A Carriers New Route
Vincent D. McBrides life has changed a lot since he read an article about the Federal Communications Commissions spectrum lotteries about 10 years ago. Back then, McBride was delivering mail for the U.S Postal Service in East Los Angeles, fending off pit bulls with pepper spray. "Those pit bulls would turn around, blink, and say, oh yum, Cajun style," he claims.
Today, McBride is the extremely proud owner of a wireless license in Evansville, Ind., population 500,000, with dreams of building an independent network and mobile phone company. "Its awesome," he says.
McBride is one of the few entrepreneurs who has benefited from the FCCs efforts to encourage small-business participation in the wireless industry, though its too early to tell if his tale will end happily. The license that he won last month is his third. Now hes hoping for that third-time charm.
Mobile phone operators must have a license from the FCC in order to offer services. Those licenses exist in different segments of the spectrum and are divided by market. Initially, the FCC only made two licenses available per market. But to encourage competition, it began distributing additional licenses in each market.
Before the FCC began auctioning off spectrum in high-profile and high-stakes contests, it distributed licenses via lotteries. McBride read about the lottery process in a magazine article and decided to give it a shot, first throwing his name into the hat in 1989 and then again a few years later. Luck was not with him though, and his name was never drawn.
But then the FCC decided to rescind fates hand in the license distribution process and instead implemented an auction. In 1993, Congress gave the FCC the authority to auction off the airwaves. At the same time, the FCC decided to comply with a congressional mandate to encourage small-business participation in telecommunications by setting aside some spectrum that could be bid on only by small businesses.
When the auctions were announced, McBride hadnt given up on his dream of running a small phone company so he joined that notorious entrepreneurs C Block Auction. After seemingly endless bickering, lawsuits and postponements, the auction finally kicked off at the end of 1995. McBride won his first wireless license a town in North Dakota with a population of 25,000 and the smallest market on the block.
Even as the winner of the smallest license in the country, McBride attracted the interest of Comcast, which partnered with him to help make license payments and to build the network. But the C block auction was doomed from the start, and nearly immediately after its close license winners started filing for bankruptcy. The excitement surrounding the competitive mobile industry quickly died and Wall Street lost interest in the segment. Comcast decided it wouldnt make sense to target McBrides tiny market and backed out of the deal. By then the FCC had introduced new rules that allowed license winners to return licenses with very little loss. McBride gave back his license and, fortunately, didnt lose any money. Other license winners are mired in lawsuits to this day.
But McBride didnt give up. He entered the next entrepreneurs contest, which reauctioned many of the returned licenses. With backing again from Comcast, he won a license in Tennessee. But that license also provedtoo tiny to build a business around so he recently sold it to another small business. "It was convenient to try to raise a bit with it and get into this auction," McBride says, referring to the next reauction, which ended in January. Everybody won in that deal, with McBride making more money on the sale than he earned in 10 years working for the Postal Service.
He resigned from his job as a mail carrier shortly after and took to focusing on how he could start a mobile communications business because earning money by selling the license in Tennessee wasnt what McBride was after. "My dream is to build out a license," he says. So the next step was to enter the most recent reauction and try again. Before the close of the auction, he discussed his objectives. "My goal is to win one small license and build it out and work with fellow carriers to get roaming agreements and build a little phone company," he says. "Im not picky Id like one market, thats it."
Using a computer in his bedroom in Santa Monica, Calif., McBride placed bids remotely and seems to have surprised himself with what he won: a license in Evansville. "Im moving up the ladder slowly," he says.
Like most of the other entrepreneurs auctions, this one hasnt ended without controversy. Prior to the auction, the FCC loosened its rules, allowing large incumbents to participate and also making it easier for companies to qualify as small businesses. Some small operators call it foul play and are challenging the legitimacy of some of the companies that entered as small businesses.
McBride, however, is just pleased to have had the opportunity to win a license and politely hesitates to criticize anyone. "It was maybe misguided thinking on the part of the FCC when they revisited the rules. Perhaps they should have left the rules the way they were," he says.
But with each entrepreneurs auction the rules have been changed, and none of the auctions has been very successful. "[Former FCC Chairman William] Kennard struggled for years trying to fashion ways to keep big money from controlling these start-ups and small businesses," says Brent Weingardt, a senior counsel who represents mainly small operators at Bennet and Bennet. The FCC set up so many "hoops," it has been difficult even for true small businesses to comply. "Now Im finding out why they needed all those hoops," Weingardt says.
In this auction, the small companies that are backed by the big incumbents actually probably didnt break the rules. So McBride, for one, does not blame them. "Those companies, they followed the rules, so its not their fault." McBride wouldnt dream of challenging some of the winners. "I, for one, dont want to file a lawsuit. Thats the last thing Id ever want to do. Id rather just try to work together with everyone."
McBride may be saving himself potentially wasted energy because the odds are the FCC wont move against the big companies. "The chances are always slim that the commission is going to crack down on the winners," Weingardt says.
McBride recognizes that the presence of big incumbents made it difficult for small players and also challenged the FCCs reasoning for setting up the entrepreneurs auctions, which was to encourage competition. In large, desirable markets like Los Angeles and New York, no new entrants won licenses. The so-called small businesses that won licenses in those markets are heavily backed by incumbents. Those incumbents were desperate to win those licenses to fill holes in their footprints or because they are running out of space on existing networks. "It throws off the value of bidding for those markets so it prevents smaller companies from acquiring a license and building an independent local phone company," McBride says.
Ultimately, some wonder if wireless or telecommunications is a suitable business for small start-ups. "I think the idea was great in 96 to have a lot of mom-and-pops, but, like everything else, when it comes to technology and being a big media player, the bigger the better," says Larry Swasey, senior vice president of communications research at Allied Business Intelligence.
Despite those controversies, McBride is ecstatic to get into business in Evansville, even though hell have some formidable competition. Two cellular operators already offer service in Evansville, and Verizon Communications and a company that bid under the name 3DL Wireless also won licenses there in the auction. But like many of the entrepreneurs that win licenses, McBride has a unique business plan that he thinks can differentiate his company. He wants to introduce a service similar to Leap Wireless, in which customers pay about $30 per month and "talk your head off," McBride says.
In addition to unique service plans, he wants to build a company with a down-home image. "We want to be a small-town phone company that people feel comfortable with," he says. Instead of a faceless person on the end of an 800 number, the company will personally deliver phones to peoples homes and show them step-by-step how to use the service.
McBride isnt sure which technology hell use for the network but has a good feel for different vendors that cater to small operators from his past experiences. AirNet Communications is one company he may consider in addition to Lucent Technologies, which has a special group dedicated to small operators. Hell also look to vendors to help finance the build.
"Manufacturers are willing to do that, especially for a place like Evansville, where the numbers work good because there are so many [points of presence]," he says. Besides vendor financing, McBride isnt worried about finding additional investors, even though he didnt partner with Comcast in this most recent auction. Even before the auctions close hed been approached by companies "with deep pockets" interested in partnering with him and helping to build out the market, he says.
While McBride finds it hard to criticize the FCC for the new rules qualifying entrepreneurs, he does have one criticism. Living in Santa Monica, McBride had to wake up before 6 a.m. during the auction to place his bids, which were due at 9 a.m. Eastern time. But at least he could bid online and didnt have to go to Washington, D.C., to participate.
McBride has put his heart into this business and if for some reason he hadnt won a license recently, he certainly wouldnt have given up. "I feel sort of attached to these licenses in a way," he says, almost wistfully.