RCR Wireless News MBB Philadelphia: Carrier consolidation shifts investment strategy, VC panel says

PHILADELPHIA – Timing, scale and the long-term sustainability of a business and business model are key factors to betting right in the mobile broadband business, panelists agreed at RCR Wireless News’ Global Mobile Broadband Tour and Conference Philadelphia. And it’s good to own spectrum as well.
While all of the panelists were bullish on wireless, Yaron Eitan, managing partner at Selway Capital, noted the complexity of investing in the space. Not only does the investor have to choose the right technology and the right company, but hope that areas outside the investor’s control fall into place as well. For example, Selway invested early in Magnolia Broadband, betting that wireless operators would need Magnolia’s chip technology. But beyond the investment, Eitan noted, the right carrier has to choose the right components to make the right device and market it properly.
Consolidation among the wireless operators has caused venture capitalists to shift funding toward tools that operators need to monitor their networks rather than investing in the carriers themselves, said Bruce Hernandez, partner, at Spire Capital. “We shifted our focus from being a backer and funder of carriers to being an arms supplier,” he said, noting that carrier competition today is a “big boys game.”
The operator market in the United States today is beginning to look like a duopoly, added David Berkman, managing partner at Associated Partners L.P. Competing against entrenched operators is increasingly difficult, agreed David Zilberman of Comcast Ventures.
Marc Ganzi, CEO of Global Tower Partners, was even more blunt. Comcast Corp. (CMCSK) is sitting on spectrum because it is a better use of its capital than building out a new network, Ganzi noted. Comcast would have to build between 20,000 and 40,000 cell sites to have its own standalone network or an overlay on its existing cable footprint. LightSquared and Clearwire Corp., which are building out new networks, will not be able to compete at the retail level against entrenched providers. As such, it is smarter for Comcast to sit on its spectrum until it decides whose network it wants to use to carry its traffic. Until the Federal Communications Commission gets involved, spectrum ends up getting mothballed. “That’s not promoting national broadband is it?”
Nevertheless, historically companies that have held onto spectrum have profited from it, Ganzi said, pointing to NextWave Telecom Inc., which declared bankruptcy and challenged the FCC in Supreme Court, won, and later sold its spectrum for a hefty profit.
When considering whether to invest internationally, VCs have to consider the “return on headache,” Berkman noted, because of the complexity of the international markets.
Global Tower Partners probably will invest around $200 million this year, with about one-third of its investment going to international markets where it can replicate the U.S. tower business model, Ganzi said.
Timing the marketplace correctly is also important when considering an investment, Comcast’s Zilberman noted. Zilberman worked at Flarion Technologies Inc., which built a network that was capable of delivering high-speed broadband services, but no one knew what to do with the capability at the time. Luckily, Qualcomm Inc. recognized the value of the intellectual property and bought the company.