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Economic slowdown or not, there apparently is no shortage of investors ready to foot the bill for getting fixed wireless broadband technology from the drawing board to operational mode.
Even though technology standards still are being developed and companies are scrambling to find their niches on the wireless spectrum, investors seem to be well informed about this rapidly developing industry.
While a raft of earlier startups such as Vyyo, Ensemble, NextNet and Nucentrix are competing to expand service rollouts, there's a new flock of entrants that are attracting capital.
"People love the sector. That's the first thing that comes out in meetings with the financial investors," says Jai Bhagat, the wireless industry veteran who is chairman and CEO of startup Air2Lan . Bhagat, speaking during a recent road trip seeking investors for a $35 million second funding round being led by Chase Manhattan Corp., said potential investors are aware that existing technologies, especially ADSL (asynchronous digital subscriber line), haven't rolled out fast enough to meet the demand for high-speed Internet access in the marketplace.
Fixed wireless broadband largely is seen as a way to connect customers wanting high-speed Internet access without the huge cost of laying last-mile fiber optics cable or the distance limitations of ADSL over conventional copper telephone lines. Point-to-multi-point radio frequency (RF) or microwave transmitters and receivers cover the distance between a customer's home or business and the wireless provider's servers linked to the Internet.
Fixed wireless players are finding financial support from potential customers including ILECs and CLECs and equipment manufacturers, as well as more traditional sources like institutional investors and venture capital companies.
Even with a marked slowdown in venture capital investing during the second half of the year, investments in wireless base station infrastructure rose 137 percent to $987 million from $416 million a year earlier, according to Ken Anderson, managing editor of Technologic Partners' VentureWire Group, which tracks the venture capital industry. That parallels the more than doubling of total venture capital investment in private companies, which reached a record $105 billion.
Other sectors, led by e-commerce ventures, contributed to the second-half funding slowdown. Funding for wireless services ventures fell slightly to $2.6 billion from $2.9 billion in 1999.
BeamReach Networks, which was spun off in April from Radix Technologies, raised $13 million in a first round of funding from investors including Verizon Communications, Goldman Sachs, Siemens and Mitsui. Several of those potential customers again are investing in a second private placement round expected to close early this month.
"We were initially looking for $30 million, but there's a lot of interest, so it looks like we'll raise $40 million," says Bernard Aboussouan, marketing vice president for Mountain View, Calif.-based BeamReach.
Kite Networks, which launched a beta trial of its wireless broadband service during December in Phoenix, has the help of First Union Corp. as it raises a second round of $50 million in private equity capital. Begun with $6 million in seed money, the Ridgeland, Miss.-based company obtained a $50 million credit facility through Cisco Capital that can rise to as much as $500 million on a 3-to-1 debt-to-equity ratio says president and CEO Jerry Sullivan, himself a veteran of successful mobile wireless startup Tritel.
Air2Lan, Kite Networks and BeamReach are representative of the smaller companies in various stages of development and deployment across the fixed wireless broadband industry.
Air2Lan has signed about 250 small business accounts since it began commercial operations in its hometown of Jackson, Miss., in May. The company's second market, Houston, launched in December and operations are to begin this month in New Orleans. Air2Lan's goal is 40 markets by 2003.
The company expects a positive cash flow from its Jackson operations within five to six months and forecasts positive returns elsewhere within 20 months of opening, says Bhagat. Air2Lan targets areas with high concentrations of small business accounts, where revenue per client is higher than in a residential market.
Like Air2Lan, Kite Networks is targeting small-to-medium-size businesses that are struggling with 56k dial-up Internet access. Kite isn't ruling out the residential market, but will wait until consumer-oriented equipment is available. Cisco Systems Inc. is supplying the wireless transceivers Kite will use in its commercial launch in Phoenix, which should start during the first quarter.
The $50 million Kite is currently raising should carry the company through late 2001 and its buildout in Phoenix and a half dozen other markets, Sullivan says.
BeamReach plans field trials and commercial rollouts late in 2001. Although later to market than some fixed wireless providers, the company believes its patented digital radio technology will let it leapfrog over current first-generation technologies that can't support the potential traffic and require too many base stations to be cost-effective.
BeamReach is targeting the residential marketplace via ILECs, IXCs, CLECs and ISPs.
"We've planned to be competitive so that a service provider who offers it at $29.95 a month can still make money on it," says Aboussouan.
Air2Lan, Kite Networks and BeamReach Networks also illustrate the diversity of niche players regarding choice of wireless spectrum and equipment vendors. Here's a look at their somewhat divergent technology paths:
Air2Lan
Air2Lan currently uses the unlicensed industrial-scientific-medical band at 2.4 GHz. It will move into the unlicensed national information infrastructure (U-NII) band at 5.8 GHz as equipment becomes available. Canada's Wi-Lan Inc. is the major supplier of wireless components that allow for line-of-sight (LOS) ranges of 1.5 miles between the subscriber and cell site. Vendors under consideration for the 5.8 GHz spectrum are Wi-Lan, Wireless Home, Cisco and Adaptive Broadband.
Kite Networks
Higher capacity and less traffic attracted Kite Networks to the unlicensed 5 GHz spectrum. Its LOS technology, with a 3-mile span between subscriber and base units, should be capable of through-put rates of up to 25 MB per second, says CEO Sullivan. Kite is relying on equipment from Adaptive Broadband for its initial trial and expects to use Cisco transceivers manufactured by WJ Communications Inc. (Watkins Johnson) for its commercial deployment. Chief Technology Officer John Greathouse expects greater pricing competition by mid-2001 as more vendors enter the market, helping to cut the cost of subscriber equipment to $500 or less.
BeamReach
BeamReach says its patented technology, based on that developed by its former parent Radix Technologies for the military, provides up to 10 times the spectral efficiency as wireless technology being deployed elsewhere. Rather than using antennas that capture signals in 90-degree sections, BeamReach uses an omni-directional antenna array. That allows for greater frequency reuse, non line-of-sight operations and three to four times greater cell coverage. BeamReach will market its own transceivers for MMDS and WCS carriers in the licensed spectrum below 6 GHz in the U.S. and 3.5 GHz carriers internationally.
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