Winstar: Wireline Alternative Makes Sense

Many lessons were learned from the events of Sept. 11. One example: We don't want our communications infrastructure in the hands of just one technology. That's what William Rouhana, Winstar Communications chairman & CEO, said after his company stepped in with its fixed-wireless broadband technology to assist in areas of New York and Washington, D.C., where the wireline infrastructure was destroyed.

“Of course, the irony of the fact that we were in Chapter 11 didn't escape me,” Rouhana noted two weeks later.

The company filed for Chapter 11 in April and is working its way through a process that can go one of two ways: sale of the company to new owners or reorganization within Chapter 11, taking advantage of the cost-restructuring opportunities that it allows.

“We're actively in the process of offering the company for sale to potential buyers,” Rouhana said. The Blackstone Group, an investment banking firm, is handling the matter and is finding considerable interest.

Rouhana's personal hope is that Winstar comes out of this with an opportunity to grow again, as well as maximize the value for the creditors.

“The sale is likely to do both those things,” he said, “but I wouldn't foreclose the possibility of reorganizing the business.”

Actually, reorganization has been under way since the filing. The company has sold off its interests in Europe, Latin America and Japan. Hong Kong is now its only holding outside the United States. Within this country, it has concentrated its sales efforts.

“We haven't shut off any customers or withdrawn from any markets, but we've picked 28 of the markets and focused on those as primary places to sell,” Rouhana said.

Throughout the bankruptcy process, Winstar even has added thousands of new customers.

“We focus on the buildings we have built our network to,” Rouhana said. He said the company has been performing at the highest standards ever.

“We do far better than the regional Bell operating companies,” Rouhana said. “You might wonder why they're not bankrupt. Being a monopoly sure helps.”

Winstar continues to pursue its $10 billion lawsuit against Lucent Technologies, seeking damages for Lucent's alleged breach of its obligations under its strategic partnership with Winstar. Lucent's motion for dismissal failed, and Rouhana said the company is moving the suit as quickly as possible, but anticipates it will take some time.

On Sept. 19, Winstar announced the FCC renewed 26 of its licenses in the 39GHz band.

“We have built such an extensive network and have so many customers, it would be difficult to not have them renewed unless the commission came to the conclusion that we were not going forward,” he said. “Obviously, they came to the opposite conclusion.”

All in all, Rouhana believes that Winstar's approach to the business was correct: building its own broadband network, reaching a critical mass as quickly as possible and developing many services to make the network useful to customers.

“If you're a CLEC, I don't think that you can hope to rely on the other guy's network,” he said. “There isn't enough gross margin in it. We, on the other hand, are not reliant on Verizon or any other local phone company.”

Rouhana admits there were some mistakes over the past seven years.

“We are in Chapter 11,” he said. “No one does that on purpose.”

On the other hand, he said, Winstar has more than 100,000 businesses inside 3,248 buildings that are fully finished, the biggest alternative network to a regional Bell operating company. Another 1,500 buildings are under construction that would add 25,000 businesses as prospective customers.

“That's over $3 billion a year potential revenue, if you can get 100% of it,” he noted.