Jim, and All,
Thought you'd like to see this WIRELESS article from Red Herring. It's with thanks to Pamela Murray from the Winstar thread:
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From Red Herring - THE FULL SPECTRUM By Paul Ross July 1998
The LMDS auctions and falling equipment costs have opened the door to a host of fixed wireless upstarts.
In major metropolitan areas, accessing the Internet can be tougher than getting a cab in a rainstorm. Demand has far outstripped what today's local telecommunications carriers can support, and frustrated users are desperate for a solution.
But help is on the way. Fixed wireless operators are poised to enter the lucrative urban regions--where businesses are heavily concentrated and a dense customer network can be served within a relatively small footprint--armed with enough spectrum to offer high-speed data services to capacity-starved customers.
Prix fixe
Once viewed as niche providers, fixed wireless companies have seen their niche suddenly expand, thanks to falling costs for spectrum licenses, better equipment, and ratification of the Telecommunications Act of 1996, which enabled the open auctioning of previously unused spectrum. By offering services that incumbent carriers can't or won't provide, upstarts like Teligent, WinStar Communications, and Advanced Radio Telecom are driving a competitive wedge into the local-access market. These providers are betting that much money can be made from helping to prevent the fiber-optically underserved from being cut out of the broadband loop.
Both established and nascent fixed wireless operators got a lift when the Federal Communications Commission's March auction for Local Multipoint Distribution Service (LMDS) spectrum turned into a buyer's bonanza. The FCC had hoped to generate $4 billion in bids, but the government collected only $580 million. Analysts attributed the low proceeds to the absence of the larger carriers, whose participation might have driven up the bidding price for licenses. (Perhaps they were scared off by memories of the disastrous personal communications services auctions of 1996, in which several companies were unable to realize returns on their purchases fast enough to meet their payment schedules.)
The government's loss was the wireless operators' gain. The big winners were little-known providers or consortia cobbled together by investors trying to capitalize on a good deal. Successful bidders got licenses at far lower rates than in the 1996 auction.
"There is a tremendous leverage between the inherent value of the licenses and what potential providers paid," says Daniel Ernst, a senior wireless analyst at the Strategis Group, a consultancy. In other words, because the bidders paid less than they had expected for these licenses, operators will have more leeway to price their services competitively and more capital available for network expansion.
Local news
Among the wireless operators that have earnestly begun tapping into the $100 billion local-access market in U.S. metropolitan areas are WinStar of Falls Church, Virginia, which operates in 10 markets, with 20 more planned for next year, and Teligent of Vienna, Virginia, which will launch its service after midyear and expects to be operating in 10 markets by year-end. (For a closer look at Teligent and its free-LMDS coup, see "Timing Is Everything.") Also gearing up are newly licensed operators WNP Communications, Nextband Communications, and Baker Creek, among others (see VC Whispers).
Richard Christner, a vice president at Mercer Consulting, points out that fixed wireless providers must compete not only with each other but also with newer wire-line technologies like DSL and with multibillion-dollar satellite systems like Teledesic and Iridium World Communications. (For more on satellite companies, see "Star Wars")
Terrestrial wireless companies are counting on their ability to "light up" a building faster and cheaper to beat wire-line and satellite providers to market. For example, Frank Jepson, an investor relations executive at WinStar, claims it costs a traditional carrier $75,000 to $100,000 to wire a building with fiber, while his company offers a comparable wireless solution for about $4,000. He says construction accounts for up to 80 percent of fiber installation costs, a figure that has remained relatively steady over time. In contrast, a wireless company's main expense is the technology, whose cost has dropped more rapidly.
Air mass
WinStar, Teligent, and others are first targeting small and midsize businesses because, of course, the low cost of wireless access will be most appealing to companies that most need to save money. Two developments in 1997 gave the wireless market a boost and made reaching customers a lot easier. First, large telecommunications equipment manufacturers like Lucent, Bosch Telecom, and Northern Telecom increased the industry's credibility by acquiring smaller wireless vendors. They also provided financing to help fixed wireless providers buy equipment to build out their networks. Nortel, for example, recently signed a $750 million deal to help Teligent install switches for its network.
Once growth from the business market begins to level off, fixed wireless providers will turn to the residential market, starting with multiunit dwellings and eventually working their way down to individual households.
Because the technology they are deploying inherently supports coverage of wider areas at minimal incremental cost, expansion into the residential market will be pure gravy for fixed wireless operators. Many households, especially in dense urban areas, are within range of the transceivers being used for the business customers and could easily be accommodated with the installation of a receiver at the home. "Once you cover 60 percent to 70 percent of the business market, you cover 30 percent to 50 percent of the households," claims Strategis's Mr. Ernst.
Quick fixed
International markets offer another area for growth. The move to deregulated telecom services has made some countries more attractive to fixed wireless providers. Teligent CEO Alex Mandl has said that he expects to be in markets outside the United States within the next year, and according to Mr. Jepson, WinStar has opened an office in Brussels and anticipates that foreign countries will begin generating revenues for the company within the next two years.
With such a huge entrepreneurial opportunity naturally comes intense competition--among the startups as well as with the established players. Some analysts speculate that the larger operators were content to sit out the most recent FCC auctions because they plan to acquire the startups that participated, and nearly all the analysts predict consolidation in the space. And any larger carrier that doesn't make acquisitions might still offer fixed wireless services on its own. Robert Egan, a research director at the Gartner Group, points out that in the earlier auction, several carriers bought licenses for more PCS spectrum than they will probably need to satisfy the immediate demand for mobile services. The leftover spectrum, he says, could be used to provide fixed wireless services.
Even with consolidation, most projections have the upstart wireless companies grabbing 5 to 10 percent of the total local-access market, including wire line, over the next ten years. But with the demand for high-speed Internet access expected to continue to skyrocket, even those startups that sell out stand to make a mint.
Paul Ross is a freelance writer living in New Jersey.
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