VDMA<long>
WORLD WIDE WIRELESS:
AN INDUSTRY PERSPECTIVE
The industry from which the present World Wide Wireless Communications, Inc. (WWW) evolved has endured a turbulent history over the past
two decades, with the initial goals and objectives of industry pioneers having been radically altered with the passage of time. Technological
changes, unimaginable only twenty years ago, have completely overtaken the wireless cable industry, causing original game plans to be
completely scrapped and new directions to be welcomed as the path to survival and prosperity.
Today, it is difficult to believe that wireless cable's future was once based on the delivery of a few channels television programming to the home.
. .and, was expected to become highly competitive with wired cable. Some two decades ago the wireless cable industry was founded by
businessmen who thought of it as a practical and inexpensive way to deliver programming to subscribers in small markets or buildings not
covered by wired cable. In the late seventies and early eighties, these markets were the small basis for the beginning of what was expected to
become a major industry. Wired cable companies were expensive and unpopular, and DBS was not yet even an identifiable set of initials in the
broadcasting industry. With a low entry cost and a solid FCC license, it appeared that wireless cable could not miss becoming one of the next
multi-billion dollar industries.
The turndown from the hoped-for shining future began when entrepreneurs found quicker gold in the industry by running up hundreds of millions
of dollars in high-yield bond debt during the high-riding eighties to quickly fund analog build-outs of larger markets. . .without proper and prudent
analysis of the potential customer base. With over-spending on systems rampant, and acquisitions being made on unsubstantiated projections,
the resulting cash crunch pushed operators into rate-cutting and the acceptance of marginal credit customers from wired cable. . .resulting in
high churn rates and a negative perception by investors.
With much of the investment cash spent on over-expansion of analog systems, the digital age dawned with wireless operators promising an
awesome future
. . .without the cash or hardware to back up the promises. These problems were compounded by the cable industry's push to transform its
image into a customer-friendly one. . .the plethora of fraudulent telemarketing schemes for wireless cable, which were no fault of the industry
but which tarnished an already troubled image. . .and, finally the arrival of DBS to deliver digital signals to remote areas. By the middle of the
?90s wireless cable was a troubled industry with the major players buried under mountains of debt from their earlier analog expansion and the
accompanying problems arising from a lack of cash to fund digital conversion. For all practical purposes, the dream of providing cable service by
wireless was ended and most major players in the industry were under water in debt and without hope of salvation in the video industry.
With the recent purchases by MCI WorldCom and Sprint, the industry appears to have been turned away from television as a reason for being. .
.and directed toward communications for the Internet and telephony. The future was not good for wireless cable as a video medium in any case.
Paul Kagan Associates has estimated that the video cable industry will need about $1.6 billion dollars to fund capital expenditure effort (for
purely TV and video purposes, not Internet) through 2001, which they estimate could provide the basis for doubling the U.S. subscriber base,
but leaving the wireless industry as a player on only a tiny corner of the vast video services field. John Mansell, a senior Kagan analyst, says, "I
feel that there's a niche for wireless cable. They had a decent business plan before the telcos came in (and looked into investing in the industry
a few years ago, then for the most part quickly backed out with much fanfare). . .but you need capital and you need to control churn." The move
out of video and into voice and data is clearly the salvation of the entire wireless cable industry.
Bell South, with 35,000 customers, and Pacific Bell with 55,000 customers, both have proven that a lot of money and a big name can attract
some subscribers to video cable in markets such as Los Angeles, New Orleans, Miami and Atlanta. This subscriber level is only a tiny slice of
the market. . .only about a million subscribers for the whole industry, and not really large enough to kindle investor enthusiasm for wireless
cable in its original form. Several of the largest owners filed for Chapter 11, smothered by mountains of debt so large that they could not raise
new money to convert to digital or to Internet services. There are isolated companies which are successful in the 50,000 subscriber range. .
.but, compared to the 7 million DBS subscribers and the 70 million wired cable subscribers, it is obvious that the picture has faded on wireless
cable as a video delivery medium.
In the early Summer of 1998, Moodys downgraded the credit ratings of major wireless cable companies ATI, CAI Wireless, CS Wireless,
Wireless One, Heartland Wireless and People's Choice TV, which was also de-listed by NASDAQ. An analyst who requested anonymity stated
to Broadcasting & Cable Magazine, "The wireless cable industry clearly has its problems because it has too much debt. It needs to find a
model that works. . ." For companies not burdened with the legacy of analog build-outs and heavy client debt, the Internet access market
provides a fresh and potentially very profitable use of the greatest asset of these companies. . .the frequencies which they previously used in
broadcasting video, now turned into Internet delivery services possessing stunning speed and vast potential.
This is the same group of companies which led the "goldrush" in wireless cable during April, 1999 as Sprint and MCI WorldCom saw wireless
as the way to get quickly into homes and businesses. All the major telco providers have backbone. . .the problem is actually getting into the
home. . .what is called "the last mile." Wireless cable, with no cable to bury or wires to string, can provide virtually instant access to a home or
business. . .and can provide high-speed internet access as well as telephone and other services.
The advantages of utilizing the frequencies originally obtained for wireless cable as the basis for wireless Internet service are quite significant.
Most obvious is the relative ease of entry. . .since wireless cable can be deployed over-the-air rather than through massive through-ground
installations costing billions and billions of dollars and taking many years to complete. Both conventional cable and telcos are faced with vast
construction costs, while wireless cable can be deployed at a tiny fraction of that expense.
The very largest businesses are connected by T-1 and T-3 high-speed services, or by other very expensive interconnection technologies. The
small and medium size business market, the home-office market, and the individual seeking the fastest service at a reasonable premium over
POTS (Plain Old Telephone Service), all are prospects for wireless cable. With SO/HO 256K downstream speed charges are as low as $79.00
monthly, plus telco charges, versus $600.00 and up for T-1, ISDN or ADSL, the clear advantage of wireless Internet from a cost standpoint is
obvious. Very recent FCC rules changes allowing wireless upstream make the service even more seamless, and allow all billing to flow to the
wireless Internet service rather than involving a telco in the return link. Essentially all that is required to connect is a small antenna along with a
down-converter modem. In small and medium offices the service typically forms the basis for a LAN, which is a significant bonus in moving the
client ahead from a technology standpoint. It should also be noted that only one channel is typically required, which allows future service
expansion in a typical 33-channel system originally established for MMDS video service.
The FCC approval of two-way service for wireless Internet also has a significant additional benefit since it opens up the way for Internet-based
telephony business at what should prove to be a significant cost advantage over all existing methods for those customers utilizing the initial
data services. "Wireless cable offers a tremendous platform for video, voice and data," says Rob Rini, a partner in the Washington
communications law firm of Rini, Coran & Lacellota. "The future's quite bright. . .because those operators have beachfront (broadcast spectrum)
property."
Specific economic circumstances largely dictate the future for individual Wireless Internet Service Providers (WISPs) since early entrants in
analog service are severely disadvantaged by their initial investment in obsolete technology, and by their vastly expensive prior marketing of
video services which have largely been taken over by the rush to DBS. These early leaders in wireless cable are now the least likely future
success stories in wireless Internet since they are cash-poor and have had their debt downgraded to levels which make future offerings all but
impossible. Some of these early companies are, of course, bankrupt and not in a position to undertake new digital adventures without complete
reorganization or through acquisition such as that being undertaken by MCI WorldCom and Sprint.
"We look on this development (the MCI WorldCom and Sprint deals) as an important validation of what the Wireless Communications
Association International and its members have been trying to do to emphasize the opportunities right now in broadband wireless services,"
says Andrew Kreig, president of the trade group.
"The key strength of wireless," says Kreig is its ability "to be first to market with low-cost, high-speed data and related services in the sweet
spot of small business use. In addition, the FCC is in the final stages of deliberations on whether to broaden the use of the spectrum beyond
present delivery. An FCC decision could come this quarter, according to Kreig, further enhancing values.
Following the FCC's authorization of two-way MDS and ITFS service on September 17, 1998 technical interest and activity in the field has
rapidly increased. Major innovations in high-speed Internet access over wireless are being announced with increased rapidity by leading
wireless interests. Using the advantages of the high-speed wireless platform, coupled with two-way service which removes the need for a telco
return path, wireless is now finally catching up with its potential as a unique and flexible digital technology.
In order to closely track the wireless internet industry, Holt Media Group installed a Beta site high-speed wireless Internet service in our offices
in November, 1998. We have had an opportunity to use wireless Internet service for both Holt Media Group as well as for a radio station which
we also own, WTKZ Sports Radio. In the past six months we have accumulated significant hands-on experience with the practical technology of
high-speed Internet access by wireless. With our wireless site HMG is utilizing a LAN approach typical of a small office installation, with the
addition of an active sports-talk radio station's news and communication needs.
Two-way wireless service is the next technology to be installed for testing and evaluation purposes by HMG, and within the next few weeks our
offices and sports-talk radio station will be upgraded to two-way and become a Beta site for the first such wireless two-way system in this
market. Our continued involvement with the wireless Internet system on a user basis insures that HMG will be familiar with the practical
application of wireless Internet service as well as with the theoretical aspects of this rapidly-evolving technology.
WIRELESS INTERNET DIVISION
WWW (and it's predecessor companies) date back historically to the late ?80's when frequencies were obtained from the FCC for the purpose
of wireless cable broadcasting of typical TV programming to be distributed by wireless rather than by cable. In those times, basic cable was
generally satisfied to deliver perhaps twenty channels, usually at high prices and with poor service. As discussed elsewhere in this report, many
problems arose for the early entrants into the wireless field, with the result that analog applications of wireless cable stalled and the MMDS
cable industry, as a whole, lost direction. During this time, WWW's founder, Mr. Michael Lynch, concentrated on the development of digital
technology to be applied to communications, both in the field of wireless cable and telephony. The VDMA phone grew out of this research, as
did new concepts for the use of the MMDS frequencies which had been obtained for video purposes.
Now, at the close of the 1990's, WWW has placed itself in a position at ground zero in the hot category of high-speed wireless service. WWW
is now ready to utilize spectrum originally obtained when high-speed wireless Internet broadband services could not even be imagined, and prior
to the time that bandwidth had marketplace value. WWW has constructed the first site or Gateway on Mt. Diablo in San Francisco's East Bay.
Mt. Diablo is the highest site in the area, and provides service to almost 2 million persons including many leading high-technology firms.
From the Mt. Diablo site WWW can employ it's FCC licensed frequency to provide HSA Ethernet-level (10 Mbps) wireless Internet service to an
unlimited number of subscribers within the coverage area of the base transmitter without additional transmission cost. Unlike other services,
wireless Internet travels directly to the subscriber through the air without construction costs, and requires only a small and inexpensive antenna
to provide the signal to the receiving system. As with other broadband services, the customer typically pays installation charges which offset
the cost of providing initial service to the subscriber and, in wireless, the costs are often lower with alternative technologies.
WWW's initial Gateway site was constructed during the Summer of 1998 and early testing of both technology and marketing was in place by
September. A sales and marketing joint venture with Phoenix Diversified did not prove satisfactory and has been terminated. The Company has
now taken over these activities.
Mr. Arthur Holt of Holt Media Group personally inspected the sales and marketing site in Concord, California in October, 1998 in order to
evaluate plans for ongoing operations by WWW. Mr. Holt discussed in detail the marketing and operational plans of the company with Mr.
Douglas Haffer, Chairman, CEO and President and with Mr. Randy Knapp, the COO and a director of the Company. Completely by
coincidence, Mr. Holt is himself a one-time resident of the East Bay and Concord, having lived there a number of years ago while working in
communications in San Francisco. Mr. Holt is personally familiar with the basics of the Mt. Diablo transmitter site and of the East Bay area as
a complete marketplace.
Because WWW is employing a basic strategic plan built around the use of the wireless Internet cash flow stream to fund ongoing development
of the VDMA project, the initial joint venture concept for the Beta startup in Concord was attractive to WWW from the standpoint of hoped-for
efficiency. In practice, the joint venture partner responsible for sales and marketing proved to be unfocused, with the result that the agreement
was terminated. WWW is assembling a new team which will be directly controlled by the company.
HMG has been advised by Mr. Haffer that a new and highly experienced operating executive has agreed to join the company and he will be
announced by WWW in the immediate future. New corporate offices have been leased in Oakland, California, and the company is now
recruiting additional operational and technical people to staff the rapid growth anticipated in the immediate future.
Given the nature of the wireless Internet company as a pure start-up in this venture, the appraiser has been given reasonable confidence that
the goals and objectives expressed in the business plan with which we have been supplied are more likely to be achieved by the Company
itself, rather than in the previous joint venture arrangement.
The 1998 long range business plan of WWW is a guideline to corporate intentions, and provides information upon which HMG relied and which
is foundational to our report. Because of changes in the basic operations of the Beta site in Concord, the business plan initially established for
1998 has now been transposed to July 1, 1999 as an appraisal premise. We have obtained information from personal conversations, telephone
conversations, on-site inspections, and from extensive industry databases, Internet sources, industry-specific publications, and Holt Media
Group's three decades of experience in the field of media and communications appraisals and valuations.
HMG has also reviewed recent developments in the industry and at WWW which transpired subsequent to the preparation of the business plan,
and we have interpreted the business plan in the light of current industry changes and evolution. For the purpose of this analysis of value we
consider the information with which we have been provided to be sufficient for the purpose of reaching a meaningful conclusion as to the
operating values of WWW in the future.
As indicated by the business plan, in early 1997, World Wide Wireless, Inc. was formed to coordinate the operations of TSI Technologies, Inc.
(TSI) and National Micro Vision Systems, Inc. (NMVS). Its purpose was to complete the development of advanced digital wireless telephone
and network designs by Mr. Michael Lynch and to finance, manufacture, and market these units and systems. TSI had been the research and
development branch established by Michael Lynch for the purpose of creating and developing the VDMA micro chipset. NMVS had been the
branch which created a network of wireless sites which could be used for the purpose of wireless Internet service.
In April of 1998, WWW, which now included TSI and NMVS, transferred its assets to Upland Properties, Inc. (UPPI) in exchange for stock.
UPPI subsequently changed its name to World Wide Wireless Communications, Inc. (WWW) and, after originally trading under the symbol
UPPI, is now traded as WLGS. With this transaction now completed, and with the Company reorganized accordingly, it is now public on the
OTC Bulletin Board.
The most important single event in recent wireless cable high speed access (HSA) development came with the September 17, 1998 adoption
by the Federal Communications Commission of MM Docket No. 97-217. Kagan says "with this green light from regulators to deliver two-way
services, the industry's annual HSA revenue could explode."
Two-way makes completely practical the use of wireless cable for telephone use in the home, again transforming the industry and moving it into
the arena where sales are measured in tens of billions of dollars. That is, of course, why Sprint and MCI WorldCom are buying into the industry.
These leaders in the telephone industry are spending billions, and preparing to invest many more billions on infrastructure, because there are
now going to be tens of billions of dollars of annual revenue in the wireless cable industry.
MM Docket No. 97-217 permits, among other important things, the delivery of two-way digital data, voice and video services from MMDS and
ITFS licensees. The ruling allows WWW to increase applications of its licensed spectrum for both upstream and downstream services. At the
time of the unanimous two-way vote, FCC Chairman William Kennard said, "The decision is opening a whole new door to broadband services. .
.and that's a good thing."
The availability of the full 220 MHz of the MMDS and ITFS spectrums and the flexibility to combine, digitize or sectorize spectrum allows
consumer demand to drive two-way capability. The removal of the one-way limitation opens the marketplace to two-way video, data and voice
without the limitation of the wireline return path.
The trade association of the fixed wireless broadband industry, The Wireless Communications Association International (WCA) has filed
comments with the FCC which will further enhance the existing services. A copy of the WCA materials filed with the Federal Communications
Commission (FCC) specifying protection for MDS licensees is incorporated as an exhibit to this report as it is of current interest as well as
being a positive assurance of future service.
In Jackson, Mississippi, Wireless One has pioneered two-way with their Warp One Internet access service using MMDS downstream and WCS
upstream spectrums. Wireless One President and CEO Henry Burkhalter reports that after eight months of field testing the service provides "a
robust, flexible data transmission vehicle. Our technology development work with equipment vendors showed broadband wireless access is a
viable solution for ?last mile' challenges facing small to medium business and Small Office/Home Office (SOHO). In addition to the testing, we
have a total of seven months of commercial service demonstrating that wireless access reduces the time to market and the capital expenses of
connection and peripheral equipment compared to wired services. Our product has performed flawlessly in adverse weather conditions. Wireless
access is a proven, viable solution to commercial data, Internet access and telephone services. The availability of additional spectrum assures
future capacity."
The Jackson, Mississippi wireless cable system was personally inspected by Mr. Holt as background for earlier Holt Media Group studies for
WWW. Jackson is perhaps the nation's leading test market for advanced digital services, having been the initial national test market for Hughes
DBS satellites and the early thirty+ channel Tru-Vision wireless cable systems.
Jackson is justly famous as the home of both SkyTel and MCI WorldCom worldwide operations. Holt Media Group has personally visited
systems and installations in Jackson, and continues to monitor events in this crucial early-adopter market since it occupies a unique spot in
telecommunications technology applications.
Holt Media Group is of the opinion that the availability of MMDS and ITFS spectrum for data, voice and video substantially increases WWW's
existing capabilities and the future usefulness of its services in both the San Francisco market and in markets to be launched in the future
using MMDS and ITFS spectrum. Since the two-way ruling came after the early Beta testing by WWW from its Concord, California base initial
site, early results from the now-discontinued joint marketing venture do not apply to the present circumstances of WWW.
Under the current plans of WWW customers will have added opportunities and choices for high speed interactive services and access to
applications and programs that previously were not available or were cost prohibitive. WWW now has the flexibility and the opportunity to use
each and every part of their licensed spectrum, and is positioned to move ahead quickly.
Wireless One COO Ernest Yates said, "This FCC two-way ruling enables Wireless One and other wireless providers to reduce the time to
market of new access services. We are able to deploy reliable and flexible broadband wireless access rapidly and effectively. . .now that the
FCC has allowed for two-way services on MMDS and ITFS spectrum. The ruling also has positive implications for our Instructional Television
Fixed Services (ITFS) license partners in that they have a new potential for access service and pay-to-learn services."
Bloomberg's Alan Wolf reports that "Federal regulators approval of the rules allowing companies that offer programming using wireless
technology can now provide new services, such as high-speed Internet access, that could help them compete against the cable television
industry." The rules modify existing technical regulations to permit more flexibility in how the spectrum is used, and afford many advantages,
both technical and economic, over alternative approaches such as cable modems, ISDN and DSL.
The President of the Wireless Cable Association (WCA), Andrew Kreig, has said, "The American public is clamoring for access to emerging
data, voice and video services. . .and broadband wireless service providers are best suited to meeting that demand." This positive opinion has
now been validated by recent events.
On April 19, 1999 WWW announced its projected schedule for commencement of revenue generating services on eleven of its FCC-licensed
MDS channel groups. According to the Company, it is anticipated that one new location, in addition to the single channel site already in
operation in the San Francisco Bay Area, will open every three months, commencing in July, 1999. According to the Company, the next
start-up service will be in San Diego County, California, followed by a joint commencement of operations through its licenses at South Bend,
Indiana and Grand Rapids, Michigan. Shortly thereafter the company plans to begin service in Vail |
