WASHINGTON-“Let’s not fool ourselves-the number one issue is money,” said Carl Thompson, the new president and chief operating officer of Vienna, Va.-based North American Wireless Inc., who pulled no punches as to what it will take for the small business or entrepreneur to participate in the next several incarnations of spectrum auctions scheduled for 1996.
Speaking to some 300 registered attendees at Auctions ’96, sponsored by the Federal Communications Commission’s Office of Communications Business Opportunities, Thompson, a former AT&T Corp. executive who headed the giant’s personal communications services strategic activities, added that the number of “small” businesses currently bidding in the C-block PCS auctions are dwindling. And financing, perhaps, is the cause.
“Some of you aren’t exactly small businesses, when you look at the money being bid,” he said.
According to FCC General Counsel William Kennard, 46 percent of the growth in telecommunications since the late 1980s was attributable to small business. However, he admitted that the commission “needs industry help in redefining the definition of small business,” and that “small business often is not at the top of the agenda in Washington but it is up to you to put it on the radar screen. We in the federal government can’t ensure that you will be successful but we can ensure you a chance to compete.”
For those who plan to venture into the D-, E- and F-block PCS auctions that are supposed to be completed by August; the 220 MHz auctions this fall; and the upper-channel 800 MHz specialized mobile radio auctions this winter, mega-financing and strategic partnerships could be the difference between success and failure. Although their loan caps are perhaps too small to ensure a place in the initial auction process, those who emerge as successful bidders can turn to such traditional financing outlets as the U.S. Small Business Administration and the Minority Business Development Agency of the Commerce Department to get their communications businesses moving. The SBA allocates approximately 35 percent of its funding to new businesses, with the average loan totaling $170,000.
Even with some backing, potential bidders still won’t have it easy. With the next round of narrowband PCS auctions due to begin, theoretically, within the next 60 days, no rules exist, although a notice of proposed rulemaking was supposed to be released last week.
“The Telecommunications Act of 1996 makes it hard for small businesses to get ahead. Many agree that C-block auctions were lost to entrepreneurs,” said attorney Thomas Hart Jr. of Ginsberg, Feldman and Bress. “We need to revisit auction rules before the D-, E- and F-blocks [are auctioned]. No one is ready to go into the F-block, even though the FCC wants to fast-track this. There was some designated-entity commitment to the F-block, but will the FCC come through? This summit was designed so that people could meet with money. Who out there has some?”
Other speakers advocated rearranging the order of the auctions to allow the F-block to be auctioned before the D- and E-blocks to avoid the kind of head start C-block entrepreneurs will have to endure from A- and B-block PCS licensees.
Rules regarding the upcoming 220 MHz SMR auctions also have not been adopted. Alan Shark, president of the American Telecommunications Industry Association, called the last round of 220-222 MHz licensing four years ago “the last great lottery*…*an example of what can go wrong. Many people thought they were getting a cellular license. Auctions will remedy the ignorance factor.” AMTA advocates channel blocks larger than the standard five channels, and the group is fighting for geographic licensing “because it would be attractive to banks and investors.”
Washington attorney Alan Tilles agreed with Shark, adding that bidders for this spectrum will be looking for partners. “The biggest problem will be regulatory uncertainty,” he said. “No one yet knows how Phase Two licensing will be handled.”
There will be opportunities, however, for small businesses in the 220 MHz band, Tilles said. “There’s not a lot of channels and not a lot for commercial users,” he explained. “It’s a limited opportunity, but maybe it’s good news for the small entrepreneur because the big boys won’t want to play.”
The big boys could be playing in the future SMR auctions, however. “This will be more of an opportunity for incumbents at first,” said Rob Hoggarth of the Personal Communications Industry Association. But, he cautioned attendees, “This is not a get-rich-quick industry. There is no opportunity to flip a license, and the spectrum is heavily encumbered. SMR also is highly competitive, and you’ll have a lot of competition from incumbents, telcos and rural telcos. Get a lawyer and an economist to help you with your business plan.”
To gain the big bucks necessary to bid in future auctions, such firms as Pryor, McClendon, Counts & Co., one of the largest minority-owned investment banking groups in the world, will put together alliances between small players and regional holding companies or long-distance providers. And once partnerships are in place, licensees also have to make sure acceptable exit strategies exist.
“Entrepreneurs should also look for opportunities that may not be as speculative*…*construction opportunities, software development, equipment manufacturing, content production and reselling opportunities,” McClendon added.
Attendees did point out problems with Auctions ’96. The majority of the audience was made up of applications experts, lawyers, manufacturers, carriers, association personnel and others with agendas to promote. The panels ran long, and there was little opportunity for questions.
There also were no women included on the panels, save for FCC staffers-an unusual move for an agency that is trying to promote minority- and women-owned businesses. “The way we chose people was based on who has submitted comments on dockets in the past,” said Cathy Sandoval, director of the Office of Communications Business Opportunity. “This shows that there aren’t as many women-owned businesses who comment on the dockets or that even exist.”
According to an FCC source, the names of several women had been submitted as potential panelists, but that they did not make the final commission cut. Sandoval said she had no knowledge of this.
