WASHINGTON-Just who is WNP Communications Inc. in Earlysville, Va., and where did it come up with a $100 million upfront payment for the upcoming local multipoint distribution services auction, set for a Feb. 18 start date?
This earnest-money payment eclipsed those forwarded by BCK/Rivgam L.L.C. for $33 million (backed by venture capitalist Mario Gabelli and Fortunet Communications, qualifying for a 45-percent small business bidding discount), Eclipse Communications for $10 million (backed by Western Wireless Corp.), Touch America Inc. for $6.7 million (Montana Power, a D- and E-block personal communications services licensee) and Alta Wireless Inc. for $6.2 million (backed by 45-percent discountee Echostar).
Teligent also is a bidder, using the name AUCO Inc. and receiving a 35-percent bidding discount.
WNP Communications Inc., which applied to bid on all licenses available in the auction, is headed by Thomas Jones, president of consulting firm New Ventures Directions Inc., who described himself as a 25-year veteran of the high-tech and data-transmission arenas. He has been a behind-the-scenes adviser to players in the last few auctions, and he included Omnipoint Corp. as a past client. Another well-known principal of WNP is Royce Holland, former top executive for MFS, whose name helped WNP attract the kind of financing that ended up totaling $100 million.
After reading last spring’s Federal Communications Commission notice regarding the LMDS auction, which originally had been scheduled to begin last November, Jones began working on a company that could compete for the licenses. A business plan was executed, the company was incorporated last month, and investors made their commitments.
While not giving away too much about the proposed use of any spectrum WNP might gain, Jones told RCR that the band is “well-suited for high-speed data connectivity, and most people have been surprised by the demand for high-speed bandwidth. The competitive local exchange carriers are very interested.”
A number of initial LMDS applicants did not meet their upfront payment requirements, many because they could not raise the kind of capital needed to compete for regional or nationwide footprints. Among the dropouts were Cincinnati Bell Telephone; Comcast LMDS Communications Inc.; Zip Telecommunications Corp.; CellularVision USA; and WebCel Communications, which petitioned the FCC last week for a 60-to-90-day rollback of the LMDS auction and a reopening of the applicant window. WebCel had been successful last November in moving the auction to Feb. 18, and it hopes the FCC will grant the same stay.
“Market conditions are just not right at this point,” said WebCel spokesman Dave Maloff. “For capital markets to adequately digest the LMDS rules, they need a longer period of time. Clarity is critical.”
According to Maloff, LMDS petitions for reconsideration were not resolved until after the upfront-payment window had closed, and the World Trade Organization rules went into effect after that date as well. Maloff added that the FCC believes it could reap $4.1 billion from this auction, and it would view any amount less than $2.4 billion as a failure. With $458 million the goal for the first round of minimum bids, Maloff thinks the FCC won’t get close to its goals, especially because only a few players have real money. “The FCC is under no pressure to auction this spectrum right now,” he said. “Shouldn’t the FCC take a step back? There is no need to rush to auction if the numbers don’t look right.”
He admitted that WebCel had sought capital from multiple strategic investment outlets, but they needed more regulatory information before they could make a commitment to the company. “We made all the right choices, but our investors don’t think as fast as Gabelli,” he said. While the financial problems in Asia may have played a part in the demise of other potential bidders, it was not an issue for WebCel.
Even if the commission does postpone the auction, Maloff said WebCell has no assurance of signing financial agreements in an additional 60-to-90 day period, even though he believes that investment numbers tripled during the November-through-February postponement period.
“Startups had a hard time attracting financing this time,” commented Washington, D.C., analyst and consultant Taylor Simmons. “The irony is that most of the money came from wealthy entrepreneurs and financiers who are going to be involved directly. Investors are coming in on their own.”
The LMDS auction may be the first in which more than a handful of venture capitalists are testing the spectrum-ownership waters instead of just acting as backers, and it could be the start of a trend. “If it works for them, we’ll see more of it,” Simmons said. “If it doesn’t, the clamps will be put on.”
If venture capital was so tight, how did the quiet, low-profile WNP come up with $100 million? “Our business plan just made more sense to the investors,” Jones said. “They were happy with the control group, and the management team is appropriate for the current stage of the company’s growth and through the auction period. We made a lot of good decisions on where to go in the beginning, what to do and how much to spend. We had some good economics.”
