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Investors Share Funding Wisdom

Carmen Nobel
LR Mobile News Analysis
Carmen Nobel
6/28/2006

WASHINGTON -- Investors looking to fund new wireless companies are keen to put their money where the data is, according to several industry execs attending and speaking at the Wireless Communications Association International (WCA) annual tradeshow here. But they're being less cavalier than they were five years ago.

"During the bubble, 2000 and 2001, we saw a major focus on wireless technology, and there was no market for that," says Mark Levine, a managing partner at Core Capital Partners . "The market was 99.99 percent voice, and everyone was looking at data. It didn't make sense... I think early stage investors tend to get out in front of themselves.

"In the past year, while voice still dominates, we're not where we were in the year 2000. We see data growing at almost a three-times multiple to where voice is growing."

Levine says his firm is considering multiple mobile video and datacasting companies, a couple of companies that focus on fixed/mobile convergence, a few companies that specialize in IMS, a battery power company, some wireless backhaul service companies, and several companies that deal in opt-in advertising on mobile phones -- meaning customers don't receive ads unless they choose to receive them. "There are four [mobile advertising company] deals on the table right now and they're all looking pretty good."

Also on the wireless venture roadmap: spectrum and the companies that own it. Of the 252 companies who have filed short form (non-committal) applications for the Federal Communications Commission (FCC) 's upcoming advanced wireless spectrum auction, several are new companies looking for funding, investors report. They will join a list of other potential bidders, including major wireless carriers and, possibly, cable companies. (See T-Mobile, Cable MSOs May Spend on Spectrum.)

"In the end, investors like to own an asset and they like to own a franchise, and you don't have that in an unlicensed band," says Mark Ein, founder and CEO of the Venturehouse Group. "Investors like it if you have an asset, spectrum, that you own free and clear.

"These auctions will be interesting. There are a lot of people who have filed. You'll see some interesting entrants. It's a wide range."

"I'm sure there's some jockeying going on right now between venture capitalists as well as from strategic partners who could benefit from that spectrum," says Joe Statter, managing director of technology, telecommunications, and media at Friedman Billings Ramsey & Co. Inc.

On the other hand, there is concern, even at the FCC, that recent rules may inhibit auction bidding among small companies. The Third U.S. Court of Circuit Appeals in Philadelphia is hearing a case against the FCC; three groups have sued the organization, charging that its auction rules are biased toward large carriers. Once scheduled for June, the auction is now scheduled to start in August. (See FCC Delays Spectrum Auction.)

But a court decision against the FCC could stay and delay that date again. Among the new rules for the upcoming auction is blind bidding, which prohibits auction participants from discussing bids with each other.

"I'm afraid we've been letting our spectrum slip," said FCC Commissioner Jonathan Adelstein, in opening remarks to WCA conference attendees. "I'm concerned that recent decisions by the commission may cut that effort -- such as our decision to adopt blind bidding. I'm worried about the effect this decision may have on small and medium carriers. I've heard from Wall Street that companies are dropping out, and many say it's because of blind bidding."

Investors also are keeping an eye on the wireless broadband technology known as WiMax, but despite all the hype, it seems to be a tough sell among the capital set. (See WiMax: Hyped, but not Backed?.)

This may be due in part to the lack of announced WiMax deployment plans in the U.S.

"It's very hard to touch and feel, because WiMax is being deployed in places like Ghana and the south of France, and you don't see a lot of it deployed in your backyard, where you can touch and feel it," says Eric Zamkoff, senior vice president of communications and technology at investment firm Morgan Joseph.

— Carmen Nobel, Senior Editor, Light Reading

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