Lured by a chance to swim in the next wave of wireless telephony and reeled in by entrepreneurs casting about for financial support, some big fish from Korea are jumping into the auction of C-block personal communications services licenses by backing major bidders.
NextWave Personal Communications Inc.-which made a $79 million upfront deposit, the second largest in the C-block auction-just amended its Form 175 application to include the Korean industrial firm Pohang Steel America Corp. as an equity investor. NextWave would not disclose the dollar amount of the investment but company spokesman Kevin Christiano said Pohang could end up with a 17 percent stake on a fully diluted basis.
Samsung Electronics Corp. and DACOM Corp. also recently announced a $25 million commitment to invest in QuestCom Inc., a company that said it plans to be an active bidder for C-block licenses, which were set aside by the Federal Communications Commission for smaller, more entrepreneurial PCS ventures. QuestCom’s Chairman Robert Kyle also heads the Small Business PCS Association, which was formed to aid other small companies that are bidding.
These new investments follow earlier news about Korean equity positions in two large C-block bidders-DCR Communications Inc. and U.S. AirWaves Inc.
DCR announced last March that it had backing from Masa Telecom Inc.-a consortium of Korean, Japanese and other Asian investors-and a letter of intent from Samsung.
U.S. AirWaves announced in June that it had formed a strategic partnership with Hyundai Electronics America. Hyundai said it would not only provide PCS infrastructure equipment but also would invest $50 million in U.S. AirWaves which, “provides the best vehicle for us to become a successful participant in the PCS wireless industry.”
Korean investment is welcomed by the C-block bidders.
A recent report from Boston-based research firm The Yankee Group noted that bidders for C-block licenses weren’t able to obtain backing from U.S. financial institutions and would have to rely on strategic investors.
“Japanese and Korean electronics firms are leading the (C-block bidder) strategic investment charge, to ensure a role in the U.S. PCS market and not miss the boat as they did in cellular,” the report said.
Phillip Redman, a wireless analyst at the Yankee Group said, “With the A- and B-block auctions there was already big money-domestic money-available for bidders. C-block has less financing available. (The C-block bidders) were just sticking their hands out for money and they decided to stick them in the Asian barrel and see what they could pull out.”
Redman also believes, “There are going to be some strange bedfellows made in the post-auction buildout phase.”
“You’re going to see a lot of selling out. Some bidders can’t afford the buildout, and raising financing could be even more difficult the second time around,” he said.
Jonathan Foxman, director of strategic and business planning at BIA Consulting Inc. said he agrees.
“New alliances will emerge almost immediately after the auction. A small role now for a company with substantial resources could easily become a major position in the coming years, if not sooner.”
Foxman notes, “Historically, Korean companies have not invested abroad based solely on (return on investment) considerations. I suspect that their moves into PCS represent only a preliminary phase of a long-term strategic plan.
“These companies missed out in cellular and, to a great extent, in paging as well. Korean manufacturing giants such as Hyundai and Samsung have an opportunity to catch the market leaders. I suspect they don’t want to miss out again,” he said.
