WASHINGTON-A new government study says minorities may have to adopt nontraditional financing strategies to break into the telecommunications market. The report, issued by the National Telecommunications and Information Administration, concludes accessing capital through traditional sources, like banks, continues to be the major barrier to minority entry into telecommunications.
The findings reveal “a one-size-fits-all approach does not adequately serve the needs of minority business owners who often find their businesses and business environment are subject to constant change,” said Larry Irving, NTIA head.
Minorities, including African Americans, Hispanics and Native Americans, owned less than 1 percent of all U.S. telecommunications companies in 1991, despite representing about 25 percent of the U.S. population. Overall, minority firms account for 9 percent of all domestic businesses.
Telecommunications is big business-generating $556 billion in revenue in 1993. Moreover, new wireless technologies, like personal communications services, are expected to perpetuate the high-growth trend of cellular telephone communications. As such, opportunities for minority ownership in telecommunications are greater today than in recent history.
At the same time, the GOP-led Congress wants to curtail affirmative action programs. The Supreme Court is looking at the issue in a case due out later next month that could indirectly impact race- and gender-based spectrum auction policies of the Federal Communications Commission. Those policies previously helped women and minorities win regional narrowband PCS licenses after being shut out of the nationwide narrowband PCS auction.
Telephone Electronics Corp., a Jackson, Miss., rural telephone company, recently dropped a lawsuit challenging FCC auction guidelines for broadband PCS. Still, the controversy remains very much alive and appears to have had repercussions at the FCC.
Last month, in a departure from previous policy, the FCC proposed not to offer bidding credits to women or minorities in auctions for 900 MHz specialized mobile radio licenses. Congress recently repealed an FCC rule that gave companies a tax break for selling telecommunications properties to minorities. The agency intended to use that provision to foster female and minority ownership in next-generation paging and pocket phone systems.
Even when their qualifications are comparable, according to the NTIA study, minority entrepreneurs find it more difficult than their white counterparts to secure commercial bank loans and venture capital for new telecommunications enterprises. Research also showed investors are more likely to lend to minorities with more education and training.
The report outlines a menu of minority financing options for various cycles of business development. For minority start-ups, financing options include rotating credit associations, investment clubs, churches, microenterprise programs and strategic alliances. State sponsored sources and acquisition teams/funds are cited as examples for small and mid-sized acquisitions. Larger pools of institutional capital are available through community-based banking, industrial development bonds, corporate sponsored investment companies and by securing assets. Public market financing can be had through private placements/limited partnerships, targeted mutual funds and initial public offerings, NTIA said.
