Fallen Angel

The hype surrounding AT&T Wireless' fixed wireless project continues to fade year after year—so much so that the industry hardly noticed late last month when the company said it was scaling back deployment plans for the service.

Shrouded in secrecy since the early 1990s, AT&T Wireless' fixed wireless plan—code-named Project Angel—was revealed four years ago. Initially conceived as parent company AT&T's proprietary strategy for bypassing local phone carriers, AT&T later reconfigured it to deliver always-on high-speed Internet access at 512 kb/s where the carrier lacks a cable footprint.

With AT&T spinning off its various business units, Project Angel—featuring patented orthogonal frequency division multiplexing technology—no longer is a strategic asset to protect the carrier's long-distance and cable customer bases. As a result, AT&T Wireless plans to scale back the business to manage profitability, said John Zeglis, AT&T Wireless chairman and CEO, during a conference call with analysts.

“We'll get in a position by year-end to determine how much value we are capable of creating in fixed wireless and how quickly and how best to finance it, whether it's inside AT&T Wireless or other alternatives,” said Zeglis.

For its part, AT&T Wireless is faced with a large capital expenditure associated with its plans to roll out GSM and GPRS 2.5G technologies alongside its TDMA network, eventually migrating to EDGE and UMTS 3G technologies. And fixed wireless services aren't a strategic complement to AT&T Wireless' mobile business.

“The company is looking at significant capex for 2001 and 2002 and deciding where it wants to spend money,” said Jeffrey Hines, managing director with Deutsche Banc Alex Brown. “It's more crucial that it quickly completes the rollout of 2.5G and 3G mobile wireless technologies than invest in fixed wireless.”

‘We'll get in position by year-end to determine how much value we are capable of creating in fixed wireless.’
—John Zeglis, AT&T Wireless

AT&T Wireless already is about six months behind its Project Angel deployment schedule because of its decision to move the service into spectrum it owns at 2.3 GHz and save its 1.9 GHz spectrum for 3G services. AT&T Wireless initially planned to offer fixed wireless services in 40 markets by year-end 2002. Now it plans to offer service in Houston and Los Angeles during the quarter and add about 10 additional markets to the four it already has launched: Dallas, Houston, San Diego and Anchorage.

“The challenge is to demonstrate that we can scale this business in multiple markets, say 12, and scale it profitably,” said Zeglis.

The company has sold about 24,000 fixed wireless lines to about 12,000 households. By year-end, AT&T Wireless expects about 100,000 subscribers, with EBITDA loss of no more than $300 million for 2001, Zeglis said. AT&T Wireless' Project Angel business last year recorded a $228 million EBITDA loss, which included $50 million in write-offs associated with AT&T Wireless' new strategy. Capital expenditures will be limited to only $450 million this year, a minute increase from the $390 million in 2000.

AT&T Wireless' profitability challenge is shared by the entire fixed wireless industry. Slow adoption of services coupled with high capital expenditures is hurting the business case, say analysts.

“We're not bullish about broadband fixed wireless,” said David Kerr, vice president with consulting firm Strategy Analytics. “It's tough to get customers to move to wireless, and the capex turns out to be 30% to 40%.”

Hines remains bullish about the potential for fixed wireless services but concedes, “AT&T is not blowing everyone's expectations away with this revised guidance.”

“It doesn't seem anyone is exactly adding fixed wireless data subscribers in vast quantities at this point,” he said. “Standardization of the technology is being done. It's not a question of if the technology will prove viable—it's when.”

Hines believes AT&T Wireless eventually could spin off the business or find affiliate companies to build out the service—much like the company's strategy in the mobility business—if it doesn't achieve the profitability it wants.