'Insatiable appetite'
NextWave sees WiMax feeding popularity of mobile broadband
By Kathryn Balint
UNION-TRIBUNE STAFF WRITER
February 16, 2007
Born from a bankrupt wireless venture and led by a former Qualcomm executive, NextWave Wireless is working on an emerging technology that its managers think is the future of the $500 billion wireless industry for cell phones, laptop computers and other portable devices.
The WiMax technology is a big cousin to the Wi-Fi technology whose “hot spots” offer easy, fast and cheap high-speed Internet access for laptops in coffee shops and airports. WiMax is more powerful, with a coverage area up to 31 miles, and the ability to be used either in a fixed setting or for people on the go with their mobile devices.
NextWave Wireless – which counted Qualcomm among its early investors – sees WiMax as the next generation of wireless technology and one that poses a direct challenge to today's mobile technologies dominated by San Diego neighbor Qualcomm.
“There seems to be an insatiable appetite for mobile broadband,” said Mark Kelley, executive vice president and general manager of NextWave's Advanced Technology Group.
The CDMA technology is known for its efficient use of the airwaves and high-quality voice calls, and for its ability to offer high-speed Internet access for downloading video and music and playing 3D video games. Qualcomm's patented technology is on its way to being used on virtually every advanced cell phone in the world.
Kelley said WiMax technology can do all the things done by Qualcomm's CDMA technology, but do them cheaper and more efficiently.
Allen Salmasi, NextWave Wireless chairman, president and chief executive, once sat on the Qualcomm board and helped lead the development of Qualcomm's code-division multiple-access technology while at the wireless giant.
He left Qualcomm in 1995 armed with an investment from the company in his new venture. The idea was that NextWave Telecom would build a nationwide wireless network using the CDMA technology, but those plans went awry.
NextWave Telecom bid $4.7 billion for federal licenses for spectrum for its wireless venture, paying $500 million of that before declaring bankruptcy in 1998. The federal government seized the spectrum licenses and re-auctioned them. NextWave claimed it still had legal rights to the licenses and won its case in the U.S. Supreme Court in 2003.
NextWave then sold its spectrum to Verizon Wireless for $3 billion, paid its creditors in full and emerged from bankruptcy. NextWave Telecom investors “got a very nice return on their investment, and we kept $550 million of the proceeds to start NextWave Wireless,” Salmasi said.
When NextWave Wireless was launched in 2005, it was too late in the game to build a CDMA network, Salmasi said. The new NextWave needed to focus on what would be the next generation of wireless technology. Kelley was hired as a consultant to evaluate wireless technologies, and WiMax emerged as the answer.
Kelley and the company's executives watched how Wi-Fi technology had spread and saw the same potential for WiMax. As a bonus, the WiMax networks can be used by consumers on the go because its antennas can hand off coverage.
In addition to using WiMax to transmit phone calls and offer high-speed Internet access, NextWave is developing proprietary technology that would allow WiMax to be used on a wider range of spectrum than CDMA.
All of this gives NextWave executives reason to believe that WiMax can give today's current cell-phone technology a run for its money. NextWave has purchased spectrum in 15 of the top 20 markets nationwide, including Los Angeles and Boston, and hopes to partner with a wireless carrier or even a cable TV company to use that spectrum to build and operate a WiMax network.
In many ways, Salmasi's vision for NextWave Wireless is a page right out of Qualcomm's book. As Qualcomm has done with CDMA, NextWave is developing patentable technology it hopes to one day license for use in WiMax products. And it plans to build chips for devices that use the WiMax technology, as Qualcomm does with CDMA chips.
To achieve its goals, NextWave acquired San Diego-based companies Cygnus Communications and PacketVideo, whose expertise lies in WiMax technology and software for cell phones, respectively. And NextWave has signed an agreement to acquire GO Networks, a Mountain View company that develops Wi-Fi networks for municipalities.
Salmasi said he sees Wi-Fi and WiMax as complementary, allowing NextWave possibly to offer different levels and price ranges in service.
For now, there is no market to speak of in WiMax products. Large commercial WiMax networks have yet to be built although Sprint Nextel has announced plans to do so. Chipmaker Intel has thrown its hat into the WiMax ring by investing in and touting the technology. WiMax tests could begin in the United States as early as this year, but Salmasi does not expect large-scale deployments worldwide until 2009.
Salmasi said he is hoping to sell wireless carriers on NextWave's WiMax solution. He said he doesn't expect that they will abandon their current wireless networks but rather will be interested in deploying a WiMax network to complement existing networks.
“We are having discussions with the carriers, explaining to them what we are developing,” Salmasi said. “At this point in time, everyone is interested, but until they see the first network up and running, they are not going to make any decisions.”
NextWave's primary source of revenue – $22 million in the first nine months of last year – comes from PacketVideo's sale of software for cell phones. NextWave posted a net loss of $65.5 million during that time period.
The company became a publicly traded company on the Nasdaq just last month, trading under the symbol WAVE. Its share price, which has hovered around $12, closed yesterday at $11.88, down 12 cents.
“Obviously, they're far from making profits anytime soon,” said Stefan Meierhofer, a partner with San Diego-based A & M Investment Management. “From all I've seen, it's just a typical early-stage company that does have risks involved, but there's also a potential for a nice payoff.”
Meierhofer said the NextWave management team is seasoned and the company is in a hot market, but NextWave still faces risks, particularly if WiMax technology is not widely adopted.
“The reason why mobile WiMax is so interesting is because it's an inexpensive way to offer broadband,” said Emmy Johnson, principal analyst with Sky Light Research in Scottsdale, Ariz.
NextWave's Kelley said WiMax networks are cheaper to build and its spectrum cheaper to buy than competing technology.
Johnson sees the introduction of WiMax technology as a boon for the consumer. With competition, she said, “prices come down.”
Salmasi is hoping that NextWave's technology will be able to bring the mobile Internet to consumers at far less than the $60 to $80 monthly charged now by major wireless carriers such as Sprint Nextel, Cingular Wireless and Verizon Wireless. He's hoping that a mix of Wi-Fi and WiMax technology, at least at slower speeds, could be offered free. Customers who needed more speed could pay, he said.
Ultimately, Salmasi does not see WiMax as decimating the CDMA technology he helped bring to market while at Qualcomm.
“CDMA was my baby,” he said. “CDMA is a great technology, and it's going to remain a great technology in the marketplace. It's just that the road map for CDMA right now is not such that it's going to be more competitive than WiMax. WiMax will probably be more competitive, but these technologies will evolve over time. At some point in time, one would envision that they ultimately will converge.”
Kathryn Balint: (619) 293-2848; kathryn.balint@uniontrib.com
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