Promising Startup Frontline Wireless Flops for Lack of Funding

When the Federal Communications Commission’s much-anticipated auction of 700MHz wireless spectrum begins later this month, at least one planned participant will be conspicuously absent: startup Frontline Wireless, which apparently shut its doors this week.

“Frontline is closed for business at this time,” company spokesperson Mary Greczyn told the E-Commerce Times. “We have no further comment.”

The news came as something of a shock to the industry, which had watched the high-profile startup play a conspicuous role in the setting of the FCC’s rules for the spectrum auction. Just last month, Frontline confirmed that it planned to bid on spectrum, for which a down payment of US$128 million was due on Jan. 4.

It was an inability to raise that money, however, that led to Frontline’s closure, according to media reports.

“This was a shock — a real stunner,” wireless and telecom analyst Jeff Kagan told the E-Commerce Times. “It’s true Frontline Wireless is not a big wireless player with deep pockets, but by getting this far we thought they would be part of the auction process. This just wasn’t expected.”

Public Participant

Frontline Wireless was founded by former FCC Chairman Reed E. Hundt and Janice Obuchowski, former head of the National Telecommunications and Information Administration, among others. The company’s CEO was Haynes Griffin, the former chief executive at Vanguard Cellular Systems.

Both Frontline and Google were among the most outspoken advocates in the planning of the wireless auction, and both also publicly declared their intention to make major bids.

Other applicants among the 266 that applied to participate in the auction are entrepreneur and Microsoft cofounder Paul Allen’s Vulcan Spectrum, AT&T, Qualcomm, Alltel, MetroPCS, and Verizon.

High Stakes

The 700 MHz band of wireless spectrum is what has traditionally been used by TV broadcasters, and is considered highly desirable for its ability to travel long distances and go through walls. Because TV broadcasters are making the transition to digital distribution, the FCC plans to auction off those bands starting January 24.

Bidding will be conducted in stages via an electronic, anonymous process, and winners won’t be announced until the auction is concluded.

In all, the FCC auction is expected to raise at least $15 billion, with some estimates as high as $30 billion.

Big Kids Only

While Google lobbied hard last year to affect the rules governing the auctioning of the much-sought-after “C Block” portion of the spectrum — demanding, essentially, openness on multiple fronts — Frontline focused its lobbying efforts on the “D Block” and creating a range of frequencies intended for a combination of private service and public safety communications.

Frontline’s failure to raise sufficient funds now raises the question of whether any but the biggest, most established wireless veterans have a chance of competing.

“It is much more difficult and much more expensive these days for small companies to be part of the process, as they need more than a billion dollars on hand,” Kagan noted. “That will block many smaller companies.”

Hopes Dimmed

Indeed, many had expected the wireless auction to lead to the creation of new wireless broadband competition on a national basis, but Frontline’s disappearance from the race makes that prospect much less likely, Blair Levin, a managing director and telecom analyst with Stifel Nicolaus, told the E-Commerce Times.

“Frontline was the most publicly visible and probably well-supported player that might have done that,” Levin asserted. “We’ve always been skeptical that the auction would create such a result, but this takes that limited possibility and makes it even smaller.”

The result, Stifel Nicolaus believes, is bound to be good news for Verizon Wireless and AT&T, and mixed news for other wireless and broadband competitors such as Sprint, T-Mobile and the cable industry.

A Generalized Challenge

From a practical perspective, any new national entrant would have to focus on the C Block or D block of spectrum, though the C Block would likely be too pricey for any but the likes of Google, “whose primary purpose in participating in the auction, we believe, is not to create a new network but to trigger the FCC’s openness condition,” Levin wrote in a research note.

In the D Block, the same fund-raising limitations that did Frontline in would likely also affect any other potential new entrants because of the block’s associated obligation to coordinate with public safety organizations, the sizable and nonrefundable down payment, an aggressive network build-out requirement imposed by the FCC, and details of the public safety trustee’s requirements, Levin added.

“In short, Frontline’s difficulties were unlikely to be specific to Frontline, which, because of the track record of some of Frontline’s backers, probably had as good a chance as any new entrant could in terms of raising money,” he wrote.

Now that Frontline is out of the running, the cost of obtaining the D Block will likely be “significantly reduced, both because of the elimination of a key bidder and because Frontline, as a small business ‘designated entity,’ would have enjoyed a 25 percent bidding credit,” Levin wrote. “The significant challenges of developing that spectrum in coordination with public safety remain, however.”

The question now, as Kagan puts it, is “now what?”