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VoiceStream to Acquire MobileStar Assets - InternetNews.
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VoiceStream to Acquire MobileStar Assets

MobileStar Network Corp., the high-profile Richardson, Texas-based company that aims to set up a national wireless network using the IEEE 802.11b standard, has entered into an agreement to sell its assets to Bellevue, Wash.-based VoiceStream Wireless for an undisclosed amount.

The acquisition will be done through the oversight of the bankruptcy courts. Although the wireless Internet service provider teetered on the brink of shutting down in early October, it only recently filed for protection from its creditors under Chapter 11 of the Bankruptcy Code.

In late October, former CEO Robert Kaiser confirmed that MobileStar was finalizing plans and could announcement an agreement within the next two weeks. Kaiser relinquished his role as CEO and has been replaced by interim CEO Richard Couch of Diablo Management Group, the investment advisor who is managing the transaction.

Kim Thompson, spokesperson for VoiceStream, confirmed the details of the transaction. However, she declined to elaborate on the financial arrangements except to say that VoiceStream will provide Debtor-in-Possession (DIP) financing in order to ensure the continued operation of the MobileStar network. The New York Times reported that VoiceStream is investing about $2.5 million for MobileStar to resume operations.

Analysts said they believe the deal provides both parties with a good strategic fit and represents a logical extension of the 802.11b technology. Cellular providers can tap into ISPs such as MobileStar to speed up their Wide Area Networks (WAN), which up until now have only been delivering data at transmission rates of around 19 kilobits-per-second (Kbps). By comparison, the 802.11b standard is designed to deliver data at rates of 11 megabits-per-second (Mbps), approaching the speeds of a wired Ethernet connection.

Meanwhile, personal-area network (PAN) providers such as MobileStar can tap into mobility of a WAN operator to enhance the service for its subscriber. In a sense, the proposed combination would create a new level of roaming between two different technologies.

"I think a valuable tool for everyone involved is to create an uninterrupted chain from the PAN to WAN," said Joshua Wise, senior analyst at Allied Business Intelligence, an Oyster Bay, N.Y.-based consulting group.

Wise explained that the market for publicly accessible networks (so-called "hotspots") is projected to jump to nearly 7 million users by 2006.

Still, the completion of the MobileStar transaction is by no means assured. In fact, the Times quoted the interim CEO as saying: "If no one comes in and overbids them, they will wind up owning essentially the core assets of the business."

Thompson said the deal is still subject to approval by the bankruptcy court. Closing is expected to take about 60 days.

VoiceStream is a subsidiary of German phone company Deutsche Telekom AG.