Carriers that were big winners during the last 10 years of cellular growth won’t necessarily be successful in this new decade of wireless, cautioned John DeFeo, the former leader of U S West NewVector Group Inc.
“The market has moved,” DeFeo said in a recent interview from his Bellevue, Wash., office, where these days the former NewVector chief executive officer does consulting work.
DeFeo said his company pulled out of the personal communications services C-block auction in February because he promotes sensible, disciplined business plans. DeFeo walked away from a coveted prize, something for which he had given up his position at NewVector. DeFeo joined U S West in 1983 as vice president of marketing and worked his way up to NewVector president and CEO. He left that spot in late 1994 to pursue a PCS license.
He formed U.S. AirWaves Inc., acquired investors and entered the C-block auction when it began last December.
“When deposits were made we saw that the demand for spectrum was 6.7 times what it had been for A and B block. That was our first `Ah-ha.’ We were concerned the auction wouldn’t produce the prices were looking for,” DeFeo said.
And it didn’t. Disappointed, U.S. AirWaves dropped out of the auction. It was a necessary move, DeFeo said. “I had wanted to do this, but you have to have the integrity to acknowledge what makes a return for investors. And you have to have the ability to finance your future enterprise. The company has to have some inherent value. It cannot be based on false economics,” DeFeo said. While price-per-pop figures hovered between $10 and $20 in the A- and B-block auction, C-block demand drove price per pop up to $50 and $60 in some instances.
That kind of “relative analysis” doesn’t make a business case, DeFeo said.
“In the early days of cellular, whoever built first, got the customer. As the game goes on, there have been changes in channels of distribution, operating costs and management philosophy.
“In this new decade, the management challenge is to go after the rate component. And there is a way, depending on how you run a company internally and how you manage costs,” he said.
In the early 1990s, DeFeo was involved in creating PCS auction rules by the Federal Communications Commission. “In those years, the FCC was good about structuring the auction in a competitive way, considering its role as both a seller of spectrum and a banker. But with C-block, I think the FCC became more interested in selling than being a banker. Somewhere in the journey, total revenue raised became more important than opportunity for small business.
DeFeo now sits on the boards of several small companies with “interesting technologies,” of which he wouldn’t elaborate, and does strategic planning and consulting work. He expects competition to bring down wireless prices late in the decade.
“Companies with the lowest operating costs will do the best. Also, those who have the most accurate view of the end customer and the highest quality signal. The customer wants the same thing they’ve wanted for 15 years, to talk and listen.”
