NETRO BUYS INTO FIXED WIRELESS WITH PROJECT ANGEL PURCHASE

Role in MMDS and LMDS is uncertain as focus turns to Europe

AT&T Wireless' sale of its Project Angel technology to San Jose-based Netro brings to the forefront questions surrounding the viability of fixed wireless in the U.S.

For about $45 million in cash and stock, Netro will receive the intellectual property, equipment and proprietary software assets surrounding Project Angel. In addition, AT&T Wireless' fixed wireless development team will become Netro employees when the deal closes in mid-February.

Currently, Angel is designed to operate in the 1.9 GHz and 2.3 GHz ranges. Netro plans to adjust the product to operate at 3.5 GHz, which is the frequency dedicated to fixed wireless in several international markets.

“We see great potential in the low-frequency, fixed wireless access market,” said Gideon Ben-Efraim, Netro's chairman, president and CEO.

Netro plans to focus its sales and marketing efforts for Angel in foreign markets with limited landline infrastructures, especially in Latin America and Asia-Pacific, Ben-Efraim said. Given the limited success of multichannel multipoint distribution service (MMDS) players in the U.S., Netro's choice of markets is solid, said Kevin Dede, vice president and senior telecom analyst for Wells Fargo Securities.

“There are much greater avenues for growth on the international side than there are in North America,” said Dede.

Netro does not expect to do much business initially in the U.S., but it sees domestic sales increasing as equipment prices decrease.

“The cost point for [customer premise equipment] is going to come down. Installation is going to become easier and easier,” a Netro spokeswoman said. “We see the possibility for self-installation.”

Domestic success will depend largely on the viability of domestic fixed wireless carriers, which so far has been discouraging.

The sale of Project Angel is an exclamation point on the most significant service provider abandonment of the sector to date. Citing the business's underperformance and capital-intensive nature, AT&T Wireless last October announced it was discontinuing its fixed wireless business.

Similarly, Sprint has put its residential fixed wireless offering on hold, saying that it is waiting for second-generation equipment to become available. Earlier this month, Sprint Chairman and CEO Bill Esrey said the company is willing to sell its MMDS licenses to spectrum-starved mobile carriers (see sidebar).

Others in the sector are trying to reorganize and re-emerge from bankruptcy.

Notable among these are Winstar Communications, which IDT recently bought out of bankruptcy (Telephony, Jan. 7, page 12), and Advanced Radio Telecom, which announced its emergence from bankruptcy earlier this month as First Avenue Networks. Both carriers operate local multipoint distribution service (LMDS) networks.

With Chapter 11 having eliminated debt as an issue for the major remaining carriers, the question now is whether a sustainable business plan can be built around fixed wireless.

Dede believes there is a place for LMDS-based service providers, given business' growing demand for bandwidth and the small percentage of buildings with direct fiber connections. But Paul Kellett, senior director of market research for Pioneer Consulting, cautioned that their success depends on the effect equipment costs have on pricing.

“It really boils down to cost,” he said.

Greater uncertainty surrounds MMDS services, which has been used as a residential/small office/home office play.

Despite Sprint's action, WorldCom continues to add new customers to its MMDS network, which serves small and medium-sized business customers in 13 markets. The carrier plans to expand into new cities when second-generation equipment — expected to address line-of-sight issues — is introduced.

Given the availability of wired alternatives in the U.S., many believe MMDS will end up solely as a niche play, serving rural areas that lack the connections populated areas enjoy.

“It does not appear that broadband wireless access is going to be a ubiquitous alternative to landline service,” Kellett said.

THE BIRTH, DEATH AND REBIRTH OF PROJECT ANGEL

Feb. 25, 1997 — AT&T announces the creation of its fixed wireless local loop technology, code-named Project Angel. The company calls it a “major technology breakthrough” that will help it compete in the local loop

Dec. 6, 1999 — AT&T says it plans to create a tracking stock for its wireless arm. The new unit will be led by John Zeglis and will be responsible for the nationwide rollout of its fixed wireless local exchange business

March 22, 2000 — After much speculation, AT&T Wireless finally offers Project Angel for commercial use, rolling out first in Fort Worth, Texas

Oct. 23, 2001 — Citing under-performance and the technology's high capital demands, AT&T Wireless announces it is exiting the fixed wireless sector

Jan. 15, 2002 — Project Angel is sold to Netro for $45 million