In Matters of Love & Wireless It's What's on the Inside That Counts

Midway through a trip to Shanghai last month, Ed Cantwell had an epiphany of sorts as he surveyed the massive construction projects that dotted the cityscape. Where most tourists and business visitors see a massive city of more than 4500 skyscrapers and a building boom that will eventually create the equivalent of seven Manhattans, the CEO of InnerWireless saw what could be the biggest opportunity his company will ever encounter.

See below for the related sidebar, "Good Energy, Bad Energy."

“The trip to Asia really cemented a fundamental shift on what InnerWireless is going to be all about,” Cantwell said.

What the in-building wireless developer is all about is covering those hard-to-reach areas like skyscraper lobbies, underground malls and the warrens of cubicles that dot corporate campuses around the world. Using a series of antennas arranged around a specific area — which Cantwell calls a “wireless utility” — InnerWireless acts as the go-between for carriers and building owners that want to extend wireless coverage to the great indoors.

InnerWireless, based in the Dallas area, is one of a small handful of companies that act as a neutral host, treading the fine line between traditional equipment vendor and service provider. In public spaces that need coverage but where it isn't economical to deploy cell sites — places like subway stations — the company works with local government entities and carriers to extend wireless' reach.

For carriers, the promise of in-building wireless is not only to bring greater coverage to the last great frontier of indoor spaces, but also to generate more traffic and reduce the number of irate phone calls from customers who expect landline-like quality from their wireless phones. And for building owners, in-building wireless not only means possible added revenue, but a significant perk to offer potential tenants.

For Cantwell, the appeal of all those buildings going up in Shanghai lies in the materials used to build them: They make for great heat retention but lousy RF coverage. Now the question before Cantwell and the half-dozen or so vendors that sell indoor coverage systems is where to start.

If InnerWireless begins its crusade in China, it wouldn't be the first time Cantwell has changed course midstream. Two years ago, the company planned to use the World Trade Center as one of its showcase installations. (InnerWireless' showcase system is located in the Rockefeller Center Concourse, a maze of shops and restaurants that snakes around the New York landmark.) In fact, Cantwell met with the WTC's owners in their offices — on Sept. 10, 2001.

“[September 11] was a profound event for the company because never before had the emphasis been placed on communicating in the building,” he said. “We found ourselves going, ‘Holy cow — we just had a worldwide event that placed a focus on this.’”

Immediately after the attacks, Cantwell huddled the InnerWireless senior leadership team along with the company's lending syndicate (which had closed a series A round of funding on the Wednesday before the Sept. 11 attacks) to determine the viability of the company's business plan.

In the end, the group decided to move forward with a model that makes InnerWireless not only the vendor, but the operator of the system. At the same time, InnerWireless had an opportunity to sell the idea of indoor coverage to entities other than just carriers. The result is Cantwell's wireless utility model, in which InnerWireless provides coverage for cellular/PCS service providers, emergency services, maintenance crews and Wi-Fi carriers.

The idea wasn't radical at the time, but making the business case work was. It also was a familiar spot for Cantwell, who, along with much of the company's leadership, came to InnerWireless in August 2000 after leading the pioneering LMDS efforts of Texas Instruments and later Bosch Telecom. As a leading advocate of LMDS, Cantwell became familiar with the underdog role, trying to convince carriers that using broadband wireless technology was easier and less expensive than putting wires in the ground. Although the plan worked great on paper, few carriers bought into the idea.

“We could write a novel on some things we did well and some things we didn't do well,” he said. The first chapter: Don't mix big companies. The entity that was spun out of Bosch was spun into a joint venture with Motorola and included an investment from Cisco Systems. “Putting Cisco and Motorola on the same board of directors is not a wise thing,” Cantwell said. “And then there was the fundamental collapse of the LMDS market.”

He uses that failure to provide guidance for his current efforts at InnerWireless, vowing to pay close attention to the two issues critical to success: good governance and good economics. “The business has to make sense at its most fundamental nugget,” he said. “I have to make money, the building owner has to perceive value and the carrier has to see value.”

And as it turns out, more than one company had the same idea. Most of them sell directly to carriers, which have started to find economic reason to pay attention to the long-ignored indoor areas of their footprints. In fact, according a recent report from IDC, indoor coverage ranks as one of the 10 most important service issues for 2003.

Like everything in the current environment, indoor wireless coverage begins and ends with economics. For most, it's a relatively simple equation: If there is enough traffic (read: revenue) that will be generated from a specific location, carriers can justify spending the capital dollars to cover it.

“We take a look at the number of businesses that are in the building and our opportunity to get them as customers. Based on that, we'll do a simple cost benefit analysis,” said Mike Irizarry, chief technology officer with U.S. Cellular, which has started deploying indoor antennas using a variety of technologies in Milwaukee.

“In some cases we may have already secured an account and we want to keep it so we'll set up a system there. One of the things we want to do is improve the quality of service within buildings. It's going to be more important as data starts getting deployed.”

With up to 40% of all wireless calls coming from an indoor location, that need is increasing. “I believe ninety percent of it is an economic question,” said Mike Gulledge, vice president of sales and marketing for EMS Wireless.

However, there are as many economic models for in-building wireless as there are buildings to cover. For some carriers, including AT&T Wireless in some markets, the best option is not to set up their own systems but lease capacity from neutral hosts like InnerWireless. Numerous vendors, including EMS, ADC and Nortel Networks, are approaching the market in the traditional supplier role, not wanting to jump into the operating side.

“We approach the carriers because it's their spectrum and they've got to control it.” said Gary Spedaliere, director of product management for the Wireless Business Unit at ADC, which is providing equipment to U.S. Cellular.

More to the point, vendors that dip into the neutral host role risk stepping into a political quagmire, said EMS's Gulledge. Drawing a parallel with the tower industry, multi-carrier indoor installations have too many fingers in the pot to make them effective, he said.

“You get mired down in politics,” Gulledge said. “The building owners saw this as incremental revenue for them at the expense of the carrier. They had all these things that killed the business model. We've kind of stepped back and said, ‘Pigs get fat; hogs get slaughtered.' We're in this together.’”

Still, some vendors straddle the line by working with both building owners and carriers. For example, RadioFrame Networks is providing indoor systems to Nextel, but CEO Jeff Brown said that model will evolve and the company is selling directly to some enterprise users. He also uses the tower model.

“Our view is the pathway to success is through the operators initially because they own the spectrum,” Brown said. “You're not going to do anything without their permission. Through the carriers, we think you'll get to a neutral host model in time much like the tower market evolved.”

According to Cantwell, the time is ripe for the neutral in-building wireless host partly because of the failure of another group of carriers: building local exchange carriers and data LECs. Those carriers, whose rise in the late ‘90s was hailed more than once as the model for the new century, often promised building owners double-digit percentage cuts on revenue in exchange for exclusive access to tenants.

Now, with virtually every one of those carriers dissolved and building owners often left to explain the disappearance of options to tenants, the neutral host model comes at an opportune time. InnerWireless promises building owners a percentage, but nothing near the amount offered by BLECs and data LECs.

“I told [owners] bluntly, ‘This is not a big moneymaker for you boys. If you want to make it a big moneymaker, the wireless carriers are going to stay away and I'm going to stay away,’” Cantwell said. “The fact that 13 bankruptcies [of BLECs and data LECs] happened sobered them up.”

Indeed, in the current environment carriers appear to be testing out both approaches, not wanting to commit to any single strategy lest they be locked into a losing business case. U.S. Cellular is looking at every available option but is leaning toward those models that offer fixed costs, Irizarry said. “My experience has been that carriers tend to favor the fixed cost, and that's where we're looking,” he said.

In the end, it's likely that some form of sharing will be needed to justify the capital expense of covering the indoor landscape. InnerWireless' jump to what some see as the logical approach to the market is rooted in the idea that resources are just too scarce to put the onus for indoor coverage on any single entity. And given other failed forays into the building market, Cantwell is convinced that using the straightforward economic approach is the most effective.

“We can't expect the PCS/cellular guys to bear all of the burden,” Cantwell said. “Because if you do, they're not going to do it.”

Good energy, bad energy Covering the vast array of indoor spaces across the country is made all the more complex by the cornucopia of building materials used. While most cities have strict codes on building size and architecture, it turns out that the newest building materials make it very difficult for carriers to get indoor coverage. Of particular concern is the coated glass used in virtually all new skyscrapers. "Buildings with coated glass are great for keeping the heat out and saving energy, but they're also really good at keeping out RF coverage," said Steve Adams, vice president of marketing and product management for Spotwave. Case in point: ADC's new corporate headquarters in Minnesota. The company used what Vickie Constable, Digivance product manager for ADC, called the latest and greatest building materials. That may have pleased the eye, but it made the ear very unhappy with virtually no wireless coverage. --Vince Vittore