WASHINGTON -(Dow Jones)- Changes to the rules for its upcoming radio spectrum auction by the Federal Communications Commission have breathed life into a possible bid by the start-up Frontline Wireless.
The changes, announced late Thursday night by the FCC, remove two key roadblocks to Frontline Wireless successfully raising money to pursue a bid in the auction say analysts and the company's vice chairman.
Frontline is backed by a group of politically connected individuals in the telecommunications industry including Janice Obuchowski, George H.W. Bush's telecom policy chief, and President Clinton's FCC Chairman Reed Hundt.
The group will now be able to received a small business bidding credit worth 25% in the auction and operate entirely on a wholesale rather than retail basis.
"It opens up the total wholesale model which helps Frontline Wireless because it makes it easier to raise financing," said Paul Glenchur, a telecommunications analyst with the Stanford Research Group.
Whoever bids for the section of 10 megahertz of spectrum the changes affect will have to work with the public safety community to build a national wireless broadband network for use by the country's fire, police and emergency services workers.
Any unused capacity on that network can then be leased out to commercial companies wanting to offer wireless broadband access.
Previously, the rules stated that in order to qualify for the small business bidding credit, a company could offer a maximum of 50% of the capacity of any network they built on a wholesale basis.
This would have left the company who wins the airwaves having to also offer retail service, thereby competing with the entrenched incumbent companies like AT&T and Verizon Wireless.
Also, the bidding credit was to be applied to a different chunk of spectrum that would cost a lot more to bid for.
For Frontline, which wants to build a new wireless broadband network but then operate it entirely on a wholesale basis, this was a big blow to its business model.
"This issue for us of needing to be a retailer made us unappetizing for a retailer wanting to invest in us," said Hundt, Frontline's vice chairman, in an interview. "Our pure wholesale model has been endorsed."
Frontline is currently trying to raise financial backers for
a bid in the January auction. Hundt decline to discuss specifics of
those efforts, other than to say they are "making progress."
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Hundt said the FCC changes were made directly as a result of
Frontline Wireless' lobbying efforts at the agency. An FCC official
later confirmed the company had figured into the decision to change the
rules.
The 10 megahertz section of spectrum has a minimum price of $1.3 billion, meaning if that amount isn't raised then the sale will be voided.
In total 62 megahertz of prized spectrum is being sold as result of a move by the television broadcasters to a digital signal in February 2009, which requires substantially less airwaves. According to official estimates, around $15 billion is expected to be raised in the auction.
For existing and potentially new entrants to the wireless broadband market, the spectrum is lucrative as its propagation characteristics mean it can transmit signals over wide geographic areas and through buildings.
Companies that want to participate in the auction have to notify the FCC by Dec. 3 and put up a deposit by Dec. 28. The auction will begin on Jan. 16.
-By Corey Boles, Dow Jones Newswires; 202-862-6637; corey.boles@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 16th November 2007
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