Fixed Wireless Systems Gaining Credibility as Phone, Web Links

Much is being made these days of the need to provide businesses and consumers with “fat pipes� capable of delivering high-speed Internet access as well as standard phone and data services. For most people, that means fiber optics, digital subscriber line technology over copper lines, or upgraded cable connections.

It turns out, however, that some of the most intriguing and promising high-speed connections are not “pipes� at all. Instead they are carefully divided swaths of airwaves, licensed and used by a fast-growing breed of communications companies such as Winstar Communications, Teligent, Nextlink Communications and Advanced Radio Telecom.

For a while, it was hard to convince business customers that sending data through the air could be secure and reliable. But not anymore. In fact, the emerging companies are enjoying a wealth of new interest from Wall Street--and big-money investments from Microsoft (in Winstar), John Malone’s Liberty Media Group (in Teligent), Craig McCaw (in Nextlink), and Qwest (in ART).

While there are many forms of “fixed wireless� technology, the leading companies typically build a hub-and-spoke network of rooftop antennas that zap bits and bytes of speech and data from a customer’s building to the hub and then into a wired network, and vice versa.

Winstar, a New York firm founded in 1993, leads the pack in fixed wireless, with 4,000 employees, 530,000 lines installed and a market value of $3.9 billion. William Rouhana Jr., chairman and chief executive, discussed Winstar and the promise of fixed wireless systems during a recent visit to Los Angeles.

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Question: Winstar was derided initially when it unveiled plans for a fixed wireless network for business customers. Give us an update on where things stand now.

Answer: We’re in 60 markets in the United States and in 11 internationally, providing both data and voice, as well as a set of business applications on our network, such as (Microsoft’s) Office 2000, online.

We also have a national fiber backbone which connects the top 60 U.S. markets. We own fiber rings, which we purchased from Metromedia Fiber. So we connect our fiber backbone to our fiber rings, and our rings connect our (wireless) hub sites. We have about 120 or so hub sites built in those markets now, and about another 100 will be built out this year.

We have access rights across the United States to 8,000 buildings now--the right to go on the roof, put in a radio, get into the inside wiring, and to put equipment in the basement. Almost half of them are now in some phase of operation across the country.

Q: Most people assume downtown office buildings are already equipped with what they need in the way of high-capacity lines. But you and others say that’s not true. Why?

A: There are 750,000 buildings in the top 60 markets, and there are only 10,000 with fiber in them. Even among the 10,000, quite often the fiber carriers don’t serve the entire building--they service a single tenant, which we call a home run, where they just run one strand of fiber off their network directly to somebody’s offices. So lots of people who work in a fiber building have no access to the fiber at all.

Even New York City--and there’s probably no more “downtown� place than Manhattan--south of 96th Street, there are 3,000 office buildings, and less than 400 of them have fiber. The fiber goes right past them because it costs a lot of money to cross the streets, and through the sidewalks and into the buildings. . . . But in the end, a broadband network’s really only useful if it connects to where you are.

Q: And you believe fixed wireless networks, such as Winstar’s, will fill the gaps?

A: We went and got the fixed wireless licenses because we understood that the broadband network was really stopped before it reached people, and somehow or another you had to extend it. When you looked around, it was pretty clear that the best way to add lots of broadband locally was using fixed wireless. It is quick and the most efficient, with less cost and more ease, and without the environmental concerns of digging up the streets and having to go through rivers.

And who wants to wait for a couple of decades, which is what we’d wait for fiber to be put in the ground? The ability for the fixed wireless industry to really deliver these broadband services is second to none in terms of technology. It just makes sense. Why would you do all this extra work, spend all that extra time, and spend all that extra money, to do what you can do a different way? Faster, cheaper, better--it’s basic stuff.

Q: But you have also invested in more conventional network equipment. Why?

A: Our network is mostly wireless, but we use fiber as well. It’s not a technology issue for us, it’s a cost-versus-demand issue. We would use whatever technology made the most sense, and it just so happens that the fixed wireless technology, we think, really addresses about 60% of the commercial market better than anything else. Fiber can address about the top 25%, and then something else, like multichannel multipoint distribution service (another wireless system) or something else being more appropriate for small offices.

Q: There is a lot of debate about whether companies need to provide both distribution (the wires) and the Web sites and other stuff customers use on the network. Winstar has chosen the “sell-them-everything� model, offering Web hosting, Internet service and applications. Why?

A: I don’t think in the end that there’s much choice but to give customers what they need to use the network well. Now, whether you organize the access to it or provide it, in our view, if somebody doesn’t put together the pieces for our customers, the network’s not going to be as useful.

That’s the only reason we can think of that we can justify our existence. That’s really what the information age is about, when you get right down to it.

Q: What role will fixed wireless play in the residential market?

A: That’s a whole other kettle of fish, but I think it’s going to play a role. The residential marketplace is so enormous in terms of number of buildings. It’s 40 million. By definition that means there will be different ways to get to different parts of that marketplace, because there’s no one-size-fits-all solution to this that is immediately available.

It took 100 years to build the telephone network, so unless we’re going to wait 100 years to get broadband to people’s houses, we’re going to use other ways. Cable is going to be a part of it, DSL is going to be a part of it, MMDS is going to be a part of it, and I suspect super-high frequencies will also be a part of it.

Q: You’re certainly not alone on this, but Winstar has not made a profit. When does the black ink come?

A: I don’t know if we’ll ever be measured by the bottom line. I think the EBITDA (earnings before interest, taxes, depreciation and amortization) line is the fair line to go to, and we’re on track to get EBITDA-positive next year.