From Thursday's Investor's Business Daily...
Big Players Still On Hold In Fixed Wireless Market
Date: 3/4/99
Author: Reinhardt Krause
If it's good enough for cell phone pioneer Craig McCaw, isn't ''fixed wireless'' - a technology that sends large amounts of data over the airwaves - good enough for AT&T Corp.?
After all, AT&T paid a hefty $11.5 billion for McCaw Cellular Communications Inc. in 1994. This time, as a way into local phone markets, AT&T may want to get involved with McCaw's latest venture, Nextlink Communications Inc., or some other player in fixed wireless.
History isn't repeating itself just yet. But stay tuned, analysts say.
''As fixed wireless technology proves itself, the big guys will want it,'' said Lehman Brothers analyst William Garrahan.
Nextlink spent $833 million in January to acquire radio spectrum licenses needed to build fixed wireless networks. Nextlink joins WinStar Communications Inc., Teligent Inc. and Advanced Radio Telecom Corp. as start-ups rolling out the technology.
Still, the most-advanced types of fixed wireless systems have yet to be deployed on a large scale. Some big industry players - like AT&T - are sitting on the fence.
Fixed wireless systems use rooftop radio antennas instead of fiber-optic cables or standard copper phone lines to transmit, in much the same vein as cell phones. Unlike cell phones, though, fixed wireless systems work at higher frequencies. The systems promise to deliver Internet transmissions and data along with the voice traffic cell phones offer.
Attacking by air enables new players in local phone markets to reach office buildings and bypass the Bells' networks. Fixed wireless systems offer Bell rivals a low-cost way to hook up with small and midsize businesses, analysts say.
But getting radio spectrum is another matter. Most radio spectrum for big urban markets has been gobbled up by WinStar, Nextlink and Teligent, although AT&T does own some licenses.
If fixed wireless start-ups succeed in local phone markets, the firms could be acquired by bigger phone companies, analysts say. Possible buyers include long-distance players such as AT&T, MCI WorldCom Inc., Sprint Corp. or even an overseas carrier.
''Having big national footprints in key cities would attract quite a bit of interest,'' said Mark Kastan, analyst at Merrill Lynch & Co. ''Wireless spectrum is a key strategic asset.''
Fixed wireless networks, he adds, could work in tandem with other strategies for breaking into local phone markets. Started in 1994, Bellevue, Wash.- based Nextlink is constructing fiber-optic networks in most major U.S. cities. The company also acquired capacity on a national fiber network being built by Level 3 Communications Inc. as part of a $700 million July deal.
But Nextlink wants to use fixed wireless links in cases where it would be too expensive to lay down fiber. One of Nextlink's investments was a commitment of $695 million in cash and stock to WNP Communications Inc. of Reston, Va., for WNP's wireless licenses. WNP acquired its licenses in March 1998 for $187 million in a government auction last year.
''McCaw paid almost four times what WNP paid at an auction about nine
months earlier,'' said Danny Zito, a Baltimore-based analyst at Legg Mason Wood Walker Inc. ''That suggests people are getting more comfortable with (fixed wireless) technology.''
One reason is a new generation of network gear coming from suppliers
Northern Telecom Ltd., Lucent Technologies Inc. and Robert Bosch GmbH.
Nextlink's President George Tronsrue says that having multiple equipment vendors will drive down costs. Nextlink plans to launch its first fixed wireless system by late this year.
New York- based WinStar and Vienna, Va.-based Teligent have a head start on Nextlink. WinStar has deployed its wireless network in 30 markets, reaching 4,000 buildings. Teligent operates in 20 markets, but it's just starting out. On Monday, Teligent reported a net loss of $281 million on sales of $1 million in 1998.
Tronsrue says he's not worried. Nextlink's wireless network will be more advanced, he says.
''The generation of technology we're going to deploy will work to our
advantage,'' Tronsrue said. He adds that much of the fixed wireless market is untapped. And Nextlink has customers hooked up to its fiber-optic system in 36 cities.
But Nextlink leases phone lines from the Bells to connect 85% of its
customers to its network, Tronsrue says. Wireless links would cut the Bells out of the picture.
''Fixed wireless gives someone like Nextlink control over their own network,'' said Dan Ernst, analyst at The Strategis Group in Washington, D.C.
Building out Nextlink's new-age phone system will be costly. Rivals such as WinStar use an early version of fixed wireless called local multipoint distribution services. The high radio frequencies used by local multipoint networks require a clear line of sight between antennas.
But Nextlink and Teligent both plan an updated ''point-to- multipoint'' system using a central base station, which gathers signals from a number of surrounding rooftop antennas.
''Point-to-multipoint is far more flexible; you can blanket an area,'' said Legg Mason's Zito.
Whether Nextlink can afford any new system remains to be seen. Nextlink lost $278.3 million for fiscal 1998, or $6.26 a share, up from $129 million, or $3.91.
WinStar may have an edge by having already gained access rights to
commercial buildings. That's a time-consuming process, says WinStar
Chairman and Chief Executive William Rouhana. ''Our (radio) spectrum position is the best, and we have a lot more building rights,'' he said. ''We can quickly upgrade to point-to-multipoint.''
Buying Nextlink or WinStar could aid AT&T's foray into local service. AT&T is testing whether fixed wireless can be offered to residential customers for fast Internet access. That low-frequency project is called ''Project Angel.'' AT&T is trying to lower costs.
Analysts say AT&T may try to adapt Project Angel-type technology for the higher radio frequencies used by WinStar and others to reach commercial buildings.
AT&T owns high-frequency spectrum suitable for fixed wireless in about 300 markets. |
