Getting It Right The Second Time

A few years ago, fixed wireless access providers like WinStar and Teligent famously flopped after investing millions in Local Multipoint Distribution Services (LMDS) , AKA fixed wireless infrastructure in major population centers so they could offer high-speed network connectivity mainly to small and medium-size enterprises.

Now TowerStream Corp., the first service provider member of the WiMAX Forum, which recently announced its planned entry into the Los Angeles market, appears to be following in their footsteps—albeit with a few telling differences.

For one thing, TowerStream is using much lower-cost and more readily available pre-standard 802.16 infrastructure equipment from Aperto Networks and Alvarion, which operates in the license-exempt 5GHz band. One of the reasons LMDS providers failed is that they had to pony up for expensive spectrum licenses and then buy infrastructure equipment at premium prices in a not very competitive market.

When TowerStream launched four years ago, memories of the LMDS debacle were still fresh.

“We really wanted to learn from everybody else’s mistakes,” says president and COO Jeff Thompson, one of the co-founders. “We knew we didn’t want to keep replicating old telecom models as we could see others doing. We wanted it to be scalable and reliable and we wanted to make a lot of money.”

Sure. Easy.

TowerStream isn’t there quite yet, but it has taken some significant strides. It first launched service in Boston and Providence R.I., its home base, in 2002. By earlier this year, it was in three major markets, including New York City.

It charges $500 a month for T-1 equivalent service with a standard service level agreement (SLA) guaranteeing 99.99 percent up time. It can also provide a 100-Mbps service for enterprise customers, using infrastructure equipment from DragonWave. In June 2003 it moved into the concrete canyons of Manhattan.

“That roll-out went very well. We got a lot of experience and learned a lot about opening new markets, about expanding the company, about how to make a roll-out better and how to give customers what they want. It was magnificent,” says Thompson, who is nothing if not enthusiastic. (We’re guessing this is code for, ‘It was a mammoth challenge that we somehow got through.’)

Chicago came next, in March of this year. The company’s short-term goal is to be in 10 top markets. However, the ten are not necessarily the ten biggest, Thompson notes. “It’s not purely population. We’re looking at markets, visiting each one to see which are best for TowerStream.” Its current pace is two new markets a year. “We’ll hopefully be there [in 10 markets] by the end of 2006, but we don’t have a stick in the ground [that says it has to be by then],” he says.

The company hopes to be up and running in Los Angeles, its fourth major market, by end of first quarter 2005. “We had a great response from a lot of businesses in LA when we announced we were coming,” he says.

TowerStream is avoiding one mistake of the LMDS pioneers—it’s not relying on windfall venture capital financing to fund its roll-out. The money market is different today in any case: the tens of millions available to WinStar et al just aren’t there today. TowerStream’s costs are also lower, as noted, so capital requirements aren’t as onerous. Still, the company’s “self-funded, organic growth model,” as Thompson terms it, is one reason it’s not moving faster. He is acutely aware that the right timing is critical.

“If we go too fast,” he says, “we could end up like our predecessors, but if we do it too slow, we’ll miss opportunities.”

The organic growth model depends on getting markets up and running and generating significant revenues that the company can then plough back into opening more new markets.

“We’re still a relatively small company,” Thompson says, “but we’re starting to grow now. We have over 700 customers today and that will quickly approach 1,000 now that those markets [Boston/Providence, NYC, Chicago] are starting to ramp up.” Last year it doubled revenues while only adding four new employees, bringing the total to 33. “When you can double revenue and only add four new staff, that’s incredible,” he says.

The company’s pitch to prospective customers is similar to the one LMDS pioneers brought to market. The basic value proposition—$500 T-1, 99.99 percent reliability—is good, but the real differentiator is speed of provisioning, and the fact that TowerStream, with its all-wireless architecture, completely bypasses the telephone company.

“Every IT guy I know has been burned by their [telephone company], just because it has too many customers and it takes too long for it to deliver [high-speed data] service,” Thompson says. Internet access, he adds, is a more critical service today than it was when WinStar entered the market. “If you have to wait two or three weeks for service now, you’re just as much out of business as if the power was off.”

TowerStream advertises that it can provision within 48 hours, but in fact can do it even faster—in one case within three hours.

At the recent Democratic National Convention, the consortium of government and private agencies responsible for security at the event discovered at the last minute that it would not have enough wired access in time for the start of the proceedings. It contacted TowerStream on a Saturday at 6 p.m. and the company delivered wireless connectivity by six the next morning.

It can do this because it has already established ubiquitous coverage across entire cities and in some cases beyond into suburbs. That ubiquity of coverage is partly thanks to the sometimes disputed non-line of sight (NLOS) characteristics of the 802.16-like Aperto and Alvarion technology the company is using. Line of sight links offer optimal throughput, but throughput is still impressive in NLOS mode.

“I was riding around the city recently, doing a lot of non-line of sight shots and getting six megabits upstream, nine megabits on the downstream,” Thompson says. “Everybody kept telling us that non-line of sight didn’t really work, but if you’re within a mile of one of our base stations, it’s going to work, and it will probably work out to two miles. Two miles from the Empire State building you’re out in the water. And the technology is only getting to get better and better.”

The ubiquity of coverage is also a result of TowerStream’s success in securing “beachfront properties,” as Thompson puts it, by acquiring rights to use prominent high buildings to place its antennas and radios—properties such as the Empire State and MetLife buildings in New York and the Aon Center in Chicago.

“We’re building a network in the sky that is all wireless,” he says. “It’s a wireless ring above the city that is completely separate from the telcos. It’s crucial for us to have the best locations.”

It’s crucial because it means TowerStream can achieve ubiquity of coverage with the minimum number of wireless points of presense (POPs)—it has nine altogether across the three current markets. It’s also crucial because it gives the company a head start on other WiMAX service providers that are sure to enter the market in the months ahead—and other wireless carriers, including reviving LMDS providers.

In the early days, in the aftermath of the WinStar and Teligent implosions, there was some resistance to the idea of relying on a wireless provider, Thompson admits. Now that the company has hundreds of customers, including some very big enterprises that are willing to recommend it, that resistance is evaporating, he claims.

TowerStream is a member of the WiMAX Forum and to some extent trades on that fact, but Thompson is quite clear that the equipment the company is using now is not WiMAX. The first WiMAX Forum-approved products probably won’t be available until second quarter 2005. TowerStream will switch to WiMAX equipment when it becomes available, but has no intention of upgrading its current infrastructure in the short term.

“Right now, we have gear that works really well,” Thompson notes. “It’s reliable and we’ve been using it for years. [The introduction of] WiMAX is just going to bring the cost of customer premises equipment [CPE] down through economies of scale—and it will also add some new technologies.”

The CPE TowerStream is using now has recently come down from the $500 to $600 level to the $200 to $300 level, which brings it into the realm of high-end SOHO customers, but WiMAX gear will have to get orders of magnitude cheaper yet if it’s to be a viable technology for delivering residential service, Thompson says.

Until then, the TowerStream party line is that WiMAX (or the pre-802.16 5GHz gear it’s using now) and Wi-Fi are complementary technologies.

“WiMAX is a great way to get the last mile to the Internet,” he says. “It’s definitely a better way to do backhaul for Wi-Fi hotspots, for example. And Wi-Fi is a great technology for the wireless LAN. There’s no reason to change anything there. Those two together are a killer combination.”

Unless, of course, laptop, PDA and smart phone manufacturers start building WiMAX into their products the way they are incorporating Wi-Fi now, which is a possibility. Then TowerStream and other WiMAX service providers might be in the business of offering residential and even mobile service, which could break up the winning team.

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