FIXED WIRELESS STUMBLES TOWARD PORTABILITY PLAY

Bashed and battered, wireless broadband players don't give up

Like Cool Hand Luke in a prison yard brawl, broadband wireless refuses to stay down despite enduring a painful barrage of blows delivered by a skittish economy and a shifty carrier base.

While the outcome is uncertain, there is evidence that broadband wireless will shift from a “fixed” paradigm to “portable” — and, conversely, its more mobile proponents will move toward more static strategies. In the meantime, the technology is gaining traction in an international arena hungry for broadband and not picky about the delivery method.

This gives vendors time to develop second-generation fixed wireless technology that is portable, costs less than the first-generation gear that is generally going to waste in markets throughout the U.S., and is essential for wireless service to flourish domestically.

Amid this movement, a semi-mobile offering — the Ricochet network built by bankrupt Metricom Networks — is being dusted off with a new approach that relies less on mobility and commercial users and more on a wide consumer audience attracted by low prices and portable capabilities.

“We''ll be positioning it as a broadband access service, not exclusively as a mobile product. In fact, mobility will be later offerings, not the first offerings,” said Mort Aaronson, founder, president and CEO of Aerie Networks, which paid a paltry $8.25 million for Ricochet''s microcell data network intellectual property and inventory.

Aerie received standing inventory in 17 markets where Ricochet had been deployed and has enough product to build a network that can cover 30 to 35 million households, Aaronson said.

Aerie also got a rabid base of Ricochet users. The Strategis Group analyst Peter Jarich likened the purchase to buying rerun rights to ‘Star Trek’ for $1.95 in the 1970s.

“There aren''t a lot of people out there that want to watch Star Trek, but there''s a group of people who really love it,” Jarich said. “[Aerie has] this product for this one group of core folks, and they got it cheap. [They should] milk it for what it''s worth.”

Aaronson wants to expand Ricochet''s base by working with governments and service provider partners to make broadband wireless the “fourth utility” after energy, telephone and television. He''s moving from Metricom''s business-based mobility scheme into a portable broadband access model — priced between $39.95 and $49.95 — that sounds similar to the second-generation technology providers are pursuing.

“This isn''t fixed wireless,” Aaronson said. “A lot of fixed wireless providers have a different issue than the platform we acquired from Ricochet. They have very expensive cost structures to deploy, very expensive [customer premises] equipment for consumers to buy.”

Fixed wireless carriers and vendors recognize those limitations. They were the primary reasons why Sprint, the most active fixed wireless carrier in the U.S., postponed future deployments to wait for second-generation gear. This forced many first-generation vendors in the U.S. to depend on international customers to make ends meet while they developed viable 2G gear.

“[2G is] not just line-of-sight/non-line-of-sight. It''s scalability and being able to address the capacity and coverage constraints,” said Alan Menezes, vice president of marketing for Aperto Networks, which recently received a cash infusion from Innovacom, France Telecom''s venture capital subsidiary.

The company is introducing a 3.5 GHz product that it will target at European and Latin American carriers, Menezes said.

CI Wave, another vendor with U.S. ties, believes China''s entry into the World Trade Organization will open a huge market for 3.5 GHz wireless.

“Things have changed in China very quickly and very dramatically, and we''re seeing it accelerating as we go into the WTO,” said CI Wave''s CEO Douglas Carey.

The international market is less finicky than the U.S., where “you have so many competitive layers in terms of mobile applications… [and] deregulation, which has led to DSL and cable modems,” Carey said. “Internationally, there''s much more of an incentive and a priority to deploying something like this. We''ve seen it in Third World countries, and we''re starting to see it in larger countries.”

U.S. fixed wireless vendors have some domestic opportunities, but they''re primarily in rural areas that have become wireline backwaters. Central Texas Communications is deploying Ensemble Communications'' local multipoint distribution service (LMDS) gear throughout its mostly rural service area and “finding the market eager for somebody to provide these services,” said CTC''s Chief Technology Officer Larry Pechacek.

CTC''s case mirrors an entire group of small telephone companies in various stages of rolling out LMDS, said Rami Hadar, Ensemble''s executive vice president of marketing.

Rural markets may be enough to prop up wireless broadband temporarily in the U.S., but portability and affordability are needed to make the technology competitive with its entrenched wireline competition throughout the U.S. Aerie hopes its partnership strategy gives it an edge in gaining traction.

“You have to put it [where] people would logically buy it: big box stores, packages with realtors, bundled with the computer, bundled in the gas, electric telephone or television bill,” Aaronson said. “There are not enough markets that are built out. If you get there first, you''ll have a tremendous advantage.”

BROKEN CARRIER DEAL BATTERS SPIKE BROADBAND

While the international marketplace offers some refuge for broadband wireless vendors seeking relief from the U.S. maelstrom, it''s a safety net with huge holes. Spike Broadband Systems learned that when its biggest customer, Danish phone company Sonofon — which is supported financially by BellSouth Communications — cut back on a $335 million deal.

“Sonofon backs out, and Spike gets flushed down the toilet,” said industry analyst Peter Jarich of The Strategis Group. “It''s the danger of having to be so wedded to a particular project or a particular spectrum or whatever. It''s very unfortunate.”

Spike thought it was doing everything right, with a deal that looked more solid than most pacts other wireless vendors had announced, Jarich said.

“Sonofon has money from BellSouth. They have cellular PCS infrastructure. They''re a real company that''s not going to make a claim unless they mean it,” Jarich said.

Sonofon meant it when it accepted 20,000 consumer devices from Spike. It was still sincere when it ordered 150,000 additional units, giving Spike a huge backlog that it was using to attract a merger or acquisition partner. But BellSouth diverted funds earmarked for major infrastructure projects, and the Sonofon deal was hit hard.

“It''s definitely a progression of things,” said former Spike Marketing Vice President Cristian Parrino, who was among about 130 employees let go when the company scaled back to a small administrative staff of 20. “Obviously the space has not seen a lot of investment from carriers.”

Just as obviously, Spike thought it was on solid ground, Parrino said.

“We hit the big one, but it came right back at us, and we''re not big enough to survive the economic conditions out there,” he said.

Parrino and Jarich agreed the wireless market is still strong internationally, but it''s going to take a while to mature. “It''s at least six to nine months out, which is the life of the sales cycle in this space,” Parrino said. “It''s too long for a company like ours in these financial conditions.”

It may be too long for other companies as well, which should lead to industry consolidation, Jarich said.

“You look at the number of [multichannel multipoint distribution service] carriers out there and the number of vendors, and it''s just totally lopsided,” he said. “There are just too many vendors all going after the same market.”