MMDS MALADIES, CAI Wireless slapped with shareholder lawsuit >BY SHIRA McCARTHY, Associate Editor-News

Stockholders of CAI Wireless filed a class action lawsuit against the company last week, marking yet another chapter in the wireless cable industry's woes.

The shareholders allege that CAI Wireless recklessly disregarded knowledge about the technical, administrative and regulatory problems associated with multichannel multipoint distribution service technology, said Mark Huffman, a class correspondent at Milberg, Weiss, Bershad, Hynes & Lerach, the New York law firm representing the stockholders.

The alleged failure to disclose problems caused CAI's stock to be artificially inflated, Huffman said. Because of rumors about the stability of CAI's relationship with Bell Atlantic and Nynex, CAI's debt rating has been put on a rating watch.

"They told investors that they were going to have this wonderful new service out there, and that wasn't true," Huffman said. "They should have known that the possibilities [for the service] were so small and should not have disseminated that information to shareholders.

CAI officials called the lawsuit "totally baseless and without merit" and said the company stands by the information it has disclosed to its investors.

"CAI has always taken a very conservative approach to its disclosure obligations, and we are confident that the facts will bear this out," said CAI Chairman and Chief Executive Officer Jared Abbruzzese in a prepared statement. "As CAI has repeatedly expressed in its Securities and Exchange Commission filings and otherwise, this is an emerging technology subject to various regulatory and other constraints, all of which CAI has worked within since its inception.

When Bell Atlantic and Nynex agreed to invest $100 million in CAI, it was with the promise that digital MMDS would solve many of the problems inherent in the technology's analog version. Both had planned to launch digital MMDS services earlier this year but were delayed by worse-than-expected line-of-sight problems.

"A lot of wireless cable people seemed to believe that digital wireless cable would clear up line-of-sight problems," said John Aronsohn, senior analyst at The Yankee Group, Boston. "They based those assumptions on limited tests in the lab. A lot of that didn't translate well into actual field deployment.

As a result, the contract between CAI and the telcos is up in the air.

Some industry experts expect that Bell Atlantic and Nynex will give up MMDS entirely and focus their attention on other wireless cable options or on their wireline plans.

"I could see them going with a [direct broadcast satellite] solution instead, most likely with AskyB or EchoStar," Aronsohn said.

The lawsuit is the latest in a series of setbacks for MMDS operators. Other setbacks include Pacific Telesis' decision to pull back on a proposed $170 million purchase of wireless cable companies Groupe Videotron and Transworld Telecommunications. While Pacific Telesis maintains that the action was isolated, analysts have speculated that the telco is unhappy with MMDS' performance in Los Angeles trials.

Wireless Networks Editor NextWave Telecom reminded the wireless industry of its girth last week when it awarded a code division multiple access infrastructure contract to Lucent Technologies potentially worth $1 billion.

The deal came just two weeks after NextWave granted a similar contract to CDMA newcomer Hughes Network Systems, which raised concerns over whether the personal communication services hopeful was betting too heavily on an unknown supplier (Telephony, Nov. 18, page 74).

The Lucent contract-and additional awards yet to come-are proof that NextWave is not overcommitted to a single vendor, said Ragu Patel, senior vice president for network systems and chief strategic officer of NextWave.

"We'll have one of the largest networks out there," he said. "You don't want to become a captive customer to [one] infrastructure supplier.

Under the contract, Lucent will finance $200 million in 5ESS switches and base station equipment, with an option to finance an additional $800 million. The gear will be used in NextWave's mid-Atlantic and Midwest markets, but that does not preclude the company from installing the Lucent equipment in other regions.

"We have retained the flexibility to mix vendors in different markets," said Patel. "We are a carrier's carrier. We allow our customers to have some of their own platforms and use our core fabric to support it.

The IS-41 standard enables interoperability between markets using different equipment-and, in some cases, one market using multivendor equipment.

"In many of these standards you can partition the systems," said Patel. "You can draw a line at the base station controller.

For Lucent, which has more than 50% of the U.S. CDMA business, the NextWave contract is an important achievement. But it did come as a surprise to some observers who thought that Lucent's extensive equipment financing in the A and B block PCS markets would prevent it from doing the same in the C block.

"We had been under the impression that Lucent's vendor financing trough was pretty full," said Mark Lowenstein, vice president of wireless research at The Yankee Group, Boston. "This is evidence that there's still money in the bank.

Lucent said being a part of the NextWave network was important enough to warrant financing, but that financing is not likely to become the C block norm.

"This is the exception rather than the rule for how we'll do business," said Doris Jean Head, vice president of Lucent Technologies.