This article (first discovered by Bernard Levy) demonstrates that WNP will be strong competition for WCII:
Multichannel News
March 30, 1998
LMDS AUCTION BRINGS SURPRISES
By FRED DAWSON
Nobody was more surprised at the outcome of the local multipoint distribution service auction that ended last week than the companies that ended up with the most spectrum.
"WNP [Communications Inc.] now holds more spectrum than any company in the U.S.," said Kevin Maroni, an investor in start-up WNP and a general partner in venture-capital firm Spectrum Equity Investors. "It's not a scale that we anticipated when WNP entered the auction."
After 128 rounds of bidding that began Feb. 18, WNP was the top bidder for 39 A-block licenses offering 1.15 gigahertz of spectrum and one B-block with 150 megahertz, representing more than 91 percent of the units of population (POPs) in the top 12 basic trading areas and two thirds of the POPs in the top 75 markets. Overall, the company won 41 percent of the POPs in the A block, including 11 of the top 12 markets, excluding only Los Angeles.
WNP's anticipation that the amounts that it was funded to use in the bidding would not gain it such a large share of the licenses reflected widespread expectations that the largest allocation of spectrum ever made by the Federal Communications Commission would generate a more competitive auction. The company won 24 of its 39 A-block markets with the minimum required bid. Overall, 181 markets representing 77.4 million POPs, or 32 percent of the population, were won with a single bid. Another 109 markets representing 10 percent of the population received no bids at all.
FCC officials indicated that a later auction will be held for A- and B-block licenses that were not bid on this time.
Rather than the billions of dollars of revenue projected by some analysts prior to the auction, the gross amount bid for all spectrum was only $834.2 million -- which, after discounts to designated entities, including WNP's 45 percent discount, netted out at $578.7 million. Nonetheless, FCC officials hailed the results as a success.
"Today's results are very exciting," said FCC chairman William Kennard, in a prepared statement. "The marketplace now has 104 new LMDS players."
But where the A-block is concerned, licenses covering two-thirds of the population were held by only three companies -- WNP, with a 41 percent share of A-block POPs; NextBand Communications LLC, with 12 percent, including the Los Angeles BTA; and WinStar LMDS L.L.C. with 7 percent. No other bidder had over 5 percent.
Observers and participants pointed to a number of factors that contributed to the low level of competition, starting with the fact that after the disastrously high bidding and subsequent financial collapses of many participants in the personal-communications-services C-block auctions, investors were extremely wary of backing speculative bidding on airwaves. In part, WNP succeeded in raising funds where other entrepreneurial firms failed because CEO Thomas Jones' plan offered investors protection against the type of bidding that went on in the PCS auction, Maroni said.
"The government is better off getting close to $600 million in revenues from people who can pay the money and deploy the technology than it is getting billions of dollars in illusory sums that will never be spent," Maroni said. Backers of WNP include Chase Manhattan Venture Fund of New York, Providence Ventures of Rhode Island, Norwest Capital, Columbia Capital Corp., The Centennial Funds and Madison Dearborn Partners Inc.
Maroni and Jones dismissed assertions from some players that failed to raise capital for the auction that FCC rules undermined their efforts and led to a pooling of venture-capital money behind a single investor. "There's a lot of money out there, so if people couldn't raise funds, you can't say that it's because of a scarcity," Maroni said.
"The investors that Tom [Jones] attracted all talked to other people," Maroni added. "Tom was the most compelling entrepreneur."
Because the scale of WNP's holdings is so much greater than anticipated, the firm must revise its business plan before it begins raising money to build out its far-flung empire, Jones said. "We've been totally focused on the auction, so we're just now beginning to work out our next steps," he added.
Perhaps the biggest factor in the low bidding was the absence of participation by major telecommunications players, caused in part by the FCC's ban on in-territory participation in A-block licenses by local-exchange carriers and cable companies, and in part by big players' uncertainties about the technology. "At a big company like AT&T [Corp., which looked at LMDS], somebody has to stand up and bet their career on the unknown and see the whole thing through, which is not likely to happen," said one auction player, asking not to be named.
LMDS now has the support of the biggest telecommunications suppliers, including Lucent Technologies, Nortel, Alcatel Telecom, Ericsson Inc. and many others.
But most of these companies only got into the game in the last few months, reflecting the sudden realization in telecommunications circles that wireless-broadband technology had suddenly become a viable, low-cost competitor to wireline options.
The rapid changes in LMDS technology, including falling costs and improvements in performance, are contributing to new thinking at WNP, Jones said, noting that the firm has yet to perform hands-on testing of any gear. While these changes might eventually lead to provision of services to a mass market, the initial benefits that Jones sees are in WNP's ability to offer more services than might have been possible previously in competition with wireline providers of fiber broadband services to the business sector.
"Only a small number of buildings -- something on the order of 5 percent or less -- are currently connected by fiber," Jones said. "We believe that the window of opportunity will be open for us for quite some time, given the amount of demand that's out there for higher-bandwidth services."
Under the FCC's liberal licensing rules for LMDS, providers have up to 10 years from the point of getting their licenses to be offering "substantial" amounts of service in their markets. While WNP believes that first-to-market advantage is important, Jones said the firm will not be in a rush to build infrastructure, preferring instead to make sure that it chooses a technical platform that will not be outdated soon after it's built.
WNP must also raise money to build the infrastructure and to put together a full management and operations team, which Jones expects to do through direct hiring, rather than by partnering with outside entities. While the firm is likely to seek vendor financing, it will also rely on other sources in order to avoid being too much under the sway of manufacturers, Maroni said. He and Jones declined to go into further detail about their plans or about the likely timing of initial network deployments.
As for the other top bidder, NextBand, its plans call for the use of the spectrum in conjunction with the needs of the venture's two operating backers -- mobile wireless operator Nextel Communications Inc. and competitive LEC NextLink Communications Inc., in which cellular pioneer Craig McCaw is the dominant shareholder. NextBand won 13 A-block licenses, which will be useful in its operations for point-to-multipoint connectivity, and 29 B-block licenses, which will be used to provide backhaul links for Nextel and to support point-to-point connections to NextLink customers, said Bob Ratliffe, a spokesman for the companies.
"We're not prepared to talk about our plans in any detail," Ratliffe said, noting that NextBand itself may not become an operating entity, choosing instead to license its spectrum to its controlling partners. NextLink operates in 26 markets in eight states -- many of them in the same localities where NextBand will have licenses -- while Nextel operates nationwide.ÿ
O 1998 Multichannel News
- 3/30/98
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