Auction Masquerade

As the FCC's spectrum auction of 422 C- and F-block licenses turned into the most lucrative FCC sale in history, controversy reared its ugly head.

Congress has directed the FCC to give bidding preferences to small businesses, rural companies and businesses owned by minorities or women, so that more of these companies could provide spectrum-based services. Portions of the auction were set aside for such companies, particularly those designated as entrepreneurs. Among those that gained access to that segment were Alaska Native Wireless, Black Crow Wireless, Cook Inlet and Salmon PCS. When it comes to these bidders, the names may change, but the faces remain the same. Behind nearly every entrepreneur in this auction, there's a veteran carrier. (See chart.)

The question then becomes, are these entrepreneurs legitimate carriers or mere spectrum-grabbing marionettes?

According to David Bishop, Yankee Group director of wireless/mobile service, their strings to the industry's powerhouses are clearly discernible.

"You will not see it branded as Salmon PCS; you'll see it branded as Cingular," he said. "What will happen is these small guys will pick up the spectrum and then sign some sort of management contract with the big guys."

Bishop added that this method is nothing new, and it might even be better for the industry. True entrepreneurs pay such a heavy toll just to get spectrum that getting a start-up carrier off the ground can become a financial improbability.

Opponents argue the spectrum wouldn't be so expensive for entrepreneurs if the huge coffers of carriers such as AT&T Wireless and Cingular were not involved.

At least one entrepreneur has taken action against the participation of these front companies. Allegheny Communications requested a delay of the auction, labeling Alaska Native Wireless and Salmon PCS as sham entrepreneurs. Allegheny is a fixed-wireless start-up that plans to use a PCS license to develop a full-scale WLL in San Antonio. Its motion for a stay denied, Allegheny will review its options. According to John Rogovin, Allegheny's attorney, those include filing a petition to deny the long-form application, the next step that a winning bidder must take with the FCC. After that, Allegheny might take legal action.

"Our concern at the outset was that the FCC should check everybody's ticket at the door to see who they were letting into the auction," Rogovin said. "What we see happening is consistent with our concern; these guys are just driving the numbers way up."

The last thing regulators want is another NextWave situation.

"It's not a matter of you just take (the spectrum license) back and give it to this guy; it goes through a whole legal and regulatory process and potentially ties the spectrum up for years," Bishop said.

Bishop wouldn't be surprised to see established carriers continue to use entrepreneur entities to get into closed portions of auctions. Bid credits given to small businesses make the strategy that much more alluring.

Of the top five wireless carriers, only Nextel and Verizon Wireless have not used entrepreneurs to bid in the auction. Nextel bowed out early, while Verizon has bid billions.

"I feel a little bad for Verizon," Bishop said. "They haven't done this, so they have to pay 25% more than everybody else."

Ultimately, Congress' wish to put wireless spectrum in the hands of small businesses and minorities is a just, but infeasible idea.

"The idea of a small business becoming a carrier is a noble idea, but it's not really something that can happen," Bishop said. "You can't compete with the big guys; you allow something like this or the spectrum goes unused."