WASHINGTON-The Bush administration’s plan to zero out an embattled, government-backed telecom venture-capital fund before next year’s auction of third-generation mobile-phone and other wireless licenses appears to have fizzled.
A confluence of factors-particularly the turnaround efforts of Silicon Valley veteran James Pastoriza-may just save the Telecommunications Development Fund.
The fund, created by the 1996 telecom act to aid startup firms and underwritten by interest on auction down payments, has struggled since its inception in 1998. A top-heavy management team with generous salaries got caught up in dot-com fever of the day and threw money at a dozen or so small companies, most of which failed miserably.
TDF, championed by Rep. Edolphus Towns (D-N.Y.) and enacted a year after the U.S. Supreme Court curbed government affirmative-action programs, has received tens of millions of dollars during the past decade. The high court’s 1995 decision prompted the Federal Communications Commission to abandon bidding credits for minorities and women. Congress directed TDF, among other things, to promote the delivery of telecom services in underserved rural and urban areas.
In a June report to Congress, TDF said it had net assets of $33 million.
If TDF survives President Bush’s 2006 budget request to eliminate the program, it will be due mostly to Pastoriza’s efforts and not those of Congress or the incredibly shrinking TDF board of directors.
With little fanfare and in the face of media and congressional criticism, Pastoriza slowly has begun to transform TDF into an organization with attributes found in traditional venture-capital companies.
Pastoriza, named new chief executive in 2004 to replace former Clinton administration official Ginger Lew, significantly has downsized his staff and pared down TDF’s budget 30 percent below the 2003 level.
“We run this on a private-sector model,” said Pastoriza.
Before being recruited to TDF, Pastoriza was a founding partner of Telegraph Hill Communications Partners in San Francisco and a mainstay at JP Morgan Capital’s Telecom, Media and Technology Fund. He also worked at AT&T Corp. and Lucent Technologies Inc. He knows the money business, and-having a master’s degree from the Massachusetts Institute of Technology-is versed in the nuances of digital innovation as well.
After a year in the nation’s capital, Pastoriza seems to have gained valuable political smarts.
As such, Pastoriza has walled off the disastrous dot-com investments of past years and launched a new fund strategically focused on areas that are politically popular and flush with government and private-sector money. These include public safety and homeland security communications, rural communications, data protection and critical infrastructure, wireless Internet and digital TV.
“It seemed to be a natural thing to do,” said Pastoriza.
TDF, for example, has invested in Colubris Networks Inc., of Waltham, Mass., which in partnership with other vendors won deals to bring free Wi-Fi service to Boston and the District of Columbia.
In addition to changes aimed at getting TDF back on track, Pastoriza is the beneficiary of a chaotic fall session on Capitol Hill in which lawmakers’ attentions are on Hurricane Katrina reconstruction, filling Supreme Court vacancies and other matters with overarching priority. Indeed, Bush’s proposal to ax TDF does not appear on the political radar screen. Whether Towns can keep it that way is unclear. Towns was unavailable for comment.
Still, challenges remain for TDF. Pastoriza must show better results with TDF Fund II to keep listless lawmakers at bay. Six of the seven board slots officially will be vacant next month. The board is hand picked by the FCC chairman. Three seats are occupied by a representative from each of the FCC, the Small Business Administration and the Treasury Department. The remaining four board members come from the private sector.
FCC Chairman Kevin Martin’s staff did not respond to requests for comment on any plans to fill TDF board seats either currently vacant or soon to be so.
