WASHINGTON-Just as Dustin Hoffman was told to consider plastics as a way to fortune in the movie “The Graduate,” attendees at the Federal Communications Commission’s “FCC Auctions ’97” seminar Feb. 19 were told to consider spectrum. With several sales of frequencies scheduled for this year, starting with channels in the 2.3 GHz range April 15, entrepreneurs were told to start thinking now about business plans and financing.
The commission has taken a number of hits recently from Congress, the press and existing licensees regarding its auction policy and the future of competitive bidding, and several staffers manning the day-long event made sure that the downside of this risky game was addressed along with the rewards.
Even though panelists were upbeat about niche opportunities in telecommunications, they were careful to temper their comments with caution, warning possible applicants that a license does not warranty success, only a chance to compete.
Almost everything hinges on money, and there is not much available from conventional sources. According to the Small Business Administration, 49 percent of auction licenses have gone to small startups, but its average loan is only $192,000, with a cap of $750,000-not much when one considers million-dollar properties.
Because of the number of high-profile winners who have made the news during the last year due to discrepancies in their licensing paperwork and defaults on first or second down payments, much of the conference centered on following the commission’s financial rules to the letter.
“The FCC is strict on payment schedules,” said Kathleen Ham, chief of the Wireless Telecommunications Bureau’s Auction Division. “Any major changes in an application will not be allowed after deadline, and you must pay attention to public notices. The FCC is unforgiving when it comes to late payment.”
Although admitting that the commission has in recent weeks granted licenses to several auction winners despite major and minor infractions, Ham told attendees, “Don’t count on it.”
There were some moments of humor and hands-on information during the presentations provided by two successful auction participants. Mickey Simms, president of Poka Lambro PCS Inc., who has bid in several auctions, particularly the C-block personal communications services sale last year; and James Winston, secretary and general counsel for Urban Communicators PCS L.P., a minority PCS player.
Both were quick to say that a sound team, including financial and legal representatives, was key to success.
“Teams who know the rules and understand the rules will win,” said Simms. “The rules are excellent and well-written, but you still have to read them. Have a defined strategy and a backup plan.”
Simms, who joked that the only thing worse than winning one license on Guam was winning two, also instructed potential bidders to develop resources early and go to the bank “with what you need and want. Banks want to hear a strong plan, not come up with one. You have to meet milestones because the investors and bankers will be watching.”
Winston, who also serves as general counsel for the National Association of Black-Owned Businesses, said his group-which won 10 North Carolina basic trading areas in the C-block auction and others in Virginia and South Carolina in the D-, E- and F-block auctions-had to redo its business plan several times when FCC rules regarding minority participation coupled with the Supreme Court’s Adarand case that ended minority preferences changed the playing field.
“Know the rules and bring plenty of money,” he said, likening auctions to trench warfare. Knowing the rules-or lack of them-in Urban Communicators’ case did get him into a little hot water with the Auctions Division during his F-block days, Winston admitted. Because the commission at the time had no clear-cut rules regarding bid withdrawal on a market and then re-entry several rounds later, Winston used that glitch to buy time whenever he “got stuck. We’d withdraw and then bid again instead of taking a waiver. We did that a couple of times, and then we got a call from the bureau, saying `Don’t do it anymore.’ “
Winston decided between the Supreme Court and gaining licenses. The licenses won.
