Frontline’s demise leaves D Block, public safety plans in limbo: Google, AT&T Mobility, Verizon Wireless, Sprint Nextel seen as beneficiaries

Frontline Wireless L.L.C.’s freakish free-fall has begun to raise questions about whether the upcoming 700 MHz auction will produce a bidder willing to spend billions of dollars on spectrum and construction of a national public safety-commercial broadband network.
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“With the recent press reports regarding Frontline’s implosion as a viable bidder, concerns among FCC and public safety officials are growing over the fate of the D Block and the success of the auction itself. If the reserve price for the D Block is not met, it can be re-auctioned with or without the same rules,” said Jessica Zufolo, a telecom analyst at Medley Global Advisors L.L.C.
Frontline, a startup led by Vanguard Cellular co-founder Haynes Griffin and former Bush and Clinton administration officials, had been laser focused on winning the dual-use D-Block license – one of the 1,000-plus licenses set for auction beginning Jan. 24. The firm, armed with high-profile Silicon Valley backers, savvy political insiders and top-notch communications lawyers, appeared to have all the right stuff to pull off the bold business venture. But when the moment came to submit a $128 million upfront payment to the Federal Communications Commission on Jan. 4, Frontline abruptly shut down. “Closed for business at this time” in Frontline’s words, without a clue why.
It has been speculated that Frontline was good for the upfront payment, but not so regarding the minimum $1.3 billion required to acquire the D-Block license itself. But that theory does not necessarily square with an FCC filing submitted by Frontline lawyers in early December. In that filing, Frontline withdrew its challenge to the $1.3 billion reserve price for the D Block, saying the FCC’s small business-wholesale rule waiver (which effectively made Frontline eligible for a 25% bidding discount) “significantly increases the likelihood that the reserve price will be met.”
On the other hand, unfavorable financial conditions – fueled by the mortgage-credit crisis and other factors – may indeed have killed financing for Frontline when it came time to make the first auction-related payment to the government.
Public safety groups, which spent most of 2007 lobbying Congress and federal regulators to take steps to foster the creation of a national public safety network with the kind of interoperable and broadband communications capabilities sorely missing in the aftermath of 9/11 and other emergencies, are left now to wonder whether another D-Block bidder(s) emerges and what federal regulators might do if that doesn’t happen.
“The Public Safety Spectrum Trust thinks it is important for the FCC to continue to do all that it can to advance the public-private partnership concept intended to build a nationwide broadband network for public safety,” said Harlin McEwen, chairman of the non-profit group licensed to work with a commercial winner of the D Block. “While it would not be appropriate for the PSST to comment on any potential bidder’s strategy, we want to restate our enthusiasm for and commitment to what the FCC has done.”
“APCO supports the FCC’s rules and auction procedures designed to promote the deployment of a nationwide public safety broadband network,” stated Robert Gurss, director of legal and government affairs at the Association of Public-Safety Communications Officials International. “We continue believe that a viable public/private partnership to deploy that network will result from the FCC’s 700 MHz auction and the negotiation of a network sharing agreement with the Public Safety Spectrum Trust.”
The FCC appears anxious to assuage public safety angst over the potential fallout from Frontline’s exit.
“Given the communications problems that our nation’s first responders continue to face during emergencies, it is imperative that we do everything we can to help advance the build-out of a nationwide interoperable broadband network for the good of public safety and the American people,” said an FCC official. “We are hopeful that someone will bid on the spectrum, but at this point, we’ll have to wait and see what happens.”
Frontline’s departure likely leaves AT&T Mobility, Verizon Wireless or perhaps Google Inc. as potential bidders for the D Block. It is also possible that a dark horse could emerge, or that well-heeled telecom and tech companies simply decide to forgo bids on the D Block on the chance the spectrum will be re-auctioned with fewer regulatory strings attached and at a cheaper price. Unlike most past auctions, the FCC will not – as an anti-collusion measure – disclose details of bidding activity other than the dollar figure of high bids for licenses at the end of each round.
FCC Chairman Kevin Martin said he would like to see a taker for the D-Block license in the 700 MHz auction. Martin received profuse praise from the public safety community after the FCC approved the 700 MHz band plan last July. National mobile phone carriers generally opposed the imposition of conditions on new, propagation-rich spectrum for much of last year’s 700 MHz rulemaking, though AT&T altered its stance shortly before the FCC’s 700 MHz ruling. Cellular carriers argued the FCC should not craft 700 MHz rules that cater to any particular company’s business model. The cellular industry was highly suspect of Frontline’s viability from the start. Frontline wrote off the criticism as the reaction of an industry fearful of new competition.
“In fact, concern over the D Block has in some ways vindicated the Bells, which have long opposed Frontline’s business plan and FCC action to help them in the game,” said Medley’s Zufolo.
Ric Prentiss, an analyst at Raymond James & Associates Inc., sees Frontline’s failure as potentially bad news for tower companies and perhaps a fortuitous sales opportunity for Sprint Nextel Corp.
“We think the government might have another good choice for a proprietary or prioritized public safety wireless network: Sprint’s iDEN network after current users are migrated over to CDMA network starting in 08,” Prentiss said. “We are looking for the new CEO at Sprint to update investors on the timeline to migrate iDEN subscribers to CDMA on the 4Q07 earnings call. We hope the answer is a fast migration, say 18 months.”