCS Association, fits this category as well, with PCS PrimeCo L.P.as a potential backer, said the Yankee Group.
Financially, most other DEs fall into two categories, determined the Yankee Group. AirLink of Atlanta and Impulse Telecommunications of Dallas likely will come to the table with $10 million to $25 million, predicted the Yankee Group, although Impulse may exceed that amount. DE members of U.S. Intelco based in Olympia, Wash., could accrue up to $10 million each. These companies have enough support to bid on a few BTAs, said the Yankee Group.
A second group-North American Wireless Inc. of Vienna, Va., InTouch PCS of Chicago, PCS 2000, and BET-was characterized by the Yankee Group as “still struggling to raise capital or are deciding whether, post Adarand, they still plan to participate.”
Fewer DEs will make it to auction than intended when the FCC conceived the auction process, but “the ones who have survived to date will emerge stronger, with a real chance at taking on the established players,” said the Yankee Group.
