Netro is an early leader in the emerging broadband
wireless access market. The company's AirStar product is
currently being trialled by approximately 25 operators
around the world, and the company is pursuing
opportunities with several new customers. With an
innovative product, strong partners, and a solid
management team, Netro is well positioned to benefit from
a market that we expect will exceed $3 billion in four
years.
Outlook
Netro is a technology leader and pioneer in the broadband
wireless access equipment market. The company has
integrated Time Division Multiple Access (TDMA),
Asynchronous Transfer Mode (ATM) and Quadrature
Amplitude Modulation (QAM) into a single product. The
combination of these three technologies allows service
operators to offer high speed integrated voice and data
services to business users on a cost-effective basis.
n Market Opportunity
The target customers for Netro are a new breed of service
operator, sometimes referred to as wireless CLECs
(Competitive Local Exchange Carriers). These operators
will use AirStar to offer service to business users with the
following characteristics:
· Broadband – high speed, nominally 1.5 million bits
per second (Mbps), which is about 24-times faster
than the current fastest analog modem technology, and
comparable to existing DSL (Digital Subscriber Line)
and cable modem technologies. AirStar also offers the
unique capability of allowing users to send data in
bursts up to 16 Mbps. These speeds are more typical
of a business user than a residential user;
· Access – defines the connection between the end user
(where a terminal with an average selling price of
about $5,000 is required) and the network (where a
hub that ranges between $50,000 and $150,000 is
needed). Access is widely perceived to be the next
bottleneck in delivering higher speeds for
communications. Currently, the access market
represents more than $8 billion a year in annual
equipment sales;
· Wireless – refers to over-the-air, terrestrial based,
radio technology. Competing technologies are cable,
copper wire, fiber or satellite. However, because of
the extensive construction usually associated with
copper and fiber-based systems, the time to install one
of these systems can be long. Wireless has been
viewed as a way to reduce the time-to-deploy.
One issue that has historically limited the growth in this
market is the licensing requirements that are generally
associated with radio technology. However, licenses to
operate broadband wireless networks have been recently
awarded in several countries in South America and
Europe. It is for this reason that the first versions of
AirStar were designed to operate at 10 GHz and 26 GHz,
the two most common frequencies licensed in South
America and Europe, respectively.
In fact, international markets now represent nearly all of
Netro's revenues. One of four international customers
(NTL in the UK, Airtel in Spain, Techtel in Argentina and
Comsat in Peru) is likely to be the first to offer a broad
range of services using AirStar. (i.e., full network rollout).
In the U.S., wireless service is expected to be offered in
several frequency bands, including the MMDS
(Multichannel Multipoint Distribution Service) frequency
range. To obtain 200 MHz of spectrum in the 2.5 GHz
MMDS band, an operator would need to use the
Multichannel Distribution Service (MDS) and Instructional
Fixed Television Service (IFTS) channels. An MMDS
license alone can contain up to 100 MHz of bandwidth.
The Federal Communication Commission (FCC) has
licensed more bandwidth at higher frequencies. LMDS
(Local Multipoint Distribution Service), for example,
contains a 150 MHz and a 1.15 GHz channel transmitted at
a frequency of 28 GHz. Other operators own large chunks
of spectrum at higher frequencies including WinStar
(operating in the 38.6-40 GHz frequency band), Advanced
Radio Telecom (38 GHz), AT&T (through its acquisition
of Teleport/Biztel received a license at 38 GHz) and
NextLink (28 GHz). Because a larger amount of frequency
bandwidth was made available, higher speed
communications is possible. It is for this reason that we
believe that Netro's product has begun to target customers
with a broad spectrum license. In fact, Netro just recently
shipped its first 38 GHz product to a U.S. customer for
test, and will have a 28 GHz product by the end of 1999.
Over time, the U.S. market could represent 25% of sales.
n Partners
Netro has both direct and indirect sales efforts. Indirect
sales account for about 80% of the company's revenues.
The majority of the indirect sales are through two partners:
Lucent and Siemens. Netro is the Original Equipment
Manufacturer (OEM) for Lucent's OnDemand Access and
Siemens' SRA MP products.
Lucent has been responsible for bringing in customers
such as Airtel, Techtel, Comsat, and BroadNet in
Germany, while Siemens has delivered Retevision in
Spain, Sunrise in Switzerland and OTE in Greece.
While neither relationship is exclusive, we think the
technical superiority of AirStar gives Netro a substantial
competitive advantage that Lucent and Siemens will prove
difficult to find elsewhere. Also, the partnership between
these companies goes beyond just an OEM relationship.
Lucent and Siemens both currently own about 2% of
Netro, and Lucent helped jointly develop the 38 GHz
version of AirStar. |
