Jim, here is the followup piece on TeraBeam from Briefing.com...
Updated: 12-Apr-00
The TeraBeam Revolution
[BRIEFING.COM - Gregory A. Jones] This company is still a long way from being public, but its technology is too important to wait for an IPO to begin talking about TeraBeam. The company's fiberless optical technology received important validation when Dan Hesse, the president of AT&T's wireless division, left AT&T just before the IPO of that division. Today saw even more dramatic validation as Lucent (LU) took a 30% stake in a joint venture with TeraBeam Networks to form new company, TeraBeam Internet Systems, which will develop the Terabeam technology. This venture has important implications for the future of broadband connectivity, and for all of the other players in the telecommunications industry.
Let's start with the technology. There are three key points to understand about TeraBeam's solution for the so-called last mile problem, the constraints to bandwidth delivery in the last mile to the customer's premises.
TeraBeam's technology is wireless.
TeraBeam's system employs an optical signal instead of a radio signal.
TeraBeam's system is point-to-multipoint rather than point-to-point.
Wireless: Bandwidth availability at the core of the network is booming due to fiber optics and DWDM (dense wave division multiplexing), but the last mile to the customer is still a bottleneck. DSL offers a reasonable alternative to households and small businesses, but does not offer sufficient bandwidth for big business. The same goes for cable, which also has security issues. Satellite may become an option for consumers, but the current lack of upload capability and the relatively limited bandwidth rule it out as an option for businesses. Fiber into the building is ideal, but prohibitively expensive in most cases. Wireless is left as the most attractive option due to its low installation cost and relatively short provisioning times, but until now has been dominated by radio frequency (RF) technologies, the weaknesses of which will become apparent.
Optical: Because this is an optical solution, it offers much greater bandwidth potential than current RF solutions. The first generation TeraBeam product delivers 1 gigabits per second, compared to speeds of about 100 megabits for RF technologies. The second generation is expected to incorporate DWDM which will allow "much faster" speeds according to TeraBeam CEO Hesse. Another advantage of optical is that it can be delivered through office windows, eliminating the need for the rooftop rights required by RF, which are both expensive and time-consuming to secure. Finally, optical signals don't require the expensive spectrum license fees needed for most RF technologies.
P2MP: OK, we just made up that abbreviation, but the point-to-multipoint feature is also critical. With one hub, TeraBeam can service 12-20 customers. Most RF technologies are currently point-to-point, requiring more expensive and complex networks to tie together all the points.
Completing The All-Optical Network
We have heard a lot of talk in recent months about the shift to an all-optical network, and TeraBeam has the ability to make that a reality. There are currently two key obstacles standing in the way of the all-optical network; the first is the need for optical switching, an area in which there has been substantial progress over the past year. The second is the last mile. Installing fiber to every business, though an ideal solution, has simply been too expensive to be a serious solution. But fiberless optics can complete the optical network.
What about the weaknesses? At this point, two are apparent. One is the relatively short range in which this system can operate effectively. TeraBeam claims that its system has a maximum range of 3 km. Some RF systems now claim ranges of up to 50 km. So for rural and residential service, TeraBeam's solution is not a realistic option.
There is also a persistent question about the ability to operate this optical system in variable weather conditions. But when asked about that in today's conference call, Hesse said that TeraBeam can tailor its network to specific local weather conditions, and he claimed that the system has had no trouble coping with Seattle's notoriously nasty conditions.
The TeraBeam/Lucent Connection
The technology is indeed revolutionary, but we need to discuss how Lucent fits into this picture. The deal today created a new, independent company, TeraBeam Internet Systems, which will be 70% owned by TeraBeam Networks, and 30% owned by Lucent. For its stake, Lucent contributed cash, R&D, intellectual property, and products with a total valuation of $450 mln. TeraBeam is contributing R&D, intellectual property, and products, and has named Lucent as its preferred supplier of optical components, networking equipment and services.
Aside from the unspecified cash contribution, what Lucent has really contributed to this deal is its WaveStar OpticAir technology. This is where the TeraBeam/Lucent combination makes clear sense. OpticAir is also a fiberless optical technology, and it is even higher bandwidth than TeraBeam (2.5 Gbps now, 20 Gpbs in the future). But OpticAir is point-to-point, so it is not competitive with TeraBeam's system. Instead, it is the perfect complement in that it offers hub-to-hub high capacity connectivity which can deliver TeraBeam's signals upstream to the core fiber network.
TeraBeam Internet Systems will be independent of TeraBeam Networks. The new company will produce the equipment. TeraBeam Networks will be the services company that sells high bandwidth services to businesses. Initially, TeraBeam Networks has exclusive rights to the equipment produced by TeraBeam Internet Systems (which will carry the Lucent brand). But Hesse left open the possibility that the company could sell equipment to other service providers in the future.
More TeraBeam Facts
In addition to those key points, here are some other noteworthy bits of information regarding TeraBeam:
TeraBeam's optical signal is the equivalent of a laser, but it is much wider (about 1 meter at a distance of 1 km) and it is not harmful to the eye.
Though TeraBeam's system is currently limited to 1 Gpbs, it can easily be increased by simply added another piece of equipment on the customer premises; with these units being described as the equivalent of a small satellite dish mounted on a pedestal.
The system is also easily scalable on the TeraBeam end, as multiple hubs can be placed within 10 feet of one another to add the capability of delivering service to another 12-20 customers.
TeraBeam currently has one commercial trial underway with Internet advertising services company Avenue A (AVEA).
TeraBeam's plan is to have its system operational in 100 cities worldwide within four years; it will not offer any build-out forecast for shorter time frames.
On Tuesday, prior to the Lucent announcement, it completed its third round of equity financing totalling $105 mln from Softbank Venture Partners, Oakhill Venture Partners, Morgan Stanley Dean Witter, Merrill Lynch IBK Positions, and others.
Lucent CEO Rich McGinn estimated that the size of the broadband access equipment market would be $33 bln by 2003 and that TeraBeam Internet Systems should own a "major piece" of that; he added that this technology will "dramatically" change conventional wisdom regarding what goes into networks.
The Big Picture
You get the idea -- what TeraBeam is working on has incredible potential to change the telecommunications/networking landscape. Obviously, investors can't get at TeraBeam directly yet, so they are left with only Lucent as a direct play on TeraBeam's technology, though LU is a heavily diluted way to play. But this TeraBeam story is not just intended as an illustration of its fiberless optical technology. There are much broader lessons to be learned here.
Most importantly, the all-optical network might be much closer at hand than was previously believed. That is great news for many fiber optic companies aside from LU: Sycamore (SCMR), Ciena (CIEN), JDS/Uniphase (JDSU), and SDL (SDLI). It is also good news for service providers who sell wholesale bandwidth at the network core: Global Crossing (GBLX), Qwest (Q), and Williams (WCG). But it's not good news for fixed wireless RF service providers such as Teligent (TGNT), Winstar (WCII), and Nextlink (NXLK).
This is just an introduction to TeraBeam and its potential impact on telecommunications. And it is a warning not to ignore TeraBeam simply because it is not yet a public company. Chances are that we'll be talking about TeraBeam a lot more in the future, and that its technology will have positive and negative ripple effects throughout the telecommunications industry. You should not invest in any telecommunications company before you first understand how it will be affected by TeraBeam.
Greg Jones - gjones@briefing.com |
