SG and all -
Try this for size - cribbed from the G* thread this morning
IBD. 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.
(C) Copyright 1999 Investors Business Daily,
Inc.
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