The Miracle Cure

A new day has dawned for MMDS - again.

During its lifetime, multichannel multipoint distribution service has time and again gasped what seemed like a dying breath, only to be revived with new vigor by industry activity. In recent months, we have seen a renewed flurry around MMDS, spurred by powerhouses Sprint and MCI WorldCom. The activity may resuscitate MMDS, establishing it as a legitimate and valuable option that, this time, is here to stay.

Sprint recently agreed to purchase MMDS concerns including People's Choice TV, American Telecasting Inc. and Videotron USA. MCI WorldCom is buying CAI Wireless and also may have purchased the debt of four other MMDS players.

Sprint and MCI WorldCom are leading this MMDS resurgence as a way to get ahead of each other and AT&T. "The whole industry is in a race," said Kevin Brauer, president of national integrated services for Sprint.

The winner of that race will own the most last-mile access to customers. "The last mile is everything. It has been the choke point," said David Reynolds, president and founder of AirDSL.com.

AT&T has taken a different tactic than Sprint and MCI WorldCom, choosing to buy cable companies to access the last mile (Telephony, June 14, page 20) - an endeavor some say is far more costly and time consuming to deliver than MMDS. AT&T also recently forayed into local multipoint distribution service (LMDS) when its subsidiary garnered a 41% stake in Teligent. The deal could win AT&T access to businesses in concentrated metropolitan areas.

While the past few years have seen many MMDS companies sink as low as bankruptcy, the years also have given the license owners the opportunity to successfully trial and deploy new services over the spectrum and develop viable business plans. Over time, the spectrum has evolved from one that delivers wireless cable services, to wireless data today and voice over Internet protocol in the near future. License holders now are closer than ever to hammering out profitable business plans, target markets and services.

The diagnosis

MMDS has fostered a long and unstable history for license holders, dating back to the 1960s. Although this most recent boost for MMDS comes as a result of a two-way ruling made last September - whereby the FCC allowed operators to transmit in both directions - the technology historically has experienced fits and starts as a result of numerous changes delivered by the FCC.

Jim DeStefano, president and CEO of Emcee Broadband Products, knows the ups and downs of MMDS through Emcee's long history. The company was founded nearly 40 years ago by three engineers who developed and sold television repeaters.

In 1964, the FCC authorized the 2.5 and 2.7 GHz spectrum bands for educational use, calling the bands instructional TV fixed service, or ITFS. Five years later, the precursor to MMDS was born when engineers from a company that once competed against Emcee petitioned the FCC for use of 10 MHz of spectrum at 2.15 GHz, which wasn't being used. The FCC made that spectrum, known as MDS, available to a number of companies that used it to deliver pay TV, DeStefano said.

Ironically, those MDS operators soon voiced a concern they were to echo again years later: They realized they couldn't be competitive with only one channel. So they petitioned the FCC again, requesting access to the underused ITFS spectrum in addition to their existing spectrum. The FCC agreed, removing portions of the ITFS spectrum and allowing it to be used for pay TV.

"Then the FCC surprised everyone," DeStefano said. The FCC also allowed those operators to lease the rest of the band from ITFS license holders. In this manner, the operators could aggregate 33 channels of television. "You could build a business around 33 channels of TV. Most cable operators at that time were hard pressed for 30 channels," DeStefano added.

Even so, these original MMDS license holders struggled. "One reason was that the cable companies had the video providers in a stranglehold," said DeStefano. The cable companies required the video providers to charge MMDS operators much higher prices, he said. "It made it difficult for the MMDS operators to have a profitable business."

1992 marked a turning point. That year, the public began complaining about rising cable rates and poor quality of service (QOS). Congress forced the video providers to sell programming to MMDS operators at the same prices as cable providers. March 1993 saw the first wireless cable operator go public, with about 10 to follow in the next year.

"Over the course of three years, the industry raised over $1 billion in [initial public offerings] and secondary and bond holdings," DeStefano said.

Once again, the future looked rosy for MMDS, especially when some of the regional Bell operating companies, including Bell Atlantic, began investing in MMDS companies.

The mid-90s saw another regulatory change that sweetened the pie even more for MMDS players. "The FCC granted a request by us and other companies that changed the way these frequencies could be used so that we can use them in various schemes of digital modulation," said Matthew Oristano, chairman of PCTV. That allowed operators to carry more channels, but it also opened the door to other services, such as data.

Around the same time, cable modem development was under way, and the market for high-speed access was emerging. "That clearly became a product where there was an exploding market," Oristano said

But before MMDS license holders had a chance to pursue data, the bottom fell out. In December 1996, Bell Atlantic suddenly pulled out of its investment in CAI Wireless. "I think, frankly, they didn't understand the industry well enough to know that it's not ubiquitous. It's a line-of-site service," DeStefano said. Bell Atlantic started out with CAI in Boston, which has a lot of foliage and hills. "They didn't achieve the coverage they wanted and backed away. That was Black Friday," he added.

Bell Atlantic blamed changing market conditions - such as the growing availability of fiber - for its decision to suspend its agreement with CAI, according to a statement released at the time. Bell Atlantic also pointed to CAI's desire to pursue multiple services, including voice and data, in addition to video.

Other developments in the industry contributed to MMDS' turnaround. Satellite television systems were becoming available and could offer much more programming than the wireless cable operators. At the same time, cable upgrades allowed a way to deliver a greater number of channels as well.

By the time Bell Atlantic pulled out - which was seen as a bellwether - the MMDS operators had spent much of the money they had raised and were counting on their RBOC partners. "Most companieshad built up hundreds of millions of dollars of debt to build regional footprints," said Andrew Kreig, president of the Wireless Communications Association. "It looked, during this period when they were acquiring this debt, that it was a service the public wanted and providing this service could be supported by the [RBOCs]." Without the RBOCs, they were strapped for cash.

But the MMDS operators that had withstood hard times before weren't about to give up. Some began to offer data services, using telco return paths. Vendors even re-worked their business plans because of slow business. Emcee, for example, has begun partnering with license holders on a revenue-sharing basis. "We find that [Internet service providers] recognize the steamrollers are coming and want to work with us...in competition with the local providers," DeStefano said.

MMDS operators may finally have truly hit gold when they petitioned the FCC to be allowed to offer two-way service. In September 1998, the FCC allowed two-way use, which attracted the likes of MCI WorldCom and Sprint. "The real catalyst for interest from strategic players like MCI [WorldCom] is the two-way ruling," Oristano said.

The cure

In 1998, when many MMDS operators filed for bankruptcy protection and struggled to redefine their business cases, Sprint and MCI WorldCom were seeking cheap and quick access to the local loop. The two-way ruling made MMDS a perfect solution to their needs.

Both carriers believe MMDS will put them a step ahead of competitors. "We intend to use it to make life miserable for the cable guys," said Sprint's Brauer. Buying MMDS companies may already have proved much cheaper for Sprint and MCI WorldCom than AT&T's strategy of buying cable companies to access the local loop. Compared with cable companies, the purchase prices of MMDS companies indicate immediate lower costs. While Sprint has spent $1.2 billion to reach about 30 million households with MMDS, Brauer figures that AT&T has shelled out closer to $100 billion on cable concerns. "It's a fraction of what we've spent for similar capabilities," Brauer said.

Money is not the only concern though. "There's no question that [AT&T] can spend the money, but time-to-market is the issue," said Todd Carothers, director, marketing for Adaptive Broadband, an MMDS equipment vendor. AT&T also must upgrade facilities to handle voice traffic, which costs money but also takes time.

"Our principle interest...is to get to market as quickly as we can, as broadly across our territories, with a high-speed Internet offering initially that will evolve to full integration with [Sprint's Integrated On-Demand Network]," said Brauer.

MMDS technology is ready now - it has been commercially deployed successfully. PCTV, for example, currently has more than 2500 customers in Phoenix using its wireless data services (Figure 1). That's a relatively high number, Brauer points out, considering that PCTV is a small company that launched only recently. "These companies have been capital-, resource- and brand-constrained. Even in that environment, they've been successful," Brauer said. PCTV, which in Phoenix is operated by SpeedChoice, a subsidiary of PCTV, is in the process of being acquired by Sprint.

The nature of MMDS also allows for quick market entrance. "MMDS, by virtue of having a long service reach of up to 35 miles, enables MCI [WorldCom] - through acquisition - to quickly deploy point-to-multipoint broadband access, without the requirement for local copper loop or fiber," said Reynolds of AirDSL.com. Unlike a typical wired network that takes substantial time to build, MMDS operators need only to put up one or two towers and instantly can have access to upwards of 90% of the market.

Sprint expects its deals to close in September and hopes to begin aggressively marketing services under the Sprint name during the first quarter next year. In the meantime, Sprint is working with its new partners to help them continue to build and plan for the future.

Most MMDS followers agree on the target markets and possible services. "The MMDS frequencies are going to allow the MCI [WorldComs] and Sprints of the world to really home in and target small to medium-sized businesses and the [small office/home office] market in a very aggressive manner," said Ed Champy, executive vice president at Spike Technologies, which develops the Prizm line of broadband wireless products depicted in Figure 2.

Currently, the average PCTV data customer owns three computers, Brauer said. This customer group comprises robust users of communications services, telecommuters, SOHOs and technologically advanced families, he added.

Cable operators, by contrast, will have a difficult time reaching that smaller business market because few businesses are hooked up to cable. MMDS can access any building in its range but does have data speed constraints.

Most envision MMDS as one of many access methods. "The final solution is probably a hybrid method," said Rick Lawrence, chief operating officer of Hardin and Associates (see sidebar on page 30).

Back on its feet

While MMDS started as a video distribution method, it has evolved to be ideal for data delivery and is evolving still to deliver voice. That versatility is one more asset to MMDS. "Let's face it: In order for any of these companies to compete against AT&T, they will all have to offer some kind of bundled service strategy," said Calvin Smiley, vice president of marketing and sales for Telecom Wireless Corp. Telecom Wireless currently serves about 1600 customers with wireless cable in Florida. Taking a new direction, the company has a strategy of buying ISPs and competitive local exchange carriers with the idea of centralizing the operations, using wireless to offer bundled services.

"The idea is if you can take your existing subscriber base and build brand loyalty, you can sell added products, which gives you the opportunity to grow your business without necessarily adding new subscribers," Smiley said.

Data is clearly the most promising offering today. While a number of MMDS video services already exist commercially, they may become less important. Brauer says that Sprint will only consider offering television if spectrum is available. "The main objective is to answer for high-speed access and ION," he said. "To the extent where we can support a robust video environment, it would be the secondary objective."

Video services may be taking a back seat because they consume a lot of bandwidth while data services offer a more efficient use of spectrum. "There's more money to be had in data services than a video service," Emcee's DeStefano said. He believes there may be more streaming video in the future rather than today's standard compressed video.

Nonetheless, companies with good sources of funding may continue to deploy video services, said Kreig of the WCA. BellSouth, for example, offers video and data services to five markets in the south. "Those looking for new capital tend to see broadband data Internet-type services and getting into voice as more attractive uses of the spectrum," he added.

"MMDS operators also expect to deliver high-quality voice services - not just the kind of today's voice over IP that is quality constrained," Brauer said. Sprint's voice over IP offering via MMDS will have quality assurance and deliver both local and long-distance services. Wireless One, an MMDS operator, already has successfully trialed voice over IP using MMDS.

MMDS license owners have a slew of service options in front of them - so many it seems that this time around they can't lose.

Although Concentric Network is a major digital subscriber line provider in the San Francisco Bay area, it just can't reach everyone.

"There are some dry spots where customers can't get DSL," said Alan Bavosa, product manager for dedicated access at Concentric. "So wireless comes in and complements DSL and fills that niche where DSL can't go."

Concentric currently has a relationship with Wavepath, a subsidiary of Videotron USA that recently agreed to be bought by Sprint, to deliver high-speed access in the Bay area using multichannel multipoint distribution service. Concentric is essentially a wholesaler of an MMDS network built and maintained by Wavepath.

MMDS also offers benefits in turn-up times - Concentric can turn up customers using MMDS in five days. "The major benefit of wireless service over DSL or cable is the installation interval," Bavosa said.

Concentric doesn't expect Sprint's agreement to purchase Videotron to affect its relationship with Wavepath - at least not for some time. Concentric has been assured by Wavepath to expect business as usual, Bavosa said. "They would be foolish to cut off existing distribution channels." Concentric successfully has demonstrated that the business model it uses with Wavepath works. "We've proven the market. We don't see any reason whey Sprint would change the business model," Bavosa said.

Sprint would not comment on what might happen to that relationship.