New fixed wireless players cut in on incumbent telcos -- Teleport, Teligent and WinStar hit the airwaves
Mark Rockwell
The first crop of wireless local loop networks is already taking root in the United States, even as the FCC is auctioning spectrum for the second batch.
The next several months will see an accelerated rollout of these early wireless local networks, categorized only by their frequency allocations (24 and 38 gigahertz), by such start-ups as WinStar Communications Inc. in New York and Teligent Communications Inc. in Vienna, Va. The coming months should also see AT&T define its plans to exploit the 38-GHz frequencies held in 213 markets by Teleport Communications Group (TCG), which AT&T has agreed to acquire.
At the same time, the FCC will auction off spectrum for local multipoint distribution systems (LMDS, see sidebar below), which differ from early wireless local networks in offering multipoint distribution of a variety of one- and two-way broadband services, such as video program distribution, videoconferencing, telephone service and data transmission. The multipurpose nature of LMDS offers more bandwidth than other fixed wireless services that mostly provide simple two-way transport of services.
Both the current construction and auction are setting the stage for significant new competition among incumbent operators of telephone networks, newer competitive local exchange carriers (CLECs) deploying wireline networks and wireless CLECs, analysts said.
WinStar and Teligent are banking on their fixed wireless technologies to go head-to-head with incumbent local telephone companies. Both companies said they plan to launch wireless networks in 41 major metropolitan markets this year.
Teligent uses 24-GHz radio waves to send voice, video and data signals between small antennas atop customer buildings and a Teligent base station interconnected to the public network. WinStar uses 38-GHz signals in a similar network arrangement.
Teligent has targeted Chicago; Los Angeles; Washington, D.C.; Orlando and Tampa, Fla.; and Austin, Dallas, Houston and San Antonio, all in Texas, as the first markets for service this year. The company said it will launch services in 30 of its 74 licensed markets by the end of 1999, but wouldn't specify an exact timetable.
WinStar offers competitive local telephone services in Atlanta; Boston; Chicago; Dallas; Los Angeles; Milwaukee; New York; Newark, N.J.; Philadelphia; San Diego; San Francisco; Hartford and Stamford, Conn.; and Washington, D.C., through initial resale agreements with incumbent local phone companies in those areas.
Building blocks
WinStar also has aggressive plans for building networks this year. The company will provideservices either via resale or on its own networks in 21 markets by this spring and 30 markets by the end of the year, according to Frank Jepson, WinStar's senior vice president of capital market relations. WinStar is going after educational and business customers as its main markets.
Mr. Jepson said the company will double its number of radio base stations from 2,000 at the end of 1997 to 4,000 by the end of 1998. Customer levels are expected to rise accordingly, Mr. Jepson said. By the beginning of 1998, WinStar had accumulated 4,000 orders, he said. "We'll end 1998 with 118,000," Mr. Jepson predicted.
In addition to current construction and rollout plans, WinStar and Teligent are bidding for spectrum in the FCC's auctions for LMDS.
AT&T also plans a wireless local exchange entry next year, but remains cagey about how it willdo so. When the Telecommunications Act was signed in 1996, former AT&T chairman Robert Allen said wireless local loop technology would play a role in the company's competitive plans. Those plans didn't materialize, although an AT&T spokesman said a 10-MHz trial begun in Chicago last year is still ongoing. Current chairman Michael Armstrong recently reiterated AT&T's intention to use fixed wireless technology as a means to enter local competition.
Meantime, AT&T's planned acquisition of TCG will give it a majority stake in TCG's wholly owned wireless venture called BizTel Communications Inc., a holder of 38-GHz licenses in 213 geographic regions in the United States, including most major metropolitan areas. TCG's initial plan was to use BizTel to extend the reach of its fiber network in those markets to customers that might not otherwise be connected to the fiber backbone. As such, TCG said, the expanded use of 38-GHz facilities makes it the least dependent of any CLEC upon leased services from the Bell companies for serving low-volume telecommunications users.
How AT&T will merge its fixed wireless strategies will not become clear until the TCG acquisition is complete. "Clearly the goal is to mesh the two," the AT&T spokesman said. "We want to take advantage of both, but plans won't be finalized until the merger is complete. We will have a fixed wireless offering next year," he said.
Thin air
While promoters of wireless technology tout cost benefits and other advantages over wireline networks, analysts caution that it's too soon to prove such claims.
Fixed wireless technology holds the promise of letting alternative service providers into lucrative local markets without investing billions of dollars to build copper and fiber transmission facilities throughout a region.
The basic fixed wireless system is set up a lot like a microwave system, but with many more remote antennas located at customer sites. The system consists of a centrally located transmitter hub that is ultimately linked to the public switched network. Remote transceivers at customers' sites transmit through the air to the remote hub. Such systems are easier to install than a wireline system because no streets have to be dug up or cable pulled through conduit. Since it transmits through the air, the rights-of-way for a wireless network are less complicated than for a wire network.
One major drawback of wireless local loop is that it can't serve everyone. Since the system operates on a line-of-sight basis, some buildings may not be able to get the services. For instance, WinStar can serve only 75 percent of the buildings in major metropolitan areas, WinStar's Mr. Jepson said. "There will always be some buildings you can't link," he said.
Construction of local facilities has been a stumbling block for many large, potential competitors to the Bell companies. Many smaller service providers have been making do by reselling Bell company local services, although large long-distance companies such as AT&T Corp. have protested that the Bell companies' discounted wholesale rates for calling minutes are too high for new entrants to price their services reasonably and still make a profit (see Telepath, Feb. 2, page 13). Partly as a result, the large long-distance companies have begun emphasizing the acquisition and construction of local facilities, and AT&T is among those with plans to use local wireless facilities ito compete in the local exchange.
The 24- and 38-GHz fixed wireless systems can provide video and voice data at speeds of up to 155 megabits per second, in direct competition with local exchange companies. Although the technology can be used to deliver consumer services, major fixed wireless competitors are focusing their initial offerings at the business market. The economics are better in business markets, WinStar's Mr. Jepson said. WinStar currently serves larger buildings-those that are more than than 100,00 square feet with dedicated point-to-point links to hub sites-because they offer high-volume traffic. The company hopes to drive costs down enough to serve buildings as small as 4,000 square feet with multipoint links to hub sites in the next year, he said.
High-bandwidth wireless technology "definitely has the potential to compete with Bell companies," said Beth Gage, analyst at Telechoice Inc., a Verona, N.J.-based telecommunications consultancy. The advantages of wireless data strongly support the CLECs' business model for entering markets and quickly expanding coverage while minimizing their dealings with the local incumbent telephone company, Ms. Gage said. Although the deployment times for a network are cut drastically when using fixed wireless, that technology typically doesn't have much more transmission capability than most existing wired technology, she added. "It fits in as another technology for local competitors that don't have the infrastructure to get around the local loop."
Analysts caution against overstating the potential of fixed wireless technologies. "New technology never lives up to its initial expectations," said Herschel Shosteck, president of Herschel Shosteck & Associates, a Wheaton, Md.-based wireless market analysis company. "There are always problems. It'll cost more or take longer to install. On the other hand, old proven technologies, like the telephone network, can always be improved," he said.
While wireless may appear to be the silver bullet to bypass the incumbent telcos, the economics are not as straightforward as they appear, Mr. Shosteck said. The cost advantages that wireless networks offer over copper-based networks owned by incumbent service providers could be short-lived if the incumbent lowers its cost to provide service. "The incumbent carriers can't lower their service tariffs, but they can reduce the costs to provide service," Mr. Shosteck said.
The new fixed wireless service providers expect to take market share from the Bell companies, not other fixed wireless companies, WinStar's Mr. Jepson said. The Bell companies have 90 percent of the local loop, he pointed out. "Among securities analysts there is a general belief that a major share of voice will migrate to the CLECs ... 40 percent of local loop traffic is ours in the next 10 years. 1998 and 1999 will see the first measurable market erosion," Mr. Jepson said.
In spite of such dire predictions by potential competitors, a Bell Atlantic spokesman said his company has no specific countermarketing campaign in the works to battle fixed wireless. In fact, he said, the company doesn't consider fixed wireless competitors to be any different from other competitors, regardless of technology. "It doesn't make any difference if the competition is coming from wireless or cable," the spokesman said.
Bell companies are betting their futures on being able to keep the lion's share of the voice market while beefing up data services traveling over existing wire. ISDN, which operates at 128 Kbps, is already extensively deployed at some Bell companies; Bell Atlantic boasts of having the most ISDN lines installed of any Bell company. DSL services, as they become available, will also combat competitors with services at speeds ranging from T-1 speeds, up to 8 Mbps. The Bells are also implementing ATM switching in their networks.
In the end, Mr. Shosteck said, the proof will be how well and how cost-effectively any service works.
Mark Rockwell is senior editor of Telepath. |
