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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Bowen who wrote (10459)	3/1/1999 10:57:00 AM
From: Pamela Murray	Read Replies (1) \| Respond to of 12468

From last week: February 22, 1999, Issue: 722 Section: Behind The News -------------------------------------------------------------------------------- No Strings Attached -- Investors Like Companies Providing Fixed-Wireless Telecom Services Because They Offer Businesses Substantial Savings William Schaff Given the growth of E-commerce, networking, and remote users, communications costs are one of the biggest recurring IT expenses. Local access charges are a significant part of that, but regulatory hurdles to the local exchange market have been lowered, which means companies will see economic benefits from technological advances, particularly from fixed-site wireless systems. Every time a long-distance carrier hands off to a local provider, it pays a charge. The regulatory environment favors competitive local exchange companies, but few have managed to cut into the Bells' markets. Since they can enter the market with lower costs because they don't need access to a competitor's physical network, small companies that provide fixed-site wireless service, including Teligent (TGNT-Nasdaq), WinStar Communications (WCII-Nasdaq), and Nextlink Communications (NXLK), may have more success. These carriers all use a form of microwave point-to-point or point-to-multipoint radio. By placing a 12- to 18-inch microwave dish at a central point and having complementary dishes atop customers' buildings, they can provide direct service. The range of these dishes depends on the radio frequency used, but they can usually cover 20 to 30 square miles, sufficient for most downtown areas. Microwave systems deliver high reliability and bit error rates similar to copper digital systems. The economics of microwave systems gives these companies a competitive advantage. WinStar estimates that it has to sell only 10 lines to break even on a point-to-multipoint system. The cost of linking to each new building is about $6,500. Compare this with a conventional fiber-optic system, which takes about 165 lines to break even because it costs $300,000 to link to each new building. WinStar has roughly 800 MHz of spectrum and is focusing initially on large companies. It provides voice and data services in the United States and IP data services in Western Europe. It's leasing its long-haul services from Williams Communications to link 60 domestic markets. The company provides local dial tone, long distance, Internet access, and broadband data services, including frame relay and ATM. Lucent Technologies is providing WinStar with a $2 billion line of credit for equipment. WinStar can spend up to $700 million for equipment from providers other than Lucent. Teligent has about 400 MHz of spectrum. It operates in 15 cities and plans to expand into 10 more cities by the end of the year. It uses both the 24-GHz and 28-GHz bands and ATM to maximize the efficiency of the radio link. The company provides basic voice, toll-free, and voice-mail services, as well as private T1 and T3 Internet access, to businesses needing five to 500 lines. Nextlink, backed by Craig McCaw, has been concentrating on building fiber-optic connections to large offices and business parks. Early this year, it completed a deal with Nextel, another McCaw company, to purchase Nextel's share of Nextband and WNP for $700 million, which gives them enough capacity to provide T1 and T3 services to large businesses without the expense of building a fiber-optic network. Nextlink is also connecting its local networks to Level 3 Communications' fiber-optic infrastructure, which will allow Nextlink to compete at home and abroad. Nextlink, however, intends to use the wireless system as a way to get to market faster. Once it has established service to a given location, it will build a fiber-optic connection to that location and relocate the radio equipment to another building. Teligent, WinStar, and Nextlink won't have positive earnings this year. In fact, they'll all show bigger losses. But one or more may achieve positive cash flow by the end of 2000 after their infrastructure expenses begin to decline and companies begin to realize the cost advantages of fixed-wireless systems. Investing in all three may be a good way to reduce your risk in this high-risk sector. But it sure helps to have the regulators and the technology behind you.