Nextwave plan begins to take shape – as IP Wireless finds a home
Published: Wednesday 11 April, 2007
Rags to riches broadband wireless operator NextWave has acquired TDD pioneer IP Wireless, completing a cluster of acquisitions that make a nonsense out of the age old rule that operators should not own the technology they use.
IP Wireless, a California based start up with much of its operations in the UK, is a leader in time division duplexing over CDMA networks. It has set out to make use of this technology in the public safety arena and in multimedia, and for mobile web browsing, and the technology allows operators to use the unpaired one way data spectrum that has been allocated in most European and Far East 3G licenses.
One of its most promising technologies is devoting this 5 MHz of unpaired spectrum to one way TV signals, which act as a multicast using existing cellular spectrum. NextWave is almost sure to be aiming to point IP Wireless technology at providing mobile TV services in its numerous 2.5 GHz and AWS spectrum holdings.
We describe NextWave as rags to riches because it was the company which bid $4.7 billion for 95 PCS mobile licenses in 1996, but failed to pay more than a $500m down payment. This led to years of haggling with the FCC, much of it from the confines of Chapter 11 bankruptcy protection. Eventually it sold most of its holdings to Verizon Wireless after almost a decade when the valuable bandwidth lay unused and wasted.
It made its comeback when it came out of Chapter XI in 2005 with its hopes resting on WiMAX and went immediately for an IPO. In the recent AWS Wireless auctions it acquired 154 licenses in the AWS bands (1.7 GHz and 2.1 GHz). Although this is not an official WiMAX profile, several vendors, including Siemens, have already talked about adapting 2.5GHz 802.16 gear for this important spectrum.
But very few WiMAX operators have a ready made answer to how to go about offering triple play services in Wireless Broadband, and one of the best ways is to segregate a chunk of spectrum and offer multicast services.
A multicast network operates like MBMS in UMTS or BCMCS in CDMA, with each base station having access to TV content, but only sending it through the airways when there is at least one requesting handset. Once a second handset requests a mobile TV channel, it is directed to the right timings and tuning for the existing channel set up for the first handset.
This is the special expertise of IP Wireless and its TDtv system, which requires a single rack of $10,000 worth of TDD modulation equipment added to each cellular or WiMAX base station plus about $20 of chips added to each handset.
Sprint tried out the IP Wireless technology and went to the trouble of buying $10 million of the company, and although CTO Barry West made admiring statements about TDtv at conferences, he concluded that a pure WiMAX multicasting system (one very complex one has already been specified on the IEEE 802.16e standard) with partners Samsung and Motorola, was the way to go.
NextWave bought IPWireless for $100 million up front, split $25 million in cash and $75 million in NextWave stock, plus a performance based portion of payment that could rise as high as a further $135 million. This will be paid based against revenue milestones across 2007 to 2009 and most of this is payable in shares.
The acquisition is expected to close in the second quarter of 2007 and IPWireless is expected to operate as a wholly owned subsidiary of NextWave.
What’s interesting is that this comes on the back of a series of other acquisitions that all seem to be aimed at making NextWave networks multimedia capable. It bought Packet Video back in July 2005, and just a few weeks ago Packet video acquired downloadable Java DRM company Secure Digital Containers.
Packet Video puts together mobile video offerings and designed some of the devices used by the US satellite radio companies, it has its own EPG (electronic program guide) technology and can manage middleware stacks on the handset.
IP Wireless recently conducted a variety of experiments with MobiTV, a company that has a great understanding of on-device multimedia software, and EPG. These were primarily to bring multicasting to the EPG alongside cellular distribution and DVB-H, and perhaps it has learned enough to impart some of the key considerations to Packet video.
Secure Digital Containers could provide the type of content protection that video owners demand of networks and yet have the flexibility of being entirely downloadable.
When we last interview Packet Video the company praised Secure Digital Containers and said it looked forward to the days when the handset was a generalized platform with downloadable components, like the PC and said that the latest version of Flash Lite, which will allow Flash 8 video on handsets, was one of the most important tools and will shortly be available on most handsets.
PacketVideo has already done work for Verizon VCAST, DoCoMo’s FOMA and Orange’s Orange World service in Europe and has worked with BREW, Linux, Symbian and Windows Mobile.
SDC by comparison is just an 18 man company, but it already has deals with T-Mobile, O2, SFR, Amena, Telus, Telstra, Hutchinson 3 and Rogers Wireless in Canada and supports mobile music platforms such as Musiwave, WiderThan, Siemens and TA-Telecom.
NextWave’s founder and CEO, Allen Salmasi, was a member of the original Qualcomm executive team and played a key role in the development and commercialization of CDMA. Which is perhaps why the latest chapters in the NextWave story look so familiar. Qualcomm initially worked the kinks out of CDMA by buying and using chunks of spectrum, and eventually decided that a technology provider was the right future for them.
NextWave is also designing its own WiMAX equipment which it ambitiously dubs 'WiMAXplus', designed to given it an early edge due to differentiated technology, and driving up its potential future acquisition value. Perhaps Qualcomm is one vendor that will look at it at some stage.
NextWave kept about 10% of its original 2.5 GHz holdings, roughly 30 allocations of 10MHz across 25 markets, including Las Vegas, where it has launched its first network. In the AWS spectrum auctions, in the fall, it added $140m of licenses covering 63 million people in territories taking in Puerto Rico, Indianapolis, and cities Pittsburgh, Sacramento, Tulsa, Little Rock, El Paso, Albany, Louisville, Sarasota, Fort Myers, and Anchorage.
NextWave is due to begin field trials this year and is currently working on semiconductors to enhance the basic 802.16 functionality. A key task will be to ensure that this equipment can handle AWS spectrum which has a 400MHz separation between the transmit and receive bands.
Today NextWave has revenues of just $24 million, on which it made a loss of $105 million, and is valued on the stock market at $823 million and at the end of the year it had $275 million in the bank, to which was recently added a further $355 million in new capital raised in March through a private placement, which means it almost has as its market value the cash it has in the bank.
Already as part of building its WiMAXplus, NextWave has also acquired chipmaker Cygnus and operators two divisions, the Advanced Technology Group a fabless chip maker, and its Network Solutions Group, for Network design and implementation. Cygnus was acquired in February 2006, and was a privately held WiMAX base station specialist.
NextWave also spent $13 million on Go Networks, an Israeli specialist in campus and municipal Wi-Fi systems this January.
NextWave may not have the potential market weight of Sprint or Clearwire, but it has significant spectrum assets, including some in Europe, and has paid for most of them this time. So it could be a strong customer and another weapon in the battle of Motorola, Intel and others to make WiMAX an important element of the US telecoms jigsaw and of the emerging '4G' picture.
However the company has changed its planned business models several times and at this stage has almost no revenues and little track record, but it could be well placed to offer a business model like Qualcomm’s MediaFLO, supplying technology and spectrum for networks that will end up being taken to market by third parties.
From IP Wireless’ point of view it had stretched the patience and nerve of its venture capital backers, anxious for an exit before the winners in global mobile TV and mobile web had finally been decided. On its web site the company says it has raised more than $200 million in venture capital through Bay Partners, Doll Capital Management, Gabriel Venture Partners, GIC Special Investments, JF Shea Venture Capital, Northwood Ventures and Oak Hill Capital Management. At the current sale price few or none of these investments has made any positive yield and if IP Wireless doesn’t go on to meet its performance targets, it will have halved their collective investment in the firm. But that may only mean that NextWave got it cheap.
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