Wireless broadband started out as a unique and rapidly growing concept, poised on the edge of a data revolution that promised to produce millions of dollars and bring the Internet to those left out in the cold by wireline technologies.
For months, momentum has been swift and strong, but uncertainty about the future allocation of spectrum and lack of sufficient funding is quickly bringing the industry to its knees.
Wall Street is downgrading wireless broadband company stock as fast as it can, due much in part to a preliminary study issued Nov. 15 by the Commerce Department regarding the availability of radio spectrum for third-generation services. Multichannel multipoint distribution services spectrum in the 2.5 GHz-2.7 GHz frequency band potentially could be handed over to PCS and cellular service providers. Bad news for Vyyo Inc. and others that depend on this spectrum to keep its customers and its own business afloat.
“If the FCC decides to use or share frequency in the 2.6 GHz range for 3G, MMDS service rollouts could be significantly curtailed,” said James McIlree, analyst with Tucker Anthony Capital Markets in New York. “Even if the FCC ultimately follows another path, such as using the 700 MHz band or re-allocating military frequency in the 1755-1850 MHz band, we think rollouts could be cut back given the uncertainly of how the government plans to proceed on this issue.”
The report surfaced as a result of a directive from President Clinton to the Federal Communications Commission to identify 3G spectrum bands by July 2001, and complete license auctions by Sept. 30, 2002. In a statement from the Commerce Department, Gregory Rohde, assistant secretary of commerce and communications and information and National Telecommunications and Information Administration head, said the report indicates segmentation and sharing possibilities in the 1755-1840 MHz band, but he did not indicate any specific directives for MMDS spectrum.
“The industry and the federal agencies need to begin exploring these possibilities as well as possible re-allocation options,” Rohde said.
According to the plan, the FCC will issue a notice of proposed rule making on Dec. 31 on spectrum allocation for 3G wireless. Final reports will be issued by the two agencies in March and identification of spectrum by the FCC in coordination with the NTIA will be made in July.
McIlree said each of the three band segmentation options under consideration could take 90 megahertz of the 190 megahertz of spectrum away from MMDS operators.
“A second impact on the segmentation band plan is cell sizes would shrink. This has the effect of driving infrastructure costs up,” said McIlree.
On a more positive note, Tucker Anthony said a slower MMDS rollout could stimulate activity in the local multipoint distribution services and unlicensed frequency bands. The firm is skeptical about long-term point-to-multipoint business in the LMDS frequency, but bullish on point-to-point architectures.
MMDS infrastructure equipment provider Vyyo also is expected in the next few weeks to announce a partnership with “one of the largest global communications carriers.”
Money problems
The questionable availability of MMDS spectrum is having a chain effect that is impacting a variety of wireless broadband companies where it counts-funding.
Advanced Radio Telecom Corp., Metricom Corp. and Teligent Inc. all have announced in recent weeks that they cannot guarantee funding beyond the middle of next year. ART has incurred losses from operations since its inception, and expects to continue to incur losses for at least the next few years.
“There can be no assurance that the company will be able to obtain additional financing, or, if available, that it will be able to obtain such additional financing on acceptable terms,” ART said.
Metricom said it will require about $500 million in additional capital to complete its full network deployment plans, the source for which is still unknown. Metricom has encountered delays in the deployment of its Ricochet network due to zoning approval challenges and utility agreement negotiations. In addition, Metricom’s outsourcing of the manufacturing and installation of its network could pose problems.
Last week Standard & Poor’s downgraded ART and Metricom from “stable” to “negative,” and Moody’s Investors Service did the same to Teligent.
In response to the dwindling funds, Teligent and ART have reduced expenditures, including cutting employees-a trend that might continue if investors fail to come through. And at least for carriers, rapid geographic expansion will continue to take a back seat to driving revenue in existing markets.
