MMDS EYES BUSINESS AS DATA SURVIVAL TOOL..............
multichannel.com
By FRED DAWSON
New York -- Wireless cable operators, struggling to regain momentum in the wake of telco retrenchments and high churn, are trying to demonstrate that their high-speed-data services can save the industry.
Several companies last week offered glimpses at their forays into the data business beyond the trial stage, where the companies said they are generating promising, albeit very preliminary, results.
But while cable's focus has largely been on the consumer market, most of the wireless providers appearing at a Kagan Seminars Inc. symposium here are taking on the business side.
On the digital-video side, industry executives conceded the uphill battle ahead of them.
While the ability to provide 100 channels could significantly help to stabilize the churn rate, "most of the wireless cable companies haven't had the chance to provide it, because we didn't have the capital," said Allen Sonnenberg, director of MMDS operator CS Wireless Systems Inc.
Clearly, MMDS operators are counting on data.
"This is a very real business opportunity, as long as we focus on who the customer is and execute according to their needs," said Andrew Siegel, president and chief operating officer of Warp Drive Networks, which is supplying high-speed-data services in two markets. One of those relies on UHF television spectrum, rather than the traditional MMDS (multichannel multipoint distribution system) spectrum at 2.5 gigahertz.
Siegel said his company had just been licensed to deliver content from MSNBC and NBC Desktop Video to its customers in Seattle and Silicon Valley in Northern California.
Although Wall Streeters were upbeat about the potential of high-speed data to bail the wireless cable industry out of its doldrums, they were skeptical that it would be enough to prevent a massive restructuring of the industry's finances.
"The [high-speed-data] business has the advantage of incurring capital costs that are one-10th the cost of providing analog video, and at least a portion of [the provider's] market is unpassed by any other fast Internet source," noted Eric Singer, executive vice president of Gerard Klauer & Mattison, a venture-capital firm.
But, he added, companies that are faced with debt restructuring are going to have a tough time getting bondholders to agree to new terms, since, "if you don't have cash flow, you don't know what size debt you can service."
The upshot, Singer and others noted, is that wireless cable companies that are in financial trouble now might be forced to give up major pieces of equity as part of any debt restructuring.
"The only way that the industry can get [the financial support that it needs] is for bondholders to get on the same side of the table with the equity-holders and to wait out the situation to where the business plan works itself out," Singer said.
Making matters worse for wireless cable is the fact that Wall Street views the industry's average subscriber as a three-year customer, rather than as a profit-making six- to seven-year customer, due to high churn rates, said Robert Berzins, senior vice president at Lehman Bros.
"[Wireless cable] has to get product out there that people are satisfied with before Wall Street pays any attention, no matter how many subscribers there are and what the cash flow is," Berzins said.
CS Wireless, recognizing that entry into the data business isn't merely an extension of its consumer-oriented marketing operation, is turning to IBM Corp.'s global telecommunications and media industries unit for the support necessary to make a go of data.
"We believe that MMDS represents a very good opportunity to meet business-market demand for data services, with the ability to provide individual users service at 2 megabits per second and higher in the downstream and 600 [kilobits per second] in the return," said John Tsakaiakis, project executive for the IBM group.
Discussing wireless data at the recent PCS '97 conference in Dallas, Tsakaiakis said IBM is also working with CAI Wireless Systems Inc., with an emphasis on implementing two-way technology, versus the telco-return approach that MMDS operators are employing initially. He predicted data launches with its partners in Dallas, Boston "and two other areas" by the end of the year.
Another company positioned to assist wireless operators in their efforts to meet the rigorous service requirements of commercial customers is TCM Holdings. TCM is partnering with unnamed operating companies in preparation for launching commercial data services in eight to 10 of the top 25 markets over the next 12 months, according to TCM CEO John Taylor.
TCM's business plan, relying on one-way wireless technology with telco return, calls for profitability at about 500 business customers, paying a little under $500 per month for high-speed service, Taylor said, emphasizing that "this is the low end of what we're looking at."
The reason why companies can talk about making a profit with so few customers in the highly complex business market is that the capital costs of entry are extremely low, Kagan participants noted.
Directnet, a start-up wireless cable ISP (Internet-service provider) with service under way in Fort Lauderdale, Fla., is "looking at 400 to 450 customers," paying $195 per month, as the breakeven point for its business, said Pete Nicoletti, president and CEO of Directnet.
That breakeven is calculated against a capital investment that goes well beyond what many MMDS operators might spend to provide consumer-grade service, Nicoletti said.
While the headend gear required to support delivery of data at 27 mbps over a single, 6-megahertz wireless cable channel costs only about $250,000 from Hybrid Networks Inc., Directnet has spent twice that much in order to ensure its ability to meet commercial-grade service requirements, and another $300,000 or so on other aspects of the start-up, he said.
Hybrid is supplying nearly all of the wireless cable-modem systems now in commercial operation.
Overall, getting a commercial operation up and running -- including staffing, early marketing and other operational costs -- runs about $1 million to $1.2 million per market, Taylor said. He and others stressed that investment in technical expertise is crucial because, ultimately, profitability for wireless operators will have less to do with the uniqueness of their high-speed offering than with their ability to meet the needs of business customers.
Taylor estimated that the cost of customer-service support in the business market will run about $30 per month, per customer. Nicoletti said his firm was spending "a little more than that, especially during the early months."
Directnet is working 24 hours a day on service, and "bleeding red ink," Nicoletti said, but, he added, "if your service is down with a business customer, you're screaming."
Directnet, with 60 commercial customers representing 200 IP (Internet protocol) addresses, is talking with potential investment partners to create a nationwide, branded offering of its services, Nicoletti said.
The company, looking at all-wireless delivery of two-way data as "the Holy Grail," is testing four different vendor options in this area. "We'll be launching a 10-megabit-down/10-megabit-upstream type of system in the next 30 to 60 days," Nicoletti said. |
