Wireless Auctions Aren't for Wimps

Frontline Wireless’ decision to bow out of the 700 MHz auction proves that in the Wild West of spectrum speculation, only the bold need apply. Frontline dropped out of the auction after finding it difficult to raise enough money to cover a $128 million up-front payment on the spectrum.

Backers of Frontline included former FCC chairman Reed Hundt; some of Silicon Valley’s most elite investors, such as John Doerr of Kleiner Perkins; and angel investor K. Ram Shriram. These are smart guys who presumably knew what they were getting into, but the reasoned approach to high-risk investing, as practiced by VCs, is nothing like the wildcatter mentality needed by spectrum investors.

The proceeds from this auction are expected to range between $10 billion and $30 billion, and the cost of building out a network using that spectrum might reach $10 billion. If Frontline couldn’t meet a $128 million payment, it’s best they got out early.

The 700MHz spectrum licensed at auction may go to the telecommunications carriers with large pockets and an established business, but just in case Google still has plans to make a play, it’s worth reviewing some recent spectrum speculation history to show the Googlers what might be in store for them.

Aloha Partners is one of the freshest success stories of spectrum speculation. AT&T offered $2.5 billion for its 700MHz spectrum in October. Aloha bid for its licenses in 2002 and paid $29 million for them.

Aloha got its spectrum on the cheap, but Craig McCaw, the head of Clearwire Communications, has raised more than $1.6 billion (including a $600 million public offering) to build out a wireless network on the WiMax standard using 2.5 GHz spectrum. Clearwire hasn’t talked about its total spectrum costs, and its stock is off 44 percent from its IPO, but when McCaw sells a company, he tends to make the big bucks.

There’s also the rather repetitive history of the satellite industry, which is littered with investment, bankruptcy and buyouts. When it comes to spectrum, you have to pay to play, and even that won’t guarantee success.