An interesting article presenting the different characteristics of Teligent and its competitors.
I think this is a "must read" to get a clearer picture of the Teligent's competitive environment.
Orion
techweb.com
November 29, 1999, Issue: 763
Section: Services - Broadband Wireless
Telecom Carriers Push Broadband Wireless Service
Anne Zeiger
When it comes to negotiating good deals on last-mile telecom services, small businesses are at a huge disadvantage. Without the large volume needed to drive down prices, they're stuck paying high rates for basic services.
But replace last-mile fiber strands with wireless frequencies, and small businesses could find themselves in a better bargaining position. New wireless providers are hungry for customers, so they're willing to charge the small guys the same for wireless links as the big guys pay for comparable fiber circuits. And this isn't low-speed, poor-quality cellular service; it's new broadband wireless, providing access ranging from T1 (1.54 Mbps) to T3 (45 Mbps).
The wireless carriers are placing high-odds bets that the broadband wireless market will take off soon. They're trying to lure small and midsize businesses with discounts as high as 40%, and that could result in healthy growth for broadband wireless. The driving technology, local multipoint distribution service (LMDS), is expected to climb 140% within the next year, according to Current Analysis, a research firm.
Aside from lower prices, early users say the new technology is flexible in handling a variety of traffic. "Wireless allows for a lot more options in the form of convergence, such as multimedia, voice, streaming media," says Darran Perkins, CIO of First City Funding, an indirect auto-lending company in Dallas. "Anything you want to send, broadband wireless will push."
That sounds great. But broadband wireless faces its share of hard-core cynics, most of whom are skeptical that prices will fall enough to make the technology practical. "If you compare the cost of fiber-optic lines or copper at the same speeds, there are technologies available that are literally one-tenth the price of wireless," says Tom Nolle, president of consulting firm CIMI. "I think it's completely unrealistic to assume that it will ever capture major market share."
Still, broadband wireless is new, and it may be too soon to draw such conclusions. The market includes two main technologies: LMDS, a high-frequency band that handles integrated, two-way voice, video, and data, typically for business use; and multichannel multipoint distribution service, a lower-frequency band that provides slower connections for voice, data, and video traffic, usually for consumers.
LMDS is leading the broadband wireless charge so far. But if the success of spectrum auctions is any indication, that technology may be headed for trouble.
The FCC held its first series of LMDS spectrum auctions in early 1998, selling 986 licenses. But then it was forced to follow up with a second auction in May 1999 to resell 161 of the licenses after the original bidders defaulted or lost interest in their projects.
The auctions drew only $580 million in bids, a paltry sum compared with other wireless spectrum auctions. For example, this year's auction for the Location and Monitoring Service spectrum, which is being used for transportation communications infrastructure, drew $3.4 billion in bids for only 528 licenses.
Part of the problem may be that the technology has limited usage. "LMDS has to have a specific transmission point for a specific receiver point, and it's used for large metropolitan areas," says Erv Paw, a consultant with Phillips-InfoTech, a consulting firm. "That probably limited which companies would bid."
It also concerns users, who realize that without line of sight, they won't be able to get reliable service. In fact, for one LMDS customer-School District 2 of Billings, Mont.-that's about the only downside to the technology. "As long as you have a good line of sight, I don't have any reservations" about wireless, says technology director Steve Greene, who decided to deploy LMDS for communications between buildings previously served by frame relay.
LMDS is also vulnerable to severe weather, even in the most stable network deployment. "When you have a severe rainstorm, it will interfere with the transmission," Paw says. "You could experience downtimes in the minutes."
Despite these potential problems, about 100 companies bought LMDS licenses. Most are using the technology in isolated areas or to supplement existing landline networks. But a few carriers, such as NextLink Communications, Teligent, and Winstar Communications, are building their core strategies around LMDS.
NextLink is constructing a mixed fiber and broadband wireless network. It expects to be in the top 30 U.S. markets by late 2000. The carrier is running fiber to all those cities as part of a nationwide long-distance network, then using LMDS technology to carry traffic over the last mile. That strategy allows it to bypass the monopoly local providers in most areas, or bring high-speed access to remote areas where fiber is unavailable.
Teligent also is using LMDS for local access and fiber to connect cities. But it's forming partnerships with other wireline carriers to handle the long-distance portion, rather than owning the fiber itself. Teligent already serves 34 major U.S. markets and plans to be in 40 markets by year's end.
Winstar is building a nationwide network reaching 60 markets by next year. It's bought more than 16,000 long-haul route miles of fiber from Metromedia Fiber and Williams Communications to backhaul traffic among cities. But like NextLink, it's using LMDS to reach the last mile.
The companies are offering service in various cities as installations are completed. They're selling Internet access, last-mile links to existing data networks, and voice services. By doing so, they aren't limiting themselves to providing last-mile services only.
All of the carriers have set aggressive expansion plans. But initially, that growth will be subsidized by the carriers themselves. The only way they'll pick up new customers is by paying for the expensive wireless transmitters and other key equipment because their target market won't be able to afford it.
The transmitters alone cost $6,000 to $20,000 each, making LMDS more expensive to deploy than fiber or copper alternatives in most cases. Eager to extend the number of buildings they cover, carriers are paying for all of that hardware themselves.
Typically, they're placing this infrastructure on the roofs of buildings where several potential customers reside. That way, businesses that want to pick up wireless data service don't have to change their internal networking configuration at all.
So how will the carriers make any money? First, they hope to sign up customers quickly for service, making money off monthly service fees. Second, they're banking on equipment costs going down as the market size increases. Third, they hope to cash in on an untapped market-remote buildings without any high-speed fiber access.
But to generate revenue in the short term, these carriers realize they must price their services on par with or lower than wired connections in most markets, even though their costs may be higher. Wireless carriers are mum on whether they'll actually turn a profit at the prices they're charging, but analysts doubt it. The prices depend on the city, but as a rule, the wireless carriers are charging 25% to 40% below wired-connection prices in competitive areas. In remote areas where there is no competition, they're charging more than wired links.
The carriers admit that such a model can't continue forever, so they'll either have to raise prices or hope costs come down enough to increase their profits. They're hoping that market forces will work in their favor, bringing costs down naturally through equipment vendor competition and technology improvements.
If equipment costs decrease, wireless players will be in good shape compared with fiber competitors. That's because fiber installations are much more labor intensive than their wireless counterparts. "Today, when we go in to hook up our network to a building, 80% of the costs are technology and 20% are labor," says Rick Calder, Winstar's executive VP and chief marketing officer. "Fiber, meanwhile, is 80% labor and 20% technology."
Hoping to work the more receptive audiences first, the wireless players are focusing their sales efforts on bandwidth-hungry small and midsize businesses. The wireless companies argue that smaller businesses have more incentive to try wireless technology because they'll save money-unlike large businesses that already get big-volume discounts on a wide range of wired broadband services, says Keith Kaczmarek, senior VP of network services with Teligent.
But not everyone is writing off big businesses. Winstar recently created a division to pitch LMDS to the largest companies. Calder says some big-name customers already are interested in the technology for last-mile access to company intranets and other high-speed data applications; however, he declines to name any such customers.
To sweeten the deal, the carriers are aggressively pushing discounted voice options with T1 or T3 Internet connections. Teligent, for example, sells bundled local and long-distance voice and data services, offering up to 30% discounts to companies that buy multiple options. Winstar is offering one year of free local phone service to businesses willing to sign up for its high-speed Internet service; it also offers discounts of as much as 30% on overall bundles, depending on the volume.
Sometimes, discounts are even higher. First City Funding, which buys 12 of its 13 T1 lines from NextLink, says it has saved 40% over the landline services it replaced from Southwestern Bell. Competitive local exchange carrier Third Rail Wireless Services is selling fractional T1 and T1 LMDS links for $300 to $500 a month, which is about $200 to $500 a month less than what competitive landline providers charge. And the Billings School District pays only $188 a month for 3-Mbps dedicated access. That's less than what it had been paying for the T1 frame relay access that LMDS replaced.
Price isn't the only driver, though. LMDS has proven a good option when deployment speed is an issue. "We needed our lines in four weeks after contract, and NextLink had it installed in three weeks," says First City's Perkins. Business customers routinely complain that it takes regional Bell operating companies up to three months to install circuits in certain areas.
Customers who run voice and data infrastructure over the T1 lines, such as Perkins, may be the best hope wireless providers have of carving out a secure position. Though wireless broadband frequencies can and do support data, they're an even niftier way of bypassing the infrastructure controlled by firmly entrenched local carriers.
To date, the regional Bell operating companies and other incumbent local exchange carriers still command control of the critical last mile between carrier and building, even though a major goal of the Telecommunications Reform Act of 1996 was to open local markets to competition.
Competitive local exchange carriers and traditional long-distance providers are using both wired and wireless infrastructure to bypass the incumbents. "When [rival carriers] decided that they'd been blocked by the incumbent local exchange carriers and by AT&T's move into cable, they turned to broadband wireless as a key component of their broadband strategy," says Rick Kent, VP of Phillips-InfoTech.
Bypassing the incumbent local exchange carriers isn't just politics, carriers say. Building out proprietary networks-wireless or otherwise-may be the only way to get the control they need. "Our view is that our core competitive advantage is to have the lowest cost of providing service," says Dan Kohn, director of strategy for NextLink. "And the way we can do that is by investing in infrastructure ourselves rather than trying to resell someone's network elements."
But one thing the landline providers have is a reputation for reliability-something LMDS players have yet to earn. To counter fears that service will be unsteady, the wireless carriers are engineering their networks to "five nines," or 99.999% reliable networking, executives say. Whether they can offer service-level agreements to back up those claims remains to be seen. Generally speaking, carriers say, they're prepared to offer service-level agreements, but they warn that terms may vary from customer to customer.
Copyright © 1999 CMP Media Inc. |
