Wireless broadband service has finally received attention from the likes of big telecom players Sprint Corp. and MCI WorldCom Inc. The race is on to access the local market and cheaply bypass connection to regional Bell operating companies.
Sprint announced last week plans to purchase wireless cable operator Connecticut-based People’s Choice TV, which will give the No. 2 long-distance carrier another way to deliver Sprint integrated on-demand network (ION) broadband services to business and residential customers. PCTV holds licenses in nine U.S. markets, including Chicago.
Sprint recently announced plans to build asymmetrical digital subscriber lines (ADSL) in 35 major markets by the end of the year. It already has introduced ION services to the large business market. With wireless, Sprint will offer customers multi-megabit data, video conferencing and voice via a nine-inch antenna mounted on the roof or the side of a house and pointed toward a tower. The carrier will leverage some of its long-distance and mobile phone infrastructure to deploy the service.
Sprint’s announcement comes on the heals of reports that MCI Worldcom purchased the debt of wireless cable operators CAI Wireless Systems, Wireless One, CS Wireless Systems and People’s Choice in order to gain control of the companies. Published reports indicate the company wants to use these companies to provide Internet access and other services.
“Any LEC or IXC that is going to compete for dollars is going to have to use more than one type of local access to reach out and touch someone,” said Bob Egan, research director with Gartner Group in Stamford, Conn. “The bottom line is that wireless is on the threshold of moving from prime hype to prime time.”
“Right now, the biggest hurdle for long-distance and ISPs is the final mile,” said Timothy O’Neil, wireless analyst with SoundView Financial Group. “T-I lines are extremely expensive and difficult to get because the demand is so high. The regional Bells have the long-distance providers over a barrel. A great way around this is wireless.”
Sprint said it will use a variety of technologies to deliver high-speed access to the local market. Methods will vary both within and across its markets. The choice will depend on the characteristics of each market and the economics associated with the alternatives. Wireless cable, or multichannel multipoint distribution system (MMDS), for instance, is limited to line-of-sight, and signals can be lost if trees or homes block the antennas so the technology is better suited for tall high-rise buildings.
And because telecom carriers are looking for a variety of ways to enter the local market in order to keep costs down, analysts don’t rule out AT&T Corp. looking for plays in the wireless cable market either. AT&T last year purchased competitive local exchange carrier Teleport Communications Group, which provides service to businesses, for about $12 billion. The company is spending large amounts of money upgrading traditional cable TV networks to penetrate the local market, and AT&T recently indicated costs for Project Angel-a proprietary wireless last-mile connection solution to the home-have fallen to $750 per household from $1,149. The company expects costs eventually to fall to $300.
And the price seems right to snatch up wireless cable operators, which have bled money trying to survive in the cable market. The Federal Communications Commission’s original vision was to set up rural wireless cable operators to tie into the educational field, said O’Neil. The FCC granted enough spectrum in the 2.5 GHz range to allow operators to offer about 20 stations, and in the early 1980s, some license holders built out service and generated revenue, he said. But Direct TV entered the fray, offering 150 different cable stations, putting the MMDS industry out of business.
“The idea to compete with the cable industry was a pipe dream at best and poor planning at worst,” said Larry Swasey, vice president of the communications research with Allied Business Intelligence in Oyster Bay, N.Y.
The FCC in 1998 allowed wireless cable operators to offer two-way services, and carriers have begun shifting their focus on high-speed Internet access. But with tight financing markets, a number of wireless cable operators have struggled and introduction of such wireless two-way services has been slow. CAI Wireless emerged from Chapter 11 bankruptcy reorganization in October, but the company continues to operate at a loss. PCTV in March said it needed additional financing to continue, and that it may seek up to $25 million under a bank credit facility.
Sprint said it is purchased 12.9 million outstanding common shares of PCTV at a cost of $8 per share for about $103 million. Sprint previously agreed to acquire PCTV’s convertible cumulative pay-in-kind preferred stock at a cost of $23.3 million.
The hurdle to the broadband wireless market is its slow development and lack of economies of scale, say analysts. However, WinStar Communications Inc. and Teligent Corp. are gaining momentum and commencing aggressive networks in the local multipoint distribution service market.
“The whole problem going up on [MMDS] frequencies is that operators are going to have to go into a marketplace that is highly competitive in which wireline providers have a head start,” said Swasey. “But Sprint and MCI WorldCom have recognizable brands. They already have an advantage.”
Spike Technologies Inc., an MMDS equipment vendor in Nashua, N.H., said it already has MMDS two-way digital equipment ready to deploy, and is operating a test bed with live customers in New Hampshire. The company already has deployed equipment in Latin America and Europe. According to Swasey, all broadband wireless equipment providers stand on equal footing at this point when it comes to developing equipment for the MMDS market.
“All it takes is one large acquisition of equipment to bring the price up to par with other wireless equipment,” said Swasey. “There is enough interest in the spectrum to bring the economies of scale to a competitive level.”
A report the Strategis Group plans to release this week indicates global broadband service revenues generated by fixed terrestrial wireless systems are expected to approach $10 billion in five years and $28 billion in 10 years, with Brazil and Poland leading the way.
