Free at last
by Jason Meyers
telecomclick.com
Online Exclusive, Feb 26 2001
For a small, private company that has yet to launch a commercial network, Terabeam has been the subject of what some might consider an inordinate amount of attention.
Most of it has taken the form of bold pronouncements about the potential of the free-space optics technology Terabeam is developing and planning to use to deliver high-speed data service to businesses.
It all started in March 2000, when the previously stealth start-up brought in a marquee CEO with service provider star power—and, for better or worse, attracted a glaring limelight to its efforts. From that point forward, Terabeam would be known casually around the industry as "Dan Hesse’s company."
Hesse was a 23-year veteran of AT&T and president and CEO of AT&T Wireless Services when he was named CEO of Terabeam, a developer of a form of short-range, high-capacity optical access technology it calls Fiberless Optical. Hesse’s departure from AT&T was momentous because it came just before the company’s initial public offering of a tracking stock for its wireless unit. It was made even more significant by virtue of the somewhat obscure nature of the technology Terabeam embraced—not to mention the fact that the company’s plans included using the technology as the basis for its own service provider play.
But Terabeam alone is not responsible for perpetuating all the hoopla. Hyperbole-throated industry analysts also generated a lot of the excitement that surrounded Terabeam’s debut. Following Hesse’s appointment, George Gilder proclaimed in his monthly technology report that he had been searching for the likes of Terabeam for a decade. Salomon Smith Barney’s Jack Grubman raved about the company’s executive suite and predicted a "meteoric rise" for Terabeam. Jim Friedland of Robertson Stephens said Terabeam could be as disruptive to telecom services as Microsoft and Intel were to technology.
No one—not even Terabeam’s detractors—could fault the company for basking in the glow. On the contrary, in fact, many would-be competitors appreciate the attention all of it has brought to the free-space optics technology sector, even if they believe some of it ultimately could prove unwarranted.
Soon, however, none of that will matter. That’s because Terabeam is now gearing up for the highly anticipated launch of its first commercial network in Seattle, which is expected to be followed by another half-dozen or so rollouts in other cities this year and beyond. When Terabeam goes commercial, it will be up to the enterprise customers that put their faith—and their corporate data—in Terabeam’s hands to decide whether the company is worthy of all the hype.
Fast track
Dan Hesse has been trying to be a true entrepreneur for a long time. Even during his tenure at AT&T—the last company most people would associate with entrepreneurialism—he sought out opportunities in new technology and market sectors. As proof, Hesse points out that he spent only two years of his AT&T career at the company’s New Jersey headquarters.
In addition to his stint overseeing the wireless business, Hesse was general manager of AT&T’s Online Services Group and president and CEO of the international arm of AT&T Network Systems, which was later spun off as Lucent Technologies.
So when Terabeam founder and chairman Greg Amadon approached Hesse to help manage a business that was quickly outgrowing its cocktail-napkin conceptualization and basement brainstorming phases, the timing and the opportunity was right for Hesse.
"I didn’t want to look back when I retired and wish that I would have gone to a company in the early stages and taken it public, and really built a business on the bleeding edge," Hesse says.
Under Amadon’s direction, Terabeam already had garnered the attention of investment analysts and venture capitalists, likely because of the uniqueness and simplicity of the technology solution. Things moved even more quickly following Hesse’s appointment.
Less than a week later, the company made the first public demonstration of the potential of its technology at the PC Forum in Scottsdale, Ariz. The following month, Lucent Technologies invested a reported $450 million for a 30% stake in Terabeam Internet Systems, a systems manufacturing arm established to develop free-space optics equipment for Terabeam’s networks.
"Back in March there was only one other company developing high-capacity free-space optics, and that company was Lucent," Hesse says. "The beauty was that Lucent was focused on the backhaul and we were providing the customer link, so it was a match made in heaven."
At the same time, Terabeam completed a $105 million third round of equity financing designed to help fund its network buildout and service provider business.
"Probably more than anything else, I’ve brought connections and relationships in the industry," Hesse says, noting in particular his tenure at Lucent and ties to that company.
In September 2000, Amadon sold a portion of his personal stock to Softbank Venture Capital for $100 million and ceded chairmanship of the company to Hesse, citing his own entrepreneurial leanings and the opportunity to collaborate with Softbank on other initiatives.
For all those reasons and more, Hesse’s professional existence is entirely different from what it once was. He influences—internally as well as externally—people’s first impressions of an early-stage company. He works out of modest Seattle digs, and he must be substantially more self-sufficient than he was at AT&T.
Hesse jokes that while he no longer has access to the comforts of a corporate jet, he travels a fraction of the time. "In my prior life I could say, ‘Hey Joe, go do this, or Hey Sally, go do that,’" Hesse says. "Well, Joe and Sally don’t work here."
Come through my window
Terabeam’s network technology plan is based on what Hesse describes as "the physics of optics." More specifically, it’s based on extending the characteristics of optics beyond the physical limitations of traditional fiber deployment—digging up streets and trenching fiber cable—by shooting optical signals through the air instead. The theoretical result is an extension of fiber’s reach without a capacity sacrifice.
"We view the world very much as an optical world, or at least moving in that direction," Hesse says. "Because air doesn’t have the purity of optics, you can’t go as far, but you can go just as fast. We’re the sprinkler head that attaches to the end of the fiber pipe."
Terabeam’s plan is to leverage enterprise customers’ allegiance to local area network technologies such as Ethernet—providing gigabit levels of service if that’s what customers need—but remove the physical shackles of a wireline fiber connection.
"IP Ethernet is going to rule," Hesse says. "We believe in IP Ethernet, but we’re picking free-space optics because there is no fiber."
Other access technologies, most notably broadband fixed wireless, are also positioned by service providers as simple, less expensive alternatives for extending the reach of fiber. In the case of fixed wireless, the distance that can be covered by the transmission far outstrips the capabilities of free-space optics. The two differences, Hesse and others maintain, are in antenna location requirements and capacity.
"Fixed wireless is incapable of doing what we’re doing at optical speeds," he says. "Also, what makes us unique is our ability to go right through the window. With fixed wireless you’re stuck on the rooftop."
"For all local loop carriers and for some end users, it’s a great application for when you can’t provide fiber and you need more bandwidth and less interference than you can get with radio," says Jim Andrew, vice president at Adventis, a management and strategy consultancy.
Indeed, what free-space optics lacks in distance coverage it makes up for in simplicity and ease of deployment—at least in theory. At Terabeam’s demo site in Seattle, one laser device pointed out the window of a high-rise office suite connects with a similar device in another building several blocks away, and the result is a panoply of two-way video transmission and high-speed Internet access.
Whether that performance can be repeated in a wide-scale commercial network deployment remains to be seen, but Hesse maintains that the constraints of the technology are few and far between. "The biggest limitation is fog," he says. "Birds and flying objects are totally irrelevant. Rain and snow can cause it to lose a few decibels, but we have [so] much margin it doesn’t affect us. [But] fog is a challenge."
Indeed, fog is what most free-space optics detractors point to when dismissing the technology’s potential. Terabeam’s test bed location, however, is known for its inclement weather, so the company has been able to develop ways of coping with the elements. Its method for dealing with fog is to build smaller cells in cities with heavy fog factors. "We haven’t figured out how to make fog a non-issue yet," Hesse says.
Analysts are generally bullish about the potential of free-space optics in general and Terabeam in particular.
"Weather, birds, building sway—you have to take them at their word that they’ve corrected these problems, but right now I’m not hearing anything negative," says Jeff Kagan, an independent telecom industry analyst. "This technology has all the positives, and if they’ve really corrected the negatives there’s no reason why it shouldn’t work. This is fiber speed without the fiber. It’s like fiber to go."
The real proof
For Terabeam to establish itself as a full-fledged service provider rather than simply a developer of a novel approach to last-mile access, the promise of free-space optics must be translated into relevant customer solutions and combined with all the other essential elements of telecom service.
In Hesse’s view, being both a developer of technology and a supplier of service is preferable because it means having tighter control over the creation of something unproven. "There are very strong advantages in the early stages to having a technology company that’s also a service provider," Hesse says.
Andrew of Adventis agrees that Terabeam is in a unique position because of the nascent nature of its technology selection.
"Typically the skills required to be successful on the technology side and the skills required to be a service provider are very different," he says. "But in this case you need to have proof statements for the technology, and they have an opportunity to take their lumps and improve the technology. There’s something to be said for getting very rapid technology feedback."
Before Terabeam can secure feedback outside of a controlled customer trial, however, it has to be able to reach the kinds of enterprise business customers that are willing to trust Terabeam’s open-air optical system to carry their corporate data.
Jim Masterson, Terabeam’s vice president of marketing and sales—who, like Hesse, has a strong telecom and data service provider pedigree—says the company will target customers frustrated by lack of high-speed alternatives that have, for one reason or another, been overlooked by metropolitan area fiber network builders.
"The first place everyone’s adding fiber is right smack dab in the same 5% that was solved already," Masterson says. "They’re solving the same problem a second time."
Terabeam’s networks will be built according to what Masterson calls a "success-based capital model" based on the return on investment potential of each of the "sprinkler heads" of Hesse’s fiber fire hose analogy.
"We’re getting very good at identifying target customers based on the profile we’ve established and building the network based on where the customer is," Masterson says. "We’ll know exactly the payback on each sprinkler head before we ever deploy it. We can literally light a building one customer at a time."
A target Terabeam customer is an enterprise of 250 to 2500 employees with a high propensity for Internet access, multiple remote offices and an inability to get the bandwidth it requires from anything other than multiplexed T-1 lines, Masterson says.
"That’s low-hanging fruit for Terabeam," Masterson says. "The level of pain is so acute that if you can solve it, the opportunity is bottomless."
Seattle-based Avenue A, a digital media advertising company, was one of Terabeam’s trial network customers and will be the company’s first commercial customer. The firm has offices in Seattle’s Bank of America Tower and Smith Tower, which have line of sight between them. Avenue A uses Terabeam links to connect its Microsoft Exchange servers and file servers and to transmit videoconferencing signals between the sites.
"If you have a fast-growing business trying to put in high-speed links, you just have to get in line," says Jamie Marra, chief information officer and vice president of software development for Avenue A. "Traditional phone companies just can’t react to those types of needs. I absolutely believe Terabeam’s going to be a disrupter. I know lots of CIOs who will be heading in the same direction."
The future is now
Customers such as Avenue A have participated voluntarily in Terabeam’s deployment from the beginning—and, in the interest of full disclosure, Marra says Avenue A’s chief technology officer was an early investor in Terabeam. Proving out the concept with unattached customers will be a different animal when Terabeam’s networks go commercial, but Masterson is confident that the lack of alternatives available to Terabeam’s target customers and the ease and reliability of the company’s solution will be strong selling points.
"Today, these IT managers in medium-sized enterprises are faced with work-arounds," he says. "They absolutely have constructed their IT organizations as work-arounds to the bandwidth constraints they face."
At press time, Terabeam had secured at least one more commercial customer for its network: Seattle’s Four Seasons Olympic Hotel, which will use Terabeam’s links to offer high-speed data services to guests in hopes of attracting businesses and conventioneers, says a Terabeam spokesman.
Analyst Kagan maintains that if Terabeam’s technology claims are borne out and the company sticks to its free-space optics focus and maintains a unique service play, the company likely will thrive—and will foster competition and possibly merger attempts along the way.
"This is something that makes too much sense to stand alone in the marketplace, so they’ll see competition," Kagan says. "But they’ll have the first-mover advantage, and they’ll have the opportunity to dominate. Five years from now, if Terabeam has not been acquired, they’ll either be a hero or a zero. I don’t think you’ll ever see them limp along."
The distinctiveness of Terabeam’s technology approach and service delivery plan is such that the mere existence of the company—not to mention the coup of attracting a high-profile CEO and other service provider veterans—generated a lot of excitement and anticipation about its potential from the very beginning. To what extent the company lives up to that promise will be determined in due time. But in an environment where a clear line of access to the customer is everything, Hesse believes the freedom of free-space optics technology and the simplicity of Terabeam’s customer play will be its distinction.
"One of the things the market is looking for is a lack of reliance on the local exchange carrier," Hesse says. "If you have to rely on the incumbent, you’re chances of surviving are very slim." |
