Friday, September 28, 2001


A story in the Times Biz section today piqued my interest. Headlined Cellular Pioneer Puts Up 'For Sale' Signs and written by GERALDINE FABRIKANT and the ever insightful GRETCHEN MORGENSON, the article inventoried strange doings in the Craig McCaw kingdom -- the guy is selling his wine collection, his island, and his planes, no less.

Second and third graf:

"A believer in telecommunications who has been called a visionary, Mr. McCaw continued to invest heavily in the industry even after he sold his cellular network, McCaw Cellular Communications, to AT&T in 1994.

For a while the strategy worked. When technology stocks peaked in March of last year, Mr. McCaw's biggest investments in two public companies, Nextel Communications Inc. (news/quote) and XO Communications Inc. (news/quote), were worth $8.8 billion. Today, after selling some stock, his holdings are worth about $1 billion. Mr. McCaw declined to be interviewed about his sales. But his spokesman, Robert Ratliffe, maintained that Mr. McCaw was selling properties to raise cash to buy telecommunications assets on the cheap. "

Well, the story took me back to last year, when I was writing book reviews for Green Magazine. One of those reviews was of an exercise in bootlicking abject even by the standards of the CEO bio -- a genre in which little men in suits who have exercised the greed, caution, backstabbing, and fake friendship necessary to rise in management circles consisting of similar souls are celebrated in terms that would make Alexander the Great blush. Because Green is no more, and my reviews have been pulled, I'm gonna reprint this one, for what it is worth. I'd like to say that the skeptical tone throughout shows a certain clairvoyance on my part, in light of recent developments -- but that would be false. I was just ticked off by the guy who wrote the book.

Money From Thin Air: the story of Craig McCaw, the visionary who invented the cell phone and his next billion dollar idea

Inventions are to Americans what ballads were to Highland Scotts - a romantic expression of the popular will. Like ballads, it is hard to trace many inventions to a single author, and the geneology becomes even more confusing when we enter into the epoch of late 20th century R & D. . Who knows the names of the inventors of such everyday items as the tv, the cell phone and the Internet?

What we do know are the great diffusers: the Henry Fords and Bill Gates of the world, those who take some instrument designed to satisfy inchoate desires and put it in everybody's reach. Desire, at a certain saturation point, will take care of itself. Diffusion has become so intermingled with invention that Corr's phrase, 'the visionary who invented the cell phone industry," makes a kind of sense.

Unfortunately, visionary, when applied to a business-man, often trails hints of snake oil. This biography does have a fascinating subject - Craig McCaw, the founder of McCaw Communications, who, in the 80s, gradually cornered the market on cell phone service. That's an honorable enough thing to have accomplished, but Corr's continual genuflecting before McCaw's "brilliance" is tiresome enough to arouse the skepticism of a saint, much less yours truly. The book is filled with hagiographic passages like this one:

"An aide once walked in to find the chief executive resting his chin on his hands as he stared at Lake Washington. The aide got the feeling McCaw had been staring for a long time - perhaps working through a strategy."

Or perhaps he was daydreaming about Pamela Lee Anderson. Who knows? In any case, Corr doesn't compensate for his adulatory instinct with footwork. Although McCaw has been in business since the seventies, and has gone through a high profile, very public divorce (his first wife, Wendy, eventually received 500 million dollars in the settlement), Corr hasn't done much to follow the paper trail inevitably attendant upon so public life. Instead, Corr devotes an inordinate amount of space to quoting from an inspirational talk McCaw gave on the occasion of winning notice from the American Academy of Achievement (whatever that is). Using as a source once might be acceptable, but using it in ten different chapters is inexcusable. Award ceremony speeches are not exactly my idea of a fundamental source. Corr's excuse is that McCaw grew "bored"with being interviewed.

Craig McCaw was born to Marion and J. Elroy McCaw. Elroy sounds like a classic American figure - a glib speaker who parlayed a canny ability to float his debt into a radio station mini-empire. Elroy was also an early adapter of cable TV, which is the legacy he passed to his son. Unfortunately, by 1969, when Craig found his father dead in the master bedroom of their immense mansion in The Highlands, a suburb of Seattle, Elroy had overextended himself badly. The family fortunes did not collapse into poverty - the year after Elroy's death, his widow was still spending 7,000 dollars a month on household expenses, which, in 1970, was considerable wampum - but it was a severe and shocking setback nonetheless. Craig, a shy eighteen year old who struggled with dyslexia, was a student at Stanford. He ran one of his father's remaining businesses, a cable tv company in Centralia, Washington, out of his dorm room. After graduating he continued with it, growing it with a lot of smarts and hard work in the seventies. At the time, cable regulations were very local, requiring grassroots effort in one podunk Northwestern town after the other.

The experience with cable, which grew from a marginal to a major industry, taught McCaw a lot. He saw how seemingly peripheral industries, in communications, have a way of transforming quickly into major industries. Just as network TV lead into cable, so it seemed that wired telephones were going to lead into cell phones. Bell Labs improved its cell phone technology enough to start offering the service in 1974. The costs at first were high, but it was obvious that service cost would quickly cheapen. The major obstacle was regulatory. The phone required use of the UHF bandwidth, which was controlled by the FCC.. In 1979, McCaw attended a conference on cell phones and saw right away the marketability of the thing.

In the eighties, the cell phone industry was dominated by the quest to gain bandwidth. In 1983, the FCC stopped holding comparative hearings on the licenses, and decided to simply hold lotteries, in which every applicant would have a chit. This added a circus like dimension to the business, similar to frenzy about dot com names in the late nineties. Most of the applicants weren't serious, but merely wanted the license for a particular area's bandwidth in order to resell it. Among those who tried this strategy was the then governor of Arkansas, William Clinton.

To raise money, McCaw did three things. He sold his cable business in 1984, which earned him $755 million. He went public in 1987 with his company, McCaw Communications. And he went into serious debt. The debt was expedited, initially, by Michael Milken, who raised $225 million for McCaw. The money went to getting licenses for markets. Notably, McCaw bought out MCI's licenses for $120 million in 1985, and bought LIN Broadcasting, in 1989, as well as buying out myriad smaller fry. By 1990, McCaw was no longer merely a Northwest millionaire - he was the owner of the largest cellular phone service in the country. The down side was the amount of debt that the company had to take on to achieve this position, not counting the future costs of building all those cell phone services. In 1992, McCaw sold a third of his company to AT& T, and the next year AT&T bought out the entire McCaw family interest in a one to one trade of stock.

Given this story, is it fair to say that McCaw "invented" the cell phone industry?

It is interesting to compare McCaw to an earlier telecommunications giant, David Sarnoff. Sarnoff, who was the head of RCA from the thirties through the sixties, can indeed be said to have invented the radio and tv industry. He first proposed using radio commercially, back in the twenties, and put 50 million dollars into electric tv research during the depression, even though he knew that he wouldn't earn that money back any time soon. Sarnoff singlehandedly spun RCA off from GE and Westinghouse, and then created NBC. With his big cigar, his immigrant beginnings in a Russian shtetl, and his shameless self advertisement, Sarnoff was in the line of the great capitalist impresarios, like his comperes who ran the movie business.

McCaw, on the other hand, didn't contribute to the development of the cellular phone in quite the same way. It was, rather, his confidence that the technology and demand would converge which distinguishes his achievement. Like other 70s generation entrepreneurs, McCaw had no sympathy for the old bluff "captain of industry". With his dyslexia, his personal diffidence, his futurism, his fascination with gadgets, McCaw is the "hacker"as capitalist. Like the early phone hackers (Captain Crunch, "Mark Bernay," and the teenage Steve Jobs), the kick is in playing with the communication system, not having something to communicate over it. Getting in the medium is the message. The key to McCaw is probably in a remark he made to his FCC lawyer, in 1986, that "his dream was to someday acquire AT&T." It's his hacker side that so puzzles the straight businessmen with whom he has dealings. But the characters in Ron Rosenbaum's classic article on phone phreaking, " Secrets of the Little Blue Box," would immediately recognize McCaw's dream.



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