Friday 28 July 2017

On a different wavelength: mobile boss out to kill off network auctions

A decade after dabbling in Irish and European politics, Declan Ganley is running what he believes is a $20bn company whose board includes former military chiefs and one-time Republican White House hopeful Jeb Bush. A reversal of the European wireless industry's fortunes are on his agenda and he retains strong opinions on Europe, Brexit and 'crony corporatism', writes Adrian Weckler

Businessman Declan Ganley. Photo: Adrian Weckler
Businessman Declan Ganley. Photo: Adrian Weckler

'I look like shit." Declan Ganley dislikes having his picture taken. But it's a break from the mayhem of Barcelona's Mobile World Congress telecoms trade conference. It's also a chance for him to let off some steam about how the telecoms industry - and Europe in particular - is blowing it.

So he sits and grins.

For most Irish people, Declan Ganley is the man who, a decade ago, kicked up about an EU referendum ('Lisbon'), briefly entered politics and then flamed out.

But in the telecoms industry, Ganley is the man in charge of a company he reckons is on the verge of becoming a billion-dollar player.

Rivada Networks is betting big on future mobile licences around the world. Or rather, it's betting that the way in which such contracts are awarded will soon be changed in its favour.

"In our last funding round, we raised $20m at a $700m valuation," he says in the noisy Barcelona conference canteen.

"We think we have a $20bn company here. Maybe we're drinking our own bathwater, but we'd be very foolish to sell now."

Ganley's basic pitch is that mobile spectrum - the wavelength that your phone uses - will soon be rented out instead of owned by individual operators.

Rivada has missed out on plumb telecoms contracts in Mexico and the US recently, but he's determined to carry on.

He has been traveling the world trying to persuade regulators such as Comreg and Ofcom that they can get better mobile coverage in their countries by changing their licensing rules to one where a single network rents out bandwidth based on hourly demand.

Rivada's angle here is that it owns much of the technology that would allow this sort of 'dynamic' automated spectrum pricing to occur.

"This is going to happen," he says. "We've had lots of meetings with [UK telecoms regulator] Ofcom and I know it's something that they've been factoring in. We've been speaking to the French as well."

The biggest mobile operators, which Ganley refers to as "feudal" entities, disagree with such an analysis. Government treasury ministers might also take issue.

Both camps have paid, or accepted, billions for the right to offer services in sovereign-controlled mobile spectrum.

"If you're in the Treasury in the UK, you're thinking 'let's just do another one of those spectrum auctions and get a windfall'," says Ganley.

"But you can get much more money if you sell it through the marketplace and have an income stream that's hourly instead of a single hit every 30 years or so.

"If you still want that one hit, issue a bond against it and securitise the revenue stream of the open-access market model against that spectrum. You'll end up raising a lot more cash rather than a one-off dumb auction where you lose all future ownership."

There are some challenges to this course of thinking. If there were just one wholesale mobile network, where would pressure come to keep upgrading it between 5G and, say, 6G?

"I'd say capacity," says Ganley. "You have competition for capacity all the time. You could have two wholesale providers if you wanted to.

"But the idea of allocating spectrum to retail operators, and auctioning that right, is anti-innovation. It's a feudal system aimed solely at those who can afford to leverage their balance sheets to write the cheque."

This dynamic spectrum arbitrage model isn't the only thing Rivada has on the go.

It has been busy in the Americas, bidding on public telecoms network contracts. In the US, it has won such a contract for New Hampshire and is pursuing a further state-by-state strategy with Alabama, Arizona, Florida and California all soon up for grabs.

But it hasn't all gone Rivada's way. The company lost out on a huge US federal contract, which went to AT&T.

It also lost out on a giant public tender contract in Mexico for the right to build a new national wholesale network that would provide access to other mobile operators.

This is a particularly bitter blow to Rivada as the Mexican project is exactly the type of infrastructure that the company's spectrum-auctioning technology is designed to cater for.

But the manner in which Rivada lost, and the circumstances around which that happened, have resulted in a legal case that may yet make it into some kind of TV movie.

Among other things, Ganley says that document boxes linked to the bid were stolen in a daylight van hijacking incident in Mexico City, with nothing other than the relevant papers taken.

He also claims additional bizarre circumstances and says conspiratorially that Chinese investment in the winning Altan bid may yet turn out to be both significant and a disqualifier.

In any event, Rivada's bid was never officially opened because it missed a critical deadline.

Ganley has a list of reasons why he claims the playing field wasn't level and, after some bitter public exchanges with Mexican government officials, is challenging the decision through the Mexican court system. He still believes Rivada will win. "We have much higher coverage than the other bidder," he says. "We now know what their coverage is, it's public. But ours is in excess of 98pc. So if it turns out that we were improperly disqualified, then they open our bid. That undoes everything that has happened subsequently. The award, the licence issue, none of that stands."

Preparing, losing and then legally challenging a huge tender bid is a pricey business, though, isn't it?

"In the greater scheme of things, it's going to have been expensive, millions of dollars," he says. "But that's the price of poker in this. What's very good about Mexico is that the Red Compartida vision is brilliant. It's the most progressive piece of legislation on spectrum in the world right now. Other countries are looking to it. So as a model, it's rock solid."

Connecting masts and bandwidth isn't the only type of networking that Rivada has a strong niche profile in.

Its board of directors resembles the dignitary viewing stand at a Fourth Of July military parade. The former Florida governor Jeb Bush and former Maryland governor Martin O'Malley are joined by such military brass as the former chairman of the US Joint Chief Of Staffs, General Richard Myers and former US Homeland Security Secretary (and Admiral) Jim Loy. British military prowess is also represented by that country's former chief of Defence Staff, Field Marshal Charles Guthrie.

Sending in the generals may be useful for putting in calls with so many state contracts under consideration, particularly in the US. But Rivada also has significant business in the US security and defence industries, some of which is sensitive.

One of its potentially most lucrative products comes in the form of new device-location technology it has patented for enhanced location based systems (ELBS).

This basically uses algorithms to make any wireless devices track able or locatable to within a square metre, regardless of GPS availability. In an era where the 'internet of things' is flagged as something that may extend to parcels and clothing as much as phones and gadgets, it's a technology that Ganley believes may yield big returns for the company.

"We've gone into discussions with big road toll companies," says Ganley. "When you've got this degree of accuracy, when you can position-locate a device to within under a cubic foot, you can tell what parking space or what lane a car is in.

"So for micro tolling, it becomes a revolution. It's a bit of a holy grail. So we're talking to everybody."

The ELBS system is the work of Rivada's chief scientist, Clint Smith.

But the company now has almost 300 patents to its name. Despite counting Ganley's home of Tuam as its global headquarters, most of the company's activity is in the US.

Ganley still calls himself a European federalist and is dismayed by the way that the European telecoms industry is "stagnating" compared to US and Asian ecosystems.

Where companies like Nokia and Ericsson once set the global pace, Europe's telecoms industry may for the first time trail the US and Asia in new mobile industry developments such as 5G.

"We [Europe] destroyed the whole ecosystem of the wireless industry, where we had a massive lead on the rest of the planet," he says.

"The Chinese weren't even remotely big players at the time and the US was behind. What destroyed it was the 3G licence auctions.

"All the money went into flooding governments with these cheques and it became an arms race between who could pay the most for the franchise with all of that capital shifting away from innovation, risk-taking and everything else and going towards paying for these giant feudal grants."

Is there a remedy?

"Yes. Don't auction the spectrum in these one-off auctions. You limit it to a very small number of players, those who can afford to leverage their balance sheets to write the cheque. Any auction for something that is a commodity, where you've only got a tiny group of bidders that can possibly show up is a bad idea.

"This whole spectrum auction culture is crony corporatism because treasuries and a tiny handful of bidders, the feudal lords of spectrum, are interdependent on each other."

But isn't the same true of the US?

"It's more visible in America," he says.

"It's less visible here because you don't have the same degree of transparency that you do in the US. In America, you can say that something is broken because you can see what's going on. You can't see it as well in the EU.

"You have 28 regulators. It's really hard to follow what's going on. It's just too complicated. And it's too profitable to keep the status quo as it is. We have morphed these carriers into these regulatory capture bodies."

Outside business circles, Ganley is still better known in Ireland for his foray into politics a decade ago. He created a political party, Libertas, which opposed the Lisbon referendum in Ireland in 2008 and then fielded candidates across Europe in the subsequent 2009 European Parliamentary elections. Ganley himself ran in that election in the Connacht-Ulster North West constituency, but fell short with 13pc of the vote.

Despite tweeting daily on issues ranging from Russia, European tax policy and abortion, he says he's not interested in getting back into politics any time soon.

"No, no, no. I have my wife on one side and all my best friends on the other, pulling me back," he says.

Does he think Ireland is doing a good job in handling Brexit?

"No, we're not. And I'm really worried about where we're headed.

"I think that this Le Pen phenomenon is really alarming. If she wins, it's a big threat to the European Union.

"So from an Irish perspective, we really need to be preparing for a post-EU Europe. If you're a country, you can't put all your chips on one number. And Ireland is putting all our chips on that number. It's like we can't think of ourselves, any role for ourselves, in a situation where the European Union is blowing apart.

"And we're not planning. We're really bad at strategy in Europe. We suck at it. And that's what my whole Libertas thing was about.

"We have got to correct this direction now, because it's going to be too hard to do it if we let it continue on the trajectory it's on.

"But look, it's easy for me to say all this. So I'm not going to start bitching because it's actually not fair to do it.

"If I was in charge, would I be doing this? No. But there's a whole lot of things I wouldn't have done from the bank bailout onwards."

Outside telecoms, Ganley has a new life - as a pub landlord. He recently purchased his local, Abbeyknockmoy's Derreen Inn.

He says he plans to change the name to 'The Edmund Burke'.

So while politics may be in Ganley's past, he may not be able to completely let it go.

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