Wireless upstarts

Tuesday 2nd May 2000

Video killed the radio star. So the song lamented. But history has a funny way of reaping revenge. Thanks to the digital revolution, video as we know it (yes, we're talking about your VHS player) will soon be outsmarted by a bunch of far better toys. And radio, well, it's making the comeback of a lifetime.

Just ask Paul Ryan, the extraordinarily tall chief executive of tele-communications company Walker Wireless. Striding about his Newmarket, Auckland, office with laptop switched on, he can send emails, access his company's network, videoconference and surf the Net from anywhere in the building, with no wires and not even a clunky mobile phone-driven modem. Why, he could work on the loo if he wanted, thanks to the radio frequency-based wireless connectivity he's offering. The system allows a company's PCs and laptops to connect to the network via wireless cards in each machine, and be linked to a central base-station somewhere in the building.

In addition to exciting geeks and Internet users who like the look of the fast-access, broadband capability ("more Internet than you can eat", they say), the radio service should be sending alert signals to Telecom shareholders. Because, after Ryan sends, say, an email wirelessly to his own server, the signal then circumvents Telecom's copper wires altogether by delivering a radio signal directly to a receiver on a nearby building. From here the signal either joins the national Clear or Telecom backbone or sends a message to another nearby mast.

Walker and its competitors have spiked Auckland's skyscrapers with so many radio masts that the whole of Auckland is potentially covered in a copper-free network. In other words, "look, Mum, no Telecom".

In the past, such rival connectivity wouldn't have worried old Spot. But the new kids claim they are hitting the jack-pot. Since launching its wireless Internet service late last year, Walker claims to have hundreds of customers and will grow at a steady clip to have "tens of thousands within the next few years". Ryan is serious - to the tune of a $20 million capital raising that may end up as a New Zealand Stock Exchange listing later this year. That's already on the back of a promise by entrepreneur Barry Colman (owner of National Business Review and co-owner of Unlimited) to spend $15 million, most of which will be going Walkers' way.

"I see the demand for broadband Internet delivery services as almost exponential for the next little while," Ryan enthuses.

He is not alone in his optimism.

The wireless gang

From seemingly nowhere, two other radio-based Internet service providers (ISPs) have sprung up in Auckland, both backed by publicly-owned companies. Former liquor retailer Wilson Neill spent $11 million buying Albany-based RadioNet and property company Savoy Equities spent $7 million buying a 70% stake in SafetyNet. Together they claim to have about 1000-plus customers, and are growing. SafetyNet told the New Zealand Herald it hopes to collect $12 million in sales by 2001.

That's all small potatoes compared to Clear Communications' decision to join the wireless party. It's planning a $120 million rollout of broadband wireless using a 26-GHz frequency it bought for about $15 million last year. Online services marketing director Ian Scherger is perhaps even more bullish about the future of this wireless technology - officially called local multipoint distribution service (LMDS) - than he is about the company's optical fibre cable running past many central business district buildings. Unlike fibre, wireless can access many more customers, more cheaply and is far easier to install, he says.

Who would have thought radio frequency would have such a resurgence? Certainly not many in the United States, except, perhaps, one farsighted Washington DC lawyer, Leo George. He bought an unwanted ultra-high frequency 38-GHz band from the US government for $US1 in 1984. Nine years later, George was offered $US4 million in cash and $US6 million in stock options by the founder of WinStar, now a Nasdaq-listed telco. After signing its first customer in 1996, WinStar is now worth $US5 billion, with a staff of 4000, 120,000 customers and $US300,000 in annualised revenues. What's WinStar's business? Wireless, broadband Internet connection.

This is hot stuff.

The broadband opportunity

What does all this mean? Well, for one thing, no more World Wide Wait. (Or so the theory goes - not all customers report great connectivity.) To make the point, Walker Wireless is running a TV commercial showing an enraged worker attacking his PC. It's the Internet version of road-rage. Never mind that they stole the ad from a US security firm advertising the value of security cameras - bandwidth when you need it has so far been one of the major frustrations for Net users and content providers worldwide. Ever felt like taking to the bloody thing yourself? The International Data Corporation sympathises. In a report called "I'm Tired of Waiting!" it reckons broadband, high-frequency wireless residential data services will grow more than 316% in the US between 1998 and 2002. More importantly, according to one Ernst & Young study, "The Connected Society" (based on interviews with senior executives at 96 telcos worldwide), the race to supply users with Internet bandwidth whenever, wherever and in whatever form they need is the telecommunications race of the decade.

And that's why Ryan and the bosses of the new radio operators reckon they can afford to feel so upbeat about entering the already crowded telco and ISP market. The way Ryan sees it, the demand for fast, cheap Internet connection by businesses and residential customers is insatiable. "Obviously, I'd like to see just one mast - ours - on every building, but the reality is that there is plenty for all of us."

It's not hard to see the opportunities. Just think about how important the Net has become in connecting business. The now well-worn Forrester Research study claims that business-to-business e-commerce will reach $US1.3 trillion by 2003 in the US alone, and begs the question "on whose network and via which ISP will all these data packages be sent?".

Add to that videoconferencing, email, digital TV, Internet traffic, high-definition TV, and the soon to be common-as-muck Voice over Internet Protocol (VoIP - voice traffic using the Internet) and you soon realise the Internet "pipes" joining business and houses will need to be big-bottomly huge. The Ernst & Young study estimated bandwidth demand in the US would more than double from two million terabits per day in 1995 to almost five million terabits per day by 2003. "New applications will include voice recognition and data, including video," says the report. There's every reason to think it'll be the same here.

It's also not hard to see why the technology can cut the mustard. "It's instant Internet," says Ryan. "Typically we run between 11 and 25Mbit/second, but the theoretical limit is 100Mbit/second." What does that mean in English? Your typical modem from home has a top speed of 56,000 bits per second, and there are approximately one million bits in a megabit. So wireless' top speed of 100 megabits is roughly 2000 times faster than what most people can get at the moment. That's fast enough to download the entire Encyclopaedia Britannica - about 12Mb of information - in 10 seconds. That kind of connectivity speed means consumers could watch streaming video, nerd-speak for broadcast-quality moving pictures, over the network without the system reverting to a kind of high-tech crystal radio set. The quality will be about the same as with fibre optic cable, but until the telcos come knocking on your door with fibre, wireless is going to be a cheaper option.

But broadband doesn't have to be wireless.

The Ernst & Young report picks ADSL - that's Telecom's copper-in-the-ground broadband solution - to dominate the next three years of broadband access worldwide. It reckons ADSL will grow exponentially while wireless will taper off (see graph). Beyond that, according to 96 telco chief executives interviewed by Ernst & Young about industry drivers, fibre optic cable will win in the long run. "ADSL is the best way to leverage the embedded infrastructure," the report quotes a chief executive as saying. "But the end game is fibre."

It's the customers, stupid

In the New Zealand scene, it's not easy to see just why wireless should be the technology that wins in the battle to supply the insatiable demand. Fact is, the wireless operators join a convergence war that has telcos like Telecom and Clear and new entrants like Telstra/Saturn, ISP upstarts like Ihug and Iprolink, digital TV operators like Sky and potentially TVNZ's BCL and heck, why not even your local power company, all vying for broadband connection through a cable/optical fibre/copper wire/satellite signal solution. In July, the government will auction off the remaining third-gener-ation (3-G) mobile frequencies creating the potential for fast Internet content delivered to devices like mobile phones and set-top boxes. Even Nokia is contemplating a home-based wireless set-top box. And there's also PlayStation2, which could become a home standard.

In this technology war, the customer is king. Ernst & Young's 96 telco chief executives say it is customer demand that is really driving their industry. Which makes the convergence war, in the first place, a battle for the hearts and minds of customers - who cares what technology is used.

So who's stolen the march on the market then? To be honest, fast Internet access has so far been a marketing flop. Telecom's putting a brave face on ADSL, which uses existing copper wires and now has about 3000 customers. "The start was disappointing, but just in the past three months it has really taken off. We're adding about 100 customers a week," says Telecom spokesman and America's Cup commentator Glen Sowry.

Ihug's satellite service, Satnet, is also thought by industry observers to be struggling - they guess at 1500-plus customers. Ihug's Nick Wood won't confirm the number but agrees so far it's small. The demand for broadband - wireless or otherwise - isn't around yet, Wood says. "Compared to Telecom's online customers, its ADSL numbers are just a blip. For consumers it's a price-point issue. They are just not yet convinced broadband is worth it. Mind you, when they see our product in action they wonder how they ever lived without it. Life's like that."

Telecom troubled?

Doesn't stop some of the new players talking up a storm. "I wouldn't buy any shares in Telecom," says RadioNet's chief executive Leceister Chatfield. He says Telecom's business model has so far been built around dominating the last mile. "But it's the last mile that we're going to win."

Ryan claims his system can provide a 50% to 80% saving over Telecom's wires in the ground. "And if you want to expand your network that's fine - there's no digging up the road to put down more copper, no need to re-wire the office. We simply upgrade your bandwidth to the new level," Ryan says.

SafteyNet boss Craig Southerland says he's winning business because "it gets our customers out from under Telecom's thumb. That's why they like it so much ... Mind you, Telecom is one of our competitors but it's also a customer and a partner, so I have to tread carefully there."

But is merely providing an alternative enough to build a business? Probably not, if Clear's track record is anything to go by. Actually, Southerland's reticence to stick it all the way to Telecom highlights an important point about the future success of wireless: Telecom matters. "Competitors and new players may erode Telecom's market share in pockets, but Telecom still has a powerful position because it has ubiquity," says Clear spokesman Ross Inglis.

Ernie Newman, chief executive of the Telecommunications Users Association (TUANZ), sees wireless as one of the most exciting developments over the next five years, and one that will reshape New Zealand's communications market completely. Even the threat of wireless and VoIP is driving toll and bandwidth prices down, he says. But the biggest issue is making sure wireless connects seamlessly with existing networks, particularly the local loop. "Whatever technology we get, there has got to be a universally inter-connectable network. We don't want new networks springing up that can't talk to each other."

According to Clear, unless Telecom is forced to surrender its (taxpayer-funded) lines-into-every-home network - as Bell Atlantic in the US, British Telecom in the UK and Telstra in Australia have been forced to do - serious competition will be isolated to tiny urban pockets.

"Even if you can call out on fibre optic cable or on wireless, at some point you'll want to connect to someone with an old copper connection. No one will be able to replace that for every household in the country," says Inglis.

Clear's preference is for Telecom to be forced to account separately for its "last mile" or surrender it completely to a separate company. It is pinning its hopes on a ministerial inquiry into the telecommunications industry, headed by Hugh Fletcher and due to report to government in September.

But let's say Telecom is forced by government to separate itself from the last mile (and how long might that take?) and gets hit by irritating broadband pickpockets in the urban centres. Does this mean Telecom shareholders should considering bailing - like original US shareholder Ameritech did in 1998 once it became clear Telecom's monopoly position was being irrevocably eroded?

Probably not. It's hard to see why Telecom should be pushed off its perch by the little battlers. As Telecom spokesman Glen Sowry points out, US wireless and cable operators making powerful inroads into broadband is due to a largely flat or densely-populated geo-graphy. That's hardly New Zealand. Hills and valleys are not conducive to line-of-site radio operators or terrestrial transmitters (such as Sky's). Moreover, Telecom's ability to predatory price, street-by-street, customer-by-customer, has now been proven in the market place and tested in the courts. Clear, for instance, would not reveal to Unlimited where it plans to unroll its wireless LMDS offering. To paraphrase what Inglis says: "Telecom will stitch up the neighbourhood before we get there."

For the meantime, the fight for broad-band access will be largely a guerrilla war for customers, fought in pockets on price and quality of service. Don't sell your Telecom shares just yet.

Vincent Heeringa is the editor of Unlimited. Paul Brislen hangs around writing stuff for it.

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