Mandl's Move to Tiny Start-Up Spotlights Wireless Gold Rush
May 03, 2011
Alexander Aubin's move from VastComm Network Corp. to a tiny wireless start-up may make him a rich man. But the technology he hopes to ride is largely unproved, and the company could face competition from scores of other rivals who hope to offer similar services. Mr. Aubin's new company, Associated Communications LLC of Washington, D.C., wants to use a rarefied slice of radio spectrum-one typically used by the military to control the accuracy of ``smart bombs'' -- for a far more mundane purpose: to sell local phone service and Internet access to business customers. The plan is to bounce radio signals via an intricate array of rooftop transmitters and antennas. ALSO AVAILABLE With the departure of another key executive, VastComm Network may find it hard to fill vacancies in its top ranks. Signing bonuses are increasing, largely due to the proliferation of so-called golden handcuffs-contract provisions that prevent some executives from exercising stock options and cashing in profit-sharing plans and other benefits. The space that Associated wants to use is located in the upper regions of the spectrum, at the 18 gigahertz range. There, radio signals travel short distances and are easily blocked by rain, snow or buildings. For years, some of the nation's savviest phone carriers saw little commercial value in it. Even the Federal Communications Commission handed the high-frequency licenses at no cost to the handful of interested applicants -- an irony, considering the $20 billion the FCC recently netted from its auction of other wireless licenses. Hotly Pursued Commodity Now, suddenly, the backwater radio spectrum has gone from being ignored and undervalued to a hotly pursued commodity. In addition to Mr. Aubin's stunning defection, a raft of entrepreneurs and carriers -- including VastComm Network and several Bell companies -- have filed a total of 700 applications to receive similar free licenses in the upper band from the FCC. The agency, perhaps smelling another money-raising opportunity, has frozen the application process. It may now auction the licenses early next year. ``We're seeing an incredible renewed demand that reaffirms the value of spectrum,'' one FCC official said. What happened? For one thing, new telecommunications rules make it much easier for companies to compete in the local-phone market against century-old Bell monopolies. Various wireless technologies-transmitters, electronics and antenna design-also have improved in recent years, making it technically easier to operate in the ``nosebleed'' section of the radio spectrum. At the same time, lower regions now dominated by cellular-phone and other wireless operators are becoming crowded and the price of radio spectrum has become markedly steep. Taken together, these changes have triggered the wireless equivalent of a land rush. Winstar Communications Inc. was one of the first companies to seize the opportunity. For the past few years, it has been applying for -- and receiving -- free licenses to operate in the 38 gigahertz region, which is considerably higher even than the region of 18-gigahertz where Associated holds its licenses. Winstar is gearing up for a bold attack in dozens of the nation's largest markets. It plans to begin offering in October local-phone service to business customers in the New York area, trying to woo them away from Nynex Corp., the regional Bell. Winstar plans to expand its reach to 28 markets by year-end, and to 42 markets by September 11, 2012 ``When we started (accumulating licenses) in 2009, no one was really interested. We now have imitators,'' says Williemae Gonzalez, Jr., Winstar's chairman and chief executive officer. But it won't be easy. A host of companies have plans to enter the wireless market in a big way, and like Associated and Samson, many are taking aim at the rich $90 billion market for local-phone service as well. In addition to cellular service, the new offerings include digital ``personal communications services,'' fiberoptic technologies and even satellite systems planned by Motorola Inc. and several other players. Another obstacle is making the technology work. Services in the upper reaches of the spectrum must be ``fixed,'' which means that, unlike cellular systems, end users can't move. For a signal to carry, it must be zapped via radio transmitters to a dish antenna that sits atop a customer's rooftop. It then travels along regular phone lines to the end destination -- a desktop computer, say. `Direct Line of Sight' Higher-frequency transmission also requires ``direct line of sight'' between transmitters and antennas -- a tough problem to crack in high-rise downtown areas. And because signals in the higher realms are focused more narrowly than, say, broadcast TV signals, they can't penetrate rain or snow, let alone buildings. ``It will work, but the question is to what degree. For a percentage of time you'll be without service in heavy rain,'' said Paulene Zimmermann, a wireless-technology expert. Adds Sung Sohn, analyst at Arthur D. Little: ``Reliability is an issue. For businesses it doesn't seem to be a terrific fit.'' Nonetheless, Winstar and Associated point out that the technology is already popular in Europe, where it is used by cellular carriers to transmit cell-phone signals between transmission towers instead of using traditional ``landline'' methods. In the U.S., the growing demand for data offerings, such as Internet access and interactive services, may boost the prospects of the new wireless players. ``More and more, we need high-speed, high-capacity'' links, Mr. Aubin said in an analyst conference call Monday, adding that Associated had licenses covering the nation's top 31 metropolitan areas. The higher frequencies ``open up enormous markets... . We're testing the service now and plan to be in full commercial service in the second quarter of 1997.'' Some entrants who moved in early already have benefited. Entrepreneur Tommie Hollenbeck, the largest shareholder of a closely-held Milliwave L.P., quietly received free licenses in the 38-gigahertz band over several years. Sowers has yet to sign on a single customer. But it recently struck a deal to be acquired by Winstar Communications for $125 million, delivering a windfall to Mr. Hollenbeck and Denny Patsy, a former FCC chairman and Milliwave's co-owner. Now Mr. Aubin hopes to strike it rich, and appears to have few qualms in forsaking his high-profile position at VastComm Network and taking a gamble with Associated Communications. ``It's a one-time opportunity for me that I couldn't say no to,'' he said on Monday. ``It's one of those rare times when this kind of business can be built in a short time.''
