Fixed wireless wonders

Winstar Communications and Teligent released fourth-quarter results last week that indicate — especially in Winstar's case — there is a solid business model for using broadband fixed wireless networks to deliver high-speed services to commercial customers.

“Winstar has this thing nailed,” said John Bauer, telecom analyst with Gerard Klauer Mattison. “The technology is pretty much carefree. The business plan — there's very little question about that. The financial status of the company is pretty solid through this year.”

Teligent, which also uses its own wireless networks for commercial service delivery, is a little further behind, Bauer said.

“Teligent is pretty meaningfully cash-restrained,” he said. “They continue to work on getting their sea legs.”

Both companies are using “on-net” policies, which essentially entail abandoning the practice of leasing or reselling other carriers' networks. Winstar, which has been around longer, adopted this strategy a little earlier and is seeing results sooner.

“We've built our own network and not relied on connecting to the RBOCs,” said Frank Jules, president and COO of U.S. operations for Winstar. “We've relied on getting into buildings, lighting buildings, connecting them to hubs, connecting them to fiber… and focused on getting our customers where the margins are.”

That's a pretty good place to be, said Bauer. Winstar's gross margins were 40.7% for the first quarter, 44.1% for the second, 47.3% for the third and more than 50% in the fourth — “a pretty impressive expansion of gross margins,” he said. “You can't even compare [Teligent] to Winstar because they're negative.”

Teligent's fourth quarter net loss was $270.7 million or $4.25 a share compared with 1999 figures of $156.6 million or $2.89 a share, the company reported. At the same time, Teligent's revenues rose to $54 million from $15.5 million a year ago and its customer base grew from 15,000 to 35,000 during that same period.

Relying more on its own networks helped make the fourth quarter a “transitional” period for Teligent and in the future will “get us to the right model,” said chairman and CEO Alex Mandl.

The ongoing transition includes organizational changes for Teligent's sales force, a regional corporate structure and “strict financial return criteria to every building and node that we add during the year.”

Both companies have break-even targets. Winstar is well on its way; Teligent is a little farther behind.

“The first thing you have to do is get to EBITDA positive, then you go to cash-flow positive,” said Winstar's Jules. “Our losses are narrowing in terms of EBITDA losses. We communicated to the Street we're going to be EBITDA positive in Q2.”

Teligent's 2001 losses are targeted to be less than $275 million.

“We continue to drive toward being EBITDA positive in the second half of 2002 and cash-flow positive shortly after that,” Mandl said.

Both goals are possible; Winstar's is probable, Bauer said, noting that Winstar has a safety valve to use if market conditions sour.

“They can drill deeper into their existing potential customer base and still get the revenues and the EBITDA that people expect and not expand the footprint as fast as the current game plan calls for,” he said.

Winstar's business is also a little broader than Teligent's. The company designs and manages Web sites and acts as an ASP/ISP for its business customers. Teligent delivers networks for long-distance, local and high-speed Internet data services.

Even so, the similarity between the two reflects the opportunity Teligent has to follow in Winstar's footsteps, Bauer said.

“Two years ago, [Winstar] flailed their arms and flapped their wings and couldn't quite seem to fly,” Bauer said. “All of a sudden, that ugly duckling has turned into a real swan. Now we're looking at another duckling and it's flailing its arms and flapping its wings, and the question is: Is it going to transform itself?”

Mandl says it will.

“Despite some of the trying times our industry has had of late, I'm very much encouraged about Teligent and future prospects,” he said.

Winstar's trying times are over, and it's time to feed a hungry market, Jules said.

“There is true scarcity of broadband to buildings, and we're meeting that need,” Jules said. “Our motto is to get a building and then sell to all the customers in that building. We like big buildings with lots of customers.”