WASHINGTON-With consolidation, affirmative action curbs and top-dollar licenses turning into barriers to entry, federal regulators are trying to create after-market opportunities for small businesses in a young but fast-maturing industry already dominated by a handful of wireless behemoths.
But is the Federal Communications Commission fighting a losing battle?
The telecommunications industry is capital intensive by nature. In the past, however, this was not necessarily true for the wireless industry. Getting capital was not an insurmountable obstacle to entry into local paging, dispatch radio and pre-cellular mobile telephone service 15 years ago. Small businesses dominated wireless back then.
But several things changed.
New spectrum and new technologies entered the marketplace in the early 1980s. Some of those technologies, like cellular and nationwide paging, required lots of money to support the service.
These developments were followed closely by consolidation and a trend toward wide area coverage in the paging, cellular and dispatch radio sectors.
Today, in the aftermath of landmark 1996 legislation that was supposed to create new competition, telecom mergers and acquisitions continue unabated and the relevant carrier market now is the United States. In the case of new, satellite phone systems, it is planet Earth.
Congress, by creating the Telecommunications Development Fund in 1993, sought to make access to capital by small business using the interest on auction down payments.
For some, though, the intimidating presence of Nextel Communications Inc. in dispatch radio and AT&T Corp., Sprint Corp., the Baby Bells, GTE Corp., AirTouch Communications Inc. and a few others in the mobile telephone business is ample evidence of deregulation’s failure to include small business in the wireless revolution.
Who is to blame? Some in small business say Congress, the FCC and the news media.
Small business cheated
Rick Hafla, president of Teton Communications Inc. and head of a group of small dispatch radio operators SMR WON, blames former FCC chairman Reed Hundt for the demise of small businesses like the one he has managed to keep successful in Idaho Falls, Idaho.
Hafla said the FCC’s manipulation of rules to promote spectrum auctions favors well-heeled firms at the expense of small communications firms.
SMR WON has challenged in federal appeals court here FCC rules that reconfigured the heavily occupied 800 MHz band so it could sell frequency blocks. Oral argument is scheduled for October.
Nextel, which controls roughly half of the SMR market, dominated last year’s 800 MHz SMR auction.
Such FCC actions not only harm small business, according to Hafla, but are bad public policy.
“I think the FCC has lost sight of the customer,” said Hafla.
Eliminating congressionally authorized installment payments, which was prompted by debt problems of a few large C-block personal communications services startups, penalizes small businesses that need them the most, Hafla contended.
Hafla said he doesn’t have much confidence the newly comprised FCC, under FCC Chairman Bill Kennard, will improve on Hundt’s record.
Too early to judge
The FCC, which early on gained national attention for attracting billions of dollars in spectrum auctions, says it is too early to judge whether wireless policies and after-market opportunities for small businesses have succeeded or failed.
“He believes small business is an important engine for economic growth,” said Ari Fitzgerald, wireless adviser to Kennard.
Congress-which increasingly looks to license sales as a quick fix for budget problems-is so enamored with auctions that it made what began as a five-year authorization in 1993 a permanent law. The same year Congress also directed the FCC to make available opportunities for women, minorities, small businesses and rural telephone companies-so-called designated entities-in wireless auctions.
Divergent policies
Alan Shark, president of the American Mobile Telecommunications Association, is not so circumspect about the plight of small business in the Age of Auction that began during the reign of Hundt and continues today.
“What they (the FCC) say and what they do are two divergent policies,” said Shark.
Shark points to the nearly three-and-a-half year freeze on processing of 800 MHz specialized mobile radio applications, a delay the FCC imposed while it wrote auction rules and then sold most of them to Nextel.
“They’ve killed 220 (MHz),” added Shark, referring to regulatory delays in advance of an auction in that frequency band later this year.
At the same time, Shark said 900 MHz SMR auction licensing went well and he praised the FCC for not making all SMRs subject to E911 requirements.
Shark said he believes Kennard will be more sensitive to small business needs than was Hundt. To keep the heat on, Shark is organizing an “SMR Day on the Hill” in mid-June so licensees can educate lawmakers about their regulatory concerns.
Indeed, Kennard is trying to drum up support for Congress to reinstate tax certificates for those who invest in C-block personal communications services auction winners. Tax certificates, which enable investors to defer tax liability on capital gains, were killed in 1995.
Originally, the C-block auction was designed for all designated entities. But it was narrowed to well-heeled small businesses after the Supreme Court rolled back affirmative action the same year that tax certificates died.
Renewed efforts
The FCC, trying to ameliorate a bad situation, has renewed efforts on Capitol Hill for legislation that would keep licenses from being embroiled in years of bankruptcy so that they can be quickly re-auctioned.
Catherine Sandoval, head of the Office of Communications Business Opportunities at the FCC, said the outcome of the FCC’s wireless resale reconsideration could impact small business. Sandoval said stronger enforcement of rules, involving swift consideration of resale and interconnection complaints, should benefit small businesses.
The FCC, she noted, is reaching out to small businesses interested in upcoming 220 MHz, 800 MHz SMR and paging auctions and other opportunities. The agency is making license databases available and will hold an all-day seminar June 24 at the new Ronald Reagan building here.
Dan Phythyon, chief of the FCC Wireless Telecommunications Bureau, said it is not for lack of trying that small business appears to some to be going the way of the dinosaur. He believes the jury is still out on small business.
Phythyon points to geographic partitioning and spectrum disaggregation, which some parties are implementing.
“The commission takes this very seriously,” said Phythyon. “In each and every proceeding, we are trying to offer opportunities for small businesses.”
The FCC retains bidding credits of varying degrees for small businesses and its 45 megahertz spectrum cap keeps any one firm from controlling any one market.
Phythyon says he is working closely with the Small Business Administration.
On the other hand, plans to sunset mandatory wireless resale in five or so years are considered harmful to small business. And the prospect of relaxing the spectrum cap could have a like impact.
Other factors
For sure, some things hurting small businesses, including those controlled by women and minorities, are out of the FCC’s control.
It was the GOP-led Congress that nixed tax certificates and the conservative-leaning Supreme Court that reined in affirmative action.
Overbidding in the C-block PCS auction by NextWave Telecom Inc., Pocket Communications Inc. and General Wireless Inc. is the reason installment payments are gone.
But the FCC is responsible for its liberal definition of small business in C-block and other auctions for which bidding credits are available. Critics say small business auctions
have so much wiggle room that corporate giants simply set up shell corporations with token figure heads and end up squeezing out legitimate small businesses.
