Despite the backing of billionaires John Doerr and Ram Shriram, as well as former Netscape CEO Jim Barksdale and former FCC commissioner Reed Hundt, ambitious startup Frontline Wireless is closing up shop. According to the New York Times, the startup was unable to come up with the $128 million deposit needed to participate in the upcoming wireless spectrum auctions that it did so much to help shape (along with Google). With a tear in our eye, we are putting Frontline into the deadpool.
Maybe Frontline was doomed from the start. Its business plan was centered on trying to get the FCC to mandate not only that the new wireless networks be open to any device and any application, which are part of the auction rules, but also that they be available in emergencies to government safety officials. The idea was to save the government the cost of building out their own separate network, and would have been made possible by software-defined radio from partner Vanu that would have made possible a seamless switch to wireless devices that operate on different wireless standards. (Police, fire, and safety radios are often based on proprietary standards). The FCC didn’t go for this last bit, despite its political appeal. Such a system would also have given Frontline the ability to create a much more flexible commercial wireless network, which would have been one of its competitive advantages. Without that, perhaps there was no business and the investors bailed.
But what does it say about the wireless auction process when a startup with stellar backing can’t make it to the starting line? A $128 million deposit is still a lot of money, even for billionaires. The FCC auction process is stacked against startups. But is it even in the best interests of consumers (aka the citizens the FCC is supposed to be serving)? By allocating wireless spectrum to the highest bidder, the FCC is trying to ensure that it goes to a company with the financial resources and motivation to build out a network on top of that spectrum. (Remember the startups in the 1990s who bid billions on spectrum only to go bankrupt before doing anything with it?).
But all too often what ends up happening is that the only companies with enough money (and lobbying might) to win are the quasi-monopoly telecom companies. By nature they are risk averse and have been known to simply sit on spectrum until they need it rather than develop it immediately. Startups do get a discount, but even that is not enough when you are talking about the billions of dollars expected to be bid on this spectrum.
There are other options that might help tip the scales towards startups (and arguably more innovative uses of the spectrum). What if instead of an upfront payment, the auctions were structured so that the winner had to pay a percentage of any resulting revenues? That way the company with the best business model would win, not the one with the most monopoly money in the bank. But a bigger question is whether the government should be auctioning off the spectrum at all. What would happen if it made it available to all comers as unlicensed spectrum like it has with WiFi? Are the interference issues so intractable they could not be overcome with technology or some set of technical ground rules?