It has been just a few years since wireless broadband was all but declared dead. But the industry instead has made a small recovery.
Wireless broadband service attracted a lot of attention from its dawn in the late 1990s until about 2000, as carriers were throwing millions of dollars into licenses and network buildouts, and vendors were scrambling to win contracts. But like other tech victims of the new century, its bubble burst.
The industry stumbled for a variety of reasons. Some operators found the technology could not support enough subscribers to justify deployment costs. Other operators built far-reaching networks expecting customers to flock to the service. When that didn’t happen, many operators found themselves in bankruptcy.
“A lot of people dropped broadband off the board and said the industry was dead,” said Lindsay Schroth, a wireless broadband analyst at The Yankee Group.
But instead of dying, the industry quietly evolved. Higher frequency spectrum and equipment has been employed for backhaul links in wireless networks, and improved technology for the lower frequency bands has made non-line-of-sight deployments a reality. New unlicensed frequency allocations in the United States also made it cheaper and easier for nontraditional players to launch wireless broadband networks.
While most people had forgotten about the industry, several small deployments have gotten off the ground. Schroth said activity in the wireless broadband industry during the past two years has been primarily that of wireless Internet service providers-often utility companies and small cable operators-deploying small networks in rural areas.
In addition, a new standard for wireless broadband networks-802.16a for below-11 GHz frequencies-has taken shape, and an industry group called the WiMax Forum is taking that standard, narrowing its scope and simplifying interoperability and certification testing.
“There’s movement actually happening in the industry and the standardization of the product can only really help that movement,” said Schroth.
“A lot of people look at this market and say it’s a failure, and it certainly has failed to meet expectations,” said Andy Fuertes, senior analyst at Visant Strategies. “But if you look at this market from 2002 on, with next-generation equipment that can operate in a non-line-of-sight environment rolling out, you see some pretty positive signs. You see some of these equipment vendors gaining some traction. You see a standard. It’s still an early point in the market, but it’s got some positive forward momentum.”
The industry’s growing pains have yielded valuable lessons for the survivors and startups playing in the wireless broadband market today, not the least of which is how to match buildout with available financing.
“Three to four years ago, when there was a lot of liquidity available for these projects, there was money available to develop all sorts of technologies and operational plans, not all of which worked out,” said George Wozencraft, a partner at Broad Oaks Advisors. “Now what we’ve seen is the pendulum swinging the other way in that now the technology has gotten better and there’s also been more widespread adoption in certain areas, but at the same time the financing market is very difficult.”
The Wireless Communications Association, a wireless broadband trade group, recently founded the Broadband Financial Task Force aimed at bringing the wireless broadband industry and the financial community together. Wozencraft chairs the task force. The group plans to hold symposiums and seminars focusing on issues specific to the wireless broadband industry.
“If you want to get financing in this market, it’s important for the operators and vendors to understand what the financial markets are looking for,” said Wozencraft. “Financial players really want to understand better what’s happening in terms of new markets and new technologies, and we decided that creating a forum to be able to do this would be something that would be helpful not just for the financial players but also for the operators and vendors.”
Unlike deployments of the past, today’s wireless broadband players, said Wozencraft, need to define their target market, determine what type of service they need relative to the existing competition and figure out how to provide that service.
“What we saw two or three years ago with a lot of networks is the `Build it and they will come’ approach,” he said. “A lot of people spent a lot of money trying to build widespread networks. It was kind of like a continent wide and an inch deep.
“What we’re saying now is that instead of building the whole system, you should really look at a much more modular buildout-a specific market or a specific geographic area-and build out your network to service those customers,” said Wozencraft.
The financial community, he said, looks for a few key factors when considering investing in broadband companies. Strong sponsorship is important, whether it is an established company with equity or a smaller company with strong venture-capital backing. A second key factor is a competent operating team, said Wozencraft.
“There have been a lot of jobs washed out of the telecom market in the past several years, so anyone who is putting money in today wants to make sure that the management team is capable of actually deploying the plan.”
Finally, the financial community looks for a solid plan for cash-flow breakeven on the operating side in a relatively short timeframe, said Wozencraft.
Rural America
The financial markets aren’t the only source of funding for wireless broadband players. Congress last year included language in the farm bill to create a broadband loan program administered by the Rural Utilities Service. The rural broadband loan program, which will offer low-interest loans, is good news for broadband wireless providers, but there are some catches.
The most significant catch is that RUS fancies itself as a conservative bank, so it does not want to jeopardize existing loans. To protect current borrowers, RUS allows them a two-year right-of-first refusal. This means if an incumbent local exchange carrier has a loan through RUS, that carrier could block a broadband wireless provider from getting a loan if it agrees to offer broadband to its customers.
Some in the wireless community have complained this is discriminatory.
“The basic problem is that they are geared to one provider to an area. This is the way they have lent money in the past,” said David Sieradzki, a telecommunications lawyer who has worked with various wireless carriers on RUS funding. “They ought to rethink the one-to-a-market rule.”
Ari Fitzgerald, a former wireless policy adviser at the Federal Communications Commission, believes if RUS keeps the one-to-a-market rule, it will be sacrificing the policy goal of bringing not only broadband but also competition to rural America.
Others are not so worried because they are convinced RUS will see the error of its ways.
“I understand RUS’ perspective that they are a conservative loan operator,” said Mark Rubin, director of federal affairs for Western Wireless Corp., at WCA’s conference earlier this month. “I have a high degree of confidence that the rule will be revisited.”
The good news is that the money-$1.4 billion in financing-is available, said Christopher McLean, a former RUS administrator and now a private consultant. McLean encouraged wireless broadband providers attending the WCA convention not to be overwhelmed by the caveats in the program and reminded them that accommodations can be made.
“An administrator can always find the one good way to get something done,” he said.
