From the bidders’ view of the post-C-block auction landscape, not only the Goliaths but also the Davids seem likely to gain ready access to financing to construct personal communications services systems.
The wireless spectrum auction was designed initially to give women- and minority-owned businesses a level playing field with the industry heavyweights. Much ado has been made of the elimination of criteria intended to promote that goal, and there is still a strong perception of inequity among some of the smaller bidders, who see the major players dominating once again. Nevertheless, others see strategic financing advantages primarily due to their lack of size.
“This is less of an entrepreneurial auction than it was intended to be,” said Robert Broz, president of Alpine PCS Inc. in Gaylord, Mich.
Broz, who also owns Cellular One in Gaylord, and his brother comprise the core group of Alpine PCS, which made an upfront payment of $4.1 million to qualify as a bidder. Alpine has bid on all 493 markets, although Broz conceded, “I don’t imagine we’ll get them all.”
The bidding war is raising prices, possibly out of the reach of many of the second-and third-tier participants, “who don’t have a vague idea of where the money will come from,” Broz said. “We have internal financing available, and are looking at all types of outside financing, depending on how high the bidding goes.”
Edward Snook is the treasurer of the Sun-Journal, a daily newspaper with a circulation of 100,000 in three Maine counties surrounding the twin cities of Lewiston and Auburn. He represents C’s Publishing Co., a designated entity that put up $99,764 to qualify to bid for spectrum in a basic trading area coinciding with the newspaper’s circulation area.
“We’re very small in the scheme of things, and it’s been interesting to watch the big players like Omnipoint (Corp.) and PCS 2000 (L.P.) move their pile of chips,” Snook said.
But there are strategic advantages to being a small player in a niche market. “It’s always behooved people to be the little person, able to sit back and see which technologies are most appropriate and have the longest shelf life. At the same time, we are dictated to by what the largest players do, but we have the advantage of being able to watch and wait awhile,” Snook commented.
Federal government financing of the license purchase has enabled this wait-and-see approach for smaller players, he said. “There will be some vendor financing, an assortment of partnerships, other additional equity,” Snook predicted.
Despite eliminating minority preferences from the bidding rules, such firms have access to a pool of venture capital unavailable to others, said Eric Steinmann. He wears two hats, and therefore has a dual perspective. Steinmann is a partner in KEG Partnership of Wrightwood, Calf., which put up $8.12 million to qualify as a bidder. He also is a principal of the Ally Finance Co. in Beverly Hills, Calif., a specialized small business investment company.
Chartered by the federal Small Business Administration, so-called SSBICs provide a $4 to $1 match of government funds to private venture capital to invest in businesses run by groups identified as disadvantaged, including racial minorities, disabled persons and Vietnam era veterans.
Steinmann said he believes equipment vendors, particularly the bigger companies like Motorola Inc. and AT&T Corp., will have enough capital available to finance 100 percent of equipment costs-but not 150 percent or more as in the case of cellular. For minority-owned C-block bid winners, the SSBIC will provide crucial nonequipment, post-auction funding. KEG Partnership, on the other hand, “is generating funds internally, with the expectation of equipment financing, but only at cost. The new issue (stock) market is hot right now, but we don’t know what it will be in the post-auction or post-election environment.”
Bid winners in rural markets have other unique avenues for post-license financing, according to Robert Richards, president of Accipiter Communications Inc. in Denver. Virtually all of the rural telephone companies qualified to bid in the C-block auction, and “most remarkably” they have access to two important capital sources, he said: the Bank for the Cooperatives-which makes loans at Treasury rates-and the Rural Telephone Finance Corp.-a private lending bank owned and operated by the National Rural Electric Cooperative Association. The Finance Corporation requires its borrowers become its stockholders.
Richards, whose independent telephone company is bidding for licenses in various parts of the Southwest, said there are two pitfalls for such borrowers, however. “We’re assuming there’s a lot of capital to place, and that may not be the case,” he said. “Another part of the problem is whether you’re already maxed out at 49 percent outside ownership going into the auction.”
Bidders who are neither Goliath nor David are banking on the degree of advance planning they brought to the auction. “In our particular case, we have more than one offer for capital expenditure financing on the table, and we’re looking at which one is best for us,” said John Scanlan, vice president of Eatelcorp Inc., an independent telephone company based in Gonzales, La. “We worked very hard to get that way.”
