The Wall Street Journal-20080114-Martin-s Frontline Folly
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Martin's Frontline Folly
There are many good reasons for the government not to try to pick economic winners, not least that the winner could be a loser. FCC Chairman Kevin Martin found that out last week, when one of the commission's winners, Frontline Wireless, "closed for business."
Frontline was supposed to be the lead bidder for a specially set aside piece of wireless spectrum in an auction due to begin in less than two weeks. Frontline never made it to the opening bid. Companies come and go of course. The problem here is that the spectrum on offer was a crucial step forward in the digital age.
The frequencies going out for bid January 24 are being freed up by the widely publicized transition to digital television to be completed early next year. Even in this arcane world, these frequencies are prime real estate: Signals in this block of spectrum travel for miles, pass through walls and buildings and carry a ton of data. This spectrum is needed for high-speed wireless Internet and other next- generation applications. So as you might say out there in the real world, "Let's do it!"
Nah, we're in FCC World. When this past summer the FCC designed the auction, it set aside 10 megahertz -- out of 62 MHz total -- for a single nationwide license. The catch is that the bidder had to commit to a public-private partnership with emergency "first responders," who would have priority use of the spectrum as needed.
This was essentially the brainchild of former FCC Chairman Reed Hundt and some venture-capitalist friends. Together with an executive team comprised of Beltway operatives from both sides of the political aisle, they formed Frontline. The firm planned to buy the spectrum and partner with one or more major telecommunications players to build out the network. Meanwhile, Frontline would figure out how to make the public-safety side of the deal work.
Frontline got the license designed to spec and convinced the FCC to extend a small-business discount to the start-up, even if it found a deep-pocketed partner. Everything, in short, was going according to the best-laid plan. Until days ago when Frontline seemingly collapsed. Uh-oh. The company itself is being tight-lipped other than saying it is "closed for business." But people familiar with the matter tell us the startup failed to raise the $1 billion or so it needed to bid on the spectrum that was tailor-made to match its proposed business plan.
The FCC now has a problem. Having designed a portion of its next big auction for the benefit of one politically connected company -- now out of business -- there's a real danger that no one else will buy that "public-private" spectrum.
One can argue it's just as well that Frontline went under before the auction, rather than after. Now the FCC has an opportunity to sell the spectrum to a commercially viable business -- provided it can get past the idea of creating a public-private partnership that the public sector doesn't need and the private sector, it would appear, doesn't want.
