Whither the wireless dream? [G* reference]
Venture capital firms continue to pour money into wireless start-ups, but few of the investments will yield a windfall of corporate wireless services.
This story appeared on Network World Fusion at nwfusion.com.
By CHRIS NERNEY
Network World, 03/15/99
In a year when a record amount of venture capital money was poured into network start-ups, no
single technology drew more deals or dollars than wireless.
Between the fourth quarter of 1997 and the fourth quarter of 1998, 85 different wireless start-ups
received $776 million in 101 separate funding rounds, according to the PricewaterhouseCoopers/
Network World Venture Capital Survey.
That dollar amount comprises nearly 14% of all venture funds given to network technology and
services start-ups.
But neither this funding tsunami nor the ongoing rollout of services from established vendors will
necessarily translate into a wealth of wireless products and services for network managers.
Technology limitations, lack of customer enthusiasm for corporate wireless services and tough
competition from carriers pose formidable challenges for vendors and service providers to
overcome. The upshot is that you shouldn't plan to rely on wireless anytime soon.
Despite these obstacles, the key elements needed for wireless to work in the enterprise - vast
networks of towers and satellites, middleware and an array of useful wireless applications - are
falling into place, albeit more slowly than many people had hoped.
Launching services
There are two basic types of wireless service: fixed, which delivers services to a building; and
mobile, which reaches a moving target. In terms of the ability to transmit data reliably, fixed wireless
is far ahead of mobile.
Vendors such as Advanced Radio Telecom, NextLink, Teligent and Winstar already provide
high-bandwidth, fixed wireless services to customers in and around many major cities. AT&T and
BellSouth also offer services in most large markets across the U.S.
"The technology is becoming a bit more ready for prime time," says Todd Dagres, a partner at
Boston-based venture capital firm Battery Ventures. For example, a few service providers, such as
NextLink and Winstar, plan to deliver Internet service over broadband wireless, making a T-1 pipe
accessible to sites that aren't part of a fiber ring.
In February alone, there was a flurry of activity in the wireless market:
Network equipment giant Cisco and cellular phone maker Motorola announced they would
invest $1 billion over the next four or five years to develop a standard for using Internet
technology to enable wireless networks to transmit data, voice and video services.
British Telecommunications and Microsoft announced plans to offer Internet-based wireless
network products and services, as did Nextel Communications and Netscape in a separate
venture.
Globalstar launched four more low-earth orbit (LEO) satellites, giving the firm a total of a
dozen satellites for providing voice, data, fax and messaging services.
Teligent launched wireless phone and Internet access in four more cities as part of its push to
service 40 markets by year-end.
PSINet announced plans to expand its wireless Internet access service, PSINet InterSky, to
11 U.S. cities by year-end and to 50 cities by the end of 2000. The company also plans to
roll out the service in a dozen other countries.
This growth in wireless choices is good news for network managers in metropolitan areas. For
corporations based in smaller population centers, however, wireless may be an unfulfilled dream.
"Wireless is coming real soon in a few places, three to five years in many places, and never in some
places," says Bill Frezza, a general partner with Adams Capital Management, a venture firm in
Sewickley, Pa.
Vendors delivering wireless services aren't likely to build antennas in areas where there aren't
enough customers to make the upfront expenditures pay off.
"For carriers to profit, there needs to be widespread deployment within an antenna's coverage
area," says Judith Horton, research director for AT&T Ventures, the telco giant's investment arm,
which has funded several wireless companies over the past few years.
One wireless company hoping to circumvent the location problem is Teledesic, which plans to
launch a $9 billion LEO satellite-based "Internet in the sky" intended to deliver fixed wireless
broadband services to corporate and individual customers anywhere in the world. But this isn't
scheduled to happen until 2003, and so far the company has only launched one test satellite. None
of its 288 planned satellites are due to go up until 2001 or 2002, according to a spokesperson.
But companies such as Orbcomm and Leo One USA have already deployed smaller satellite
networks, and analysts from New York-based Ascent Communications Advisors say the LEO
services market could top $2 billion by 2002.
Another promising wireless technology is Local Multipoint Distribution Service (LMDS), which
vendors say can transmit a staggering amount of data - the equivalent of several hundred T-1 lines.
Compare this with the downstream capacities of 1.5M bit/sec for a T-1 line, 7M bit/sec for
asymmetric digital subscriber line and 45M bit/sec for a T-3, and it's easy to see wireless
technology's appeal.
There is a downside, of course: LMDS works over a maximum distance of three miles and requires
a fixed antenna with an unobstructed path. And services are four to five years down the road.
Still, Pioneer Consulting expects the U.S. LMDS market to hit $6.5 billion in a decade, with most
service going to small businesses.
Last spring, the federal government auctioned off a huge allocation of spectrum for LMDS. The big
winner was WNP Communications, which bought 40 licenses covering 105 million points of
presence for $187 million - the most spectrum ever licensed to one company. In January, NextLink
of Bellevue, Wash., acquired WNP for $542 million, and now owns exclusive LMDS rights in
about 95% of the 30 largest U.S. markets.
Scanning the spectrum
When you consider the vast number of network products and services competing for investment
dollars, the $776 million invested in wireless truly is notable. But not everyone thinks the raw
numbers necessarily translate into a plethora of services for network managers.
"The number of companies focusing on exploiting copper or more conventional in-building wiring -
whether in the LAN or the WAN - vastly outweighs the investments in companies focusing on
wireless media," says Peter Wagner, a general partner at venture firm Accel Partners in Palo Alto.
One wireless company drawing big bucks is Formus Communications, a Denver-based broadband
wireless services provider. Formus landed a $55 million venture round in the fourth quarter of
1997, which was the largest single funding deal made in the five quarters that Network World has
been participating in the survey. Another wireless start-up, Triton Network Systems of Orlando,
raised $40.4 million in two venture rounds in the fourth quarter of 1997 and the second quarter of
1998.
Further, many of these firms are pursuing foreign markets. Formus, for example, is targeting its
high-speed wireless broadband services to business customers in Latin America, Europe and the
Asia/Pacific region. Others looking overseas include African Communications Group, based in
Cambridge, Mass., and ARIA Wireless Systems of Buffalo, N.Y.
Still, there is no shortage of vendors aiming their wireless products and services at the corporate
domestic market. Among them are:
which sells a wireless Ethernet bridge for enterprise applications.
Phoenix Wireless of Maitland, Fla., a provider of wireless local loop products and
services.
Aironet of Akron, Ohio, which sells wireless LAN (WLAN) products for mobile PC users.
For John Gilbert, chief technology officer of Rudin Management in New York, the expanding
choices for wireless are a far and welcome cry from even three years ago. Rudin runs what may be
the most famous wired building in the world - 55 Broad Street in New York, home to dozens of
cutting-edge cyberspace companies.
"When we started designing 55 Broad in 1995, my goal was to have as much of it wireless as
possible," he says. "The technology just wasn't there. Now we're seeing companies using wireless
distribution systems within the building."
In fact, 55 Broad Street hosts antennas from Winstar and NextLink on its rooftop, so businesses in
the building not only have wireless access, they have a choice of carriers. Rudin also plans to use
wireless
to link the property with the real estate management firm's other holdings in New York and around
the world.
"For us, the new model is to include bandwidth as part of the bundle of services that we provide to
our tenants," Gilbert says. He's experimenting with leaky feeder cable, a type of partially shielded
cable that emits radio frequencies and could be used to tie a WLAN or PBX to a wired network.
Wireless sore spots
Despite experimentation by a few companies such as Rudin Management, WLANs for years have
been relegated to a niche market. Plagued by sluggish transmission speeds, high prices and
interoperability problems, WLANs have found little acceptance in the enterprise. That may change
in the next couple of years, thanks to the 1997 adoption of the IEEE 802.11 interoperability
standard.
However, International Data Corp. doesn't expect WLANs to begin hitting their stride until 2001,
mainly because a still-higher-speed standard is needed, and customers will want to hold off on
deployments until they're confident that vendors are rallying around that standard.
The market for fixed wireless local loop service has also lagged, with only one million subscribers
through 1997, according to the Strategis Group. The chief problems have been high equipment
costs and spotty performance. However, the New York-based consultancy predicts that wireless
local loop subscribers will number eight million by 2000 and 47 million by 2005, thanks to
bandwidth demand, lower equipment costs and less resistance from enterprise customers.
Wireless hasn't done much for mobile computing, either. "Mobile data has been a disaster," says
Adams Capital's Frezza. "There have been all of these unfulfilled expectations about the road
warrior getting data to his desktop."
Mobile computing has faced two obstacles. For one, as wireless users move around, their
connections fade in and out. The other problem is that most hardware made today isn't suited for
complex data transmission.
"The reason the PalmPilot has been so incredibly successful is it didn't try to bite off too many
applications," says AT&T Ventures' Horton, who says this is the same reason Microsoft's
Windows CE hasn't done well. "Microsoft is trying to bring the desktop to a wireless form factor,
and it's too small. Data input is next to impossible."
Similarly, Frezza predicts isolated successes in the use of wireless mobile data hardware. One
device that holds promise, he says, is the $400 BlackBerry Mobile device made by Research in
Motion of Ontario. The device has a tiny keyboard and lets users send and receive Microsoft
Exchange e-mail.
As limited as the prospects may appear for mobile wireless computing, a few corporate customers
are having success with the technology. Boston Coach, an executive sedan service based in
Everett, Mass., uses mobile wireless technology to enable dispatchers to communicate with drivers
in Boston and Washington, D.C.
The company switched from a cellular phone system because dispatchers could only book 800
rides per day, far below the amount the 180-car Boston fleet could handle. "We got so large in
Boston that we couldn't operate anymore," says Bill Gemmell, senior vice president of operations.
Boston Coach hired Dynamic Mobile Data of Somerset, N.J., to develop dispatch software to run
on Hewlett-Packard 360LX handheld computers.
Powered by BellSouth's wireless network, the application allows drivers to give status reports using
hot keys on the handheld device. Dis-patchers work much faster with the new wireless data
system, allowing Boston Coach to almost double its average daily ride capacity in the Boston area.
Gemmell says it cost Boston Coach $150,000 for the software and about $750 per car for the
handheld computers. He expects the service to pay for itself over the approximate three-year
lifetime of the hardware.
While Boston Coach was ready to give up its cellular service, one of the biggest challenges wireless
vendors face is persuading customers to drop their current carriers.
"Our main competition is always the incumbent local exchange carrier, whomever the incumbent is
in the area," says Bill Rouhana, chairman and CEO of Winstar, which primarily offers its services to
small and mid-size businesses but which last year launched a division for large accounts.
To win business, Winstar and other wireless vendors rely on underpricing, charging 10% to 20%
less than the incumbent local carrier.
Teligent promises any potential customers the same service they're now getting - local phone
service, long distance and Internet access - for 30% below what their incumbents are charging.
While many industry observers believe that wireless service prices will drop, Accel's Wagner isn't
sure.
"What you're seeing today has very little to do with the actual economic cost of delivering the
service and a lot to do with regulation," he says. "The prices being charged are being set by a
combination of a regulatory labyrinth and a monopoly pricing model, and as a result there's an
umbrella to operate under."
Preparing for wireless
Unless your firm is buying hundreds of mobile computing devices, you won't have to do much to
take advantage of wireless technology, says Battery Ventures' Dagres.
The service providers will likely offer one-stop shopping and handle installation.
Whether wireless is coming soon to an office park near you may depend on your location and on
how quickly vendors can overcome technical challenges.
"The history of wireless networks is that it's always taken a lot longer to work out the bugs than
they ever think it's going to take," AT&T Ventures' Horton says.
Given that sobering assessment, network managers should treat wireless for what it is - promising
technology that is not quite ready for prime time.
These are the wireless start-ups that have attracted the largest amount of funding since the fourth
quarter of 1997, according to the PricewaterhouseCoopers/Network World Venture Capital
Survey.
<c>
Formus
Communications
LMDS
provider
$70.7
million
(2)
BancBoston
Capital
Triton Network
Systems
Local loop
access
$40.4
million
(2)
Adams
Capital
Management
Comm Site
International
Transmission
facilities
$37.1
million
(3)
Edison
Venture Fund
AirNet
Communications
Telco base
stations
$34.4
million
(2)
Adams
Capital,
Patricof &
Co.
Unwired Planet
2-way
handheld
datacom
$33
million
(1)
Greylock
SpecraSite
Communications
Owns,
leases
towers
$28
million
(2)
J.H. Whitney
& Co.
Unisite
Site sharing
services
$22
million
(2)
AT&T,
Battery
Ventures
Metawave
Communications
Management
systems,
tools
$19
million
(1)
Worldview
Technology
Partners
XYPoint
911 services
$17
million
(1)
FBR
Technology
Venture
Partners
Radio Local Area
Networks
Wireless
LAN
products
$15.2
million
(2)
Cisco
Systems,
Draper Fisher
Jurvetson
</c>
All contents of Network World Fusion are copyright 1995-1999 by Network World, Inc., Framingham, MA
01701.
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