Independent, original, in-depth coverage of the trends and technologies shaping the BWIA industry

Recipient of Part-15.Org’s 2002 Wireless Advocate Of The Year Award

Steve Stroh, Editor

Special Issue Issue 2004-02

Clearwire - New Craig McCaw Venture Poised To Ignite BWIA Industry In 2004 ...... 1 Clearwire – New Craig McCaw Venture It Begins ...... 2 Poised To Ignite BWIA Industry In 2004 Finding The Sweet Spot of Telecom ...... 2 Assembling The Pieces ...... 3 Details – Spectrum, Part 1 – Background ...... 5 Details – Spectrum, Part 2 – History ...... 6 Details – Spectrum, Part 3 – Present ...... 8 Details – Equipment ...... 10 I’ve predicted that 2004 would be a watershed Details – Talent ...... 11 Details – Financing ...... 12 year for the Broadband Wireless Internet Details – Branding ...... 12 Details – Target Markets ...... 13 Access(BWIA) industry. In 2004 there is a Details – Base Stations, Backhaul, and Internet Bandwidth ...... 13 unique confluence of demand, technology, Details – Mobility ...... 14 Details – Voice Over Internet Protocol (VOIP) ...... 15 opportunity, regulatory cooperation on spectrum Details – Timing ...... 16 Details – Integration / Consolidation ...... 17 issues, and market uncertainty in the face of an Details – Market Positioning ...... 17 Details – Lessons Learned ...... 18 impending technical standard (WiMAX) that Details – The McCaw Factor ...... 19 many predict will totally commoditize BWIA. In Backup: Why Another Type Of Wireless; Why Another Network; Why Now? 20 uncertainty, there is opportunity, and no one FOCUS Subscription Form ...... 21 understands that lesson so well as “billionaire ISSN: 1536-7215 wireless entrepreneur” Craig McCaw. FOCUS On Broadband Wireless Internet Access is founded upon the following tenets: There are a number of disparate pieces to this 1. Internet technology is becoming the foundation for nearly all communications, commerce, and entertainment services; story that only form a 2. For Internet access to be truly usable, always-on Broadband Internet access complete picture if you is required; 3. By the end of the first decade of the 21st century, Internet access will be know where to look. In ubiquitous; 4. In the “last mile”, wireline-based technologies and systems will generally the preparation of this prove to be insufficient or not cost-effective to provide ubiquitous, always- story over the last six on, Broadband Internet to most homes and businesses; 5. In the near term, Broadband Wireless Internet Access in all its forms – Sub weeks, I’ve seen no 11 GHz, Above 11 GHz, Free Space Optics, Ultra Wideband, Licensed, License-exempt has emerged as the most likely technology to provide cost- evidence that anyone effective, ubiquitous, always-on Broadband Internet Access. FOCUS on Broadband Wireless Internet Access is written in an informal, easy- else has developed a to-read style, with an emphasis on clear explanations of why a particular company, complete picture of what product, or development in the Broadband Wireless Internet Access industry is significant. Each issue contains a number of original, in-depth articles and news McCaw is planning. So, stories. FOCUS is a just-in-time, short-lead-time publication, using Adobe Acrobat (.pdf) format, and email distribution. FOCUS On Broadband Wireless Internet in typical FOCUS Access is published by: Steve Stroh fashion, I’ll stitch P.O. Box 84, Redmond, WA 98073-0084 USA Craig McCaw (In McCaw 425-939-0076 Cellular days) together a number of [email protected] disparate pieces of the www.focusonbwia.com story of McCaw’s new venture, which is called All logos, trademarks, etc. referenced in FOCUS are the property of their respective owners. FOCUS On Broadband Wireless Internet Access

Clearwire, and offer what I consider to be a very mode”) McCaw has been quietly assembling all compelling story. Clearwire… led by McCaw… the needed assets to create a compelling new is the I’ll know it when I see it development that class of services that combine the hottest I believe will launch Broadband Wireless elements of Internet and Telecommunications: Internet Access from a perennial “niche” method • Wireless; completely bypasses the of providing Broadband Internet Access to increasingly antiquated infrastructure and “mainstream” and quite possibly, dominant anti-competitive practices of the incumbent method of deploying Broadband Internet telephone companies Access… If… and it’s a major if… McCaw acts • Broadband; making use of new generations quickly enough, it’s likely that he’ll be able to of wireless equipment to offer Internet rout rival companies and Broadband Internet access at speeds in excess of DSL and Access technologies who had planned on a far cellular telephone “3G” next generation more leisurely adoption/upgrade cycle to data/Internet services Broadband competition than what McCaw has in • Mobility; the technology of Broadband mind for Clearwire. Wireless systems to offer full mobility has It Begins The genesis of this story was an quietly emerged; the label “Fixed Wireless” email message from a person who prefers not to doesn’t necessarily apply any longer be named for publication. Their initial message • Voice Over Internet Protocol (VOIP) was “Do you know anything about a rumor I am telephony; the ability to offer telephony hearing about a McCaw backed company services for a fraction of the cost of launching a 4G network in Florida (and 30 more conventional telephony by using VOIP cities soon to follow)?” Over the next few days technology, over wireless we exchanged emails and insights, and once I Finding The Sweet Spot of Telecom The was alerted to this story, a more comprehensive “Sweet Spot” of Telecom is an inability to picture of what McCaw may be attempting with service the majority of potential customers with Flux U.S. began to emerge. I’m indebted to my new-generation, more cost-effective telecom correspondent for alerting me to this services such as those emerging in countries development. such as Korea… and Mexico. When you need to hide something in plain The Sweet Spot of Telecom is bordered by sight… how do you do it? Stage magicians wireline telephony, wireless telephony, and perform their “magic” in full view of an current Broadband Wireless Internet Access audience by providing a distraction. In the US service providers. Their respective inabilities to business press, you can’t get a much better satisfy the demand for lower cost, higher- distraction than the week before the Christmas performance, telecommunications services and holiday, when most businesses begin to wind scale such services offers a huge opportunity. down in preparation for relaxed holiday In other countries, notably Korea, the Sweet operations, and the hot business news is how Spot of Telecom has been filled by retailers are faring in the critical Christmas sales inexpensive, high-performance DSL. In season. So, purely in hindsight, it seems natural Mexico, it has been filled by reasonably-priced, that the earliest hint of news of Craig McCaw’s medium-performance Broadband Wireless newest venture - to provide Broadband Wireless Internet Access. In Sweden, it has been filled Internet Access services would begin to emerge with municipally-funded FTTP deployments. in the week before Christmas 2003. In the US, wireline telephony companies Since before that article, and continuing to the haven’t, and by all reliable estimates cannot present (likely the primary reason for “stealth (financially) and will not (no effective

2 Issue 2004-02

FOCUS on Broadband Wireless Internet Access competitive threat, little regulatory pressure) I believe that McCaw has correctly identified deploy fiber-to-the-premises (FTTP) or indeed the Sweet Spot of Telecom and is prepared to “FAC” (Fiber Anywhere Close). There will be exploit it with his new venture, now named small demonstration projects, and the Clearwire, and will use Broadband Wireless occasional new development, and some Internet Access do so. municipal government FTTP deployment, but Assembling The Pieces McCaw’s brilliance in the main, FTTP won’t happen in the near in forming Clearwire is not so much in term, and perhaps not the long term. Note… identifying the opportunity, or deciding that FTTP is no longer a question of technology, but “Broadband Wireless is the way to go”, but rather it is a question of willingness to deploy rather in quietly assembling the pieces and the in the near term. Absent such willingness to strategy to effectively and rapidly exploit the deploy FTTH in the near term, a void is opportunity. Here is a summary of the “pieces” created. of Clearwire that have been assembled, and Wireless “telephony” companies are unable to then each piece will be examined in depth. offer effective competition for the lack of FTTP • Spectrum Several years ago, McCaw deployments; their networks, systems, and created Fixed Wireless Ventures to standards are optimized entirely for voice, with opportunistically acquire spectrum that grudging accommodation of moderately higher became available; at the time it was felt (than dialup) Internet access speeds. They prize that McCaw had no specific use in mind standardization of systems above all and are for the acquired spectrum. Last year loathe to make use of new generations of McCaw formed Flux U.S. to buy wireless equipment to be able to offer individual MMDS/ITFS licenses in the broadband speeds. To them, voice is the “killer 2.5 – 2.69 GHz band wherever possible. app”, the one service that they know how to This year McCaw bought Clearwire, an make money on. existing BWIA service provider which has Broadband Wireless Internet Access service developed an exclusive arrangement with providers who are successfully exploiting “The ITFS Alliance”, a consortium of Broadband Wireless technology are small and ITFS licensees. the best of them are funded and organized only Note: From this point forward in the for regional expansion; none to date has a article, for the purpose of brevity I’ll use credible plan to “go national” or has established the term “MMDS” to refer to the entire anything like a dominant brand or identity in (USA) 2.50 - 2.69 GHz band, inclusive of the minds of prospective customers. (To some the Instructional Fixed Television System extent, the “stay regional” focus may well be a (ITFS) and Multichannel Multipoint protective measure, given the high-profile Distribution Service (MMDS) allocations failures of national Broadband Wireless in each market, which are interleaved rollouts to date such as Metricom, Sprint throughout the 2.50 - 2.69 GHz band. – Broadband Wireless, Advanced Radio Ed. Telecom, Teligent, Winstar, AT&T ‘s Project • Equipment McCaw bought a minority Angel… the list goes on.) stake in NextNet Wireless whose So the “Sweet Spot of Telecom” is exploiting Expedience system is designed for the deficiencies of wireline, using better MMDS and “Non-Line-Of-Sight” wireless technology than the wireless telephony (NLOS), customer-installable Customer companies are prepared to use… and with Premise Equipment (CPE). McCaw has better management and financial resources “get now acquired NextNet in its entirety. big, go national” quickly and establish economies of scale.

Issue 2004-02 3 FOCUS On Broadband Wireless Internet Access

• Talent Many of McCaw’s most trusted • Mobility It’s not widely known that the and experienced lieutenants from previous NextNet Expedience system is now ventures have come onboard Clearwire. capable of supporting vehicular mobility • Financing One cannot imagine, with (but not “laptop portability”) at the same McCaw’s impressive history of “creative” data rates of “fixed” service. financing beginning with McCaw • Voice Over Internet Protocol (VOIP) Cellular, that arranging financing for a It’s also not widely known that the credible Broadband Wireless Internet NextNet Expedience system includes Access service provider would be an (optional) prioritization for VOIP. This issue. gives Clearwire the option of offering • Branding In Clearwire, McCaw found a their own branded VOIP telephony sustainable brand that “implies” wireless, service; since Clearwire owns the but doesn’t lapse into “techie-speak”. A equipment vendor, the CPE could evolve uniform brand for deploying service to have an “RJ-11” (telephone) jack on the nationwide will be critical. Branding is side and integrate the current standalone especially critical for effective retailing, box that Vonage and others use to offer both in trying to sell the service, and in VOIP telephony services. XO such things as getting retailers to carry the Communications, in its role as a CPE devices for local sale. Competitive Local Exchange Carrier • Target Markets The major markets of (CLEC) could easily provide the back-end the US are hotly contested for telecom telephony services for Clearwire. services. McCaw has apparently chosen to • Timing There are numerous ways that focus on “Tier II” or smaller market cities, McCaw’s timing is very, very good to where competition from established begin Clearwire in the Summer of 2004. telecommunications players has is less One example is that there are a number of intense – Daytona, Florida as opposed to high-profile “municipal wireless Miami, Florida. networks” being constructed as a reaction • Base Stations, Backhaul, and Internet to affordable (home, small business Bandwidth Having founded XO pricing) not being available in smaller Communications and although he failed to markets. Another example is the retain control of it post-bankruptcy, XO’s difficulties (which can be managed) capabilities and Clearwire’s requirements resulting from the use of license-exempt fit together very well. For example, XO spectrum, such as interference issues with has extensive fiber deployments “metro-scale” Wi-Fi systems. (especially after its recent acquisition of • Integration / Consolidation Many a Allegiance Telecom) and vastly company has gone down to failure in part underutilized 28 GHz spectrum licenses due to their inability to integrate and that would be ideal for providing backhaul consolidate disparate, geographically connectivity to Clearwire’s network of separated companies. McCaw has already base stations. XO is a Tier I Internet aggressively addressed this by backbone provider (peers with MCI, consolidating all management and Sprint, AT&T, etc.) While XO offers operational employees in Kirkland, some notable advantages, Clearwire won’t Washington, a suburb of Seattle. be beholden to XO; such services could be Clearwire is being wholly relocated from provided by XO competitors. Dallas, Texas and operational and

4 Issue 2004-02

FOCUS on Broadband Wireless Internet Access

management functions of NextNet appreciation, leasing, etc.), spectrum is Wireless are being relocated from intrinsically worthless. Spectrum is only of any Minneapolis, Minnesota to Kirkland. In value whatsoever when it is used. By that addition, Clearwire’s strong management measure, the vast majority of the MMDS band in talent will be able to effectively meld the the US is worthless because it is currently acquisitions rather quickly, as they have unused. worked together before. While many would, again, argue the point, • Market Positioning It’s not yet “clear” spectrum is inherently, generally agnostic as to what Clearwire’s business model will be. use – any portion of spectrum can be used to do The current web page suggests that it will anything that is possible to do with spectrum. operate as both “retailer” and “carrier”, There are broad portions of spectrum that are but an emerging model is for ISPs such as somewhat more suited for specific purposes Earthlink, AOL, and MSN to operate on using current technologies… but there is no overlays using “commodity” Broadband overarching “best” or “completely unsuitable” Internet connectivity. use of spectrum, including MMDS at 2.50 - 2.69 • Lessons Learned The first major GHz. The chief values of the MMDS band are: deployment of NextNet Wireless’s • It’s licensed; it can be bought, sold, access Expedience system was in Mexico. There, made exclusive, and “interference” can be MVSNet operates as “carrier” – constructs “controlled” to a great degree the network of base stations and • It’s 190 MHz of contiguous spectrum (in backhauls, and a number of “retailers” contrast, consider that the original 800 MHz actually procure the customer using their cellular spectrum allocation was “merely” 50 own marketing, branding, and back-end MHz, and the 1.9 GHz PCS spectrum services such as web hosting, email, etc. allocation was 120 MHz.) MVSNet simply provides the wireless • It’s well within the capabilities of current connectivity and transports each technology to produce and deploy reasonably individual customer’s “bits” to and from priced and reasonably functional equipment each retailer’s network. While Mexico is and systems, especially considering that “just obviously not the US, there are sufficient underneath” is the very popular 2.4 GHz lessons learned from NextNet’s license-exempt band, with a volume of experience that Clearwire’s learning curve millions of devices shipping monthly. will be significantly flatter than such a • It’s well within the accepted limits (6 GHz is new venture would otherwise suggest. considered the absolute limit) for cost- • The “McCaw Factor” The “star power” effective mobility services. of Craig McCaw is a significant factor • The history (see below) of the band is that cannot be underestimated. McCaw’s sufficiently murky and convoluted that non- now-legendary sale of McCaw Cellular to savvy potential investors shy away from AT&T Wireless is the stuff of Wall Street MMDS. legend, and McCaw’s moves have a huge • The potential for continued use for private following. Apart from “star power”, television broadcasting and the associated McCaw is well-known for “thinking technical requirements to insure non- outside the box” and the formation of this interference with television broadcasting newest venture is an excellent example. “scares away” many, especially the larger, Details – Spectrum, Part 1 – Background potential service providers. Though many would argue the issue (it’s • It’s not the 1.9 GHz PCS wireless telephony property, and all that implies – speculation, band or other bands that are allocated

Issue 2004-02 5 FOCUS On Broadband Wireless Internet Access

worldwide by most other national GHz band. Instead of educational/not-for-profit government for “3G” wireless telephony use, MMDS was for commercial use – so called “broadband” services. This factor alone “Wireless Cable” (television.) MMDS got started eliminates interest from an entire class of – systems were deployed… but the rapid rise of vendors and service providers for whom the digital cable television (many more channels entire universe is wireless telephony could be transmitted on the same infrastructure) spectrum allocations and standards. and direct broadcast satellite television (what is It helps to understand that McCaw’s experience now DirecTV and DISH Network) offering far at McCaw Cellular was that spectrum licenses more channels with digital quality ultimately not just a necessary evil in order to provide doomed MMDS television broadcasting. wireless services, but are also a tangible asset In the wreck of “Wireless Cable” in the mid- that can be aggressively leveraged. With this 1990’s, commercial, “civilian” access to the background, McCaw would feel that any Internet was beginning its meteoric rise, and wireless venture such as Clearwire would need MMDS spectrum owners thought that they could licensed spectrum… relatively cheap licensed repurpose MMDS from “Wireless Cable” to spectrum, and even if Clearwire didn’t come to Wireless Internet Access (reflected by the name fruition, the investment in spectrum licenses change of the Wireless Cable Association, would not be wasted. McCaw’s recognized that International to the Wireless Communications the vastly-underutilized 2.50 – 2.69 GHz band Association, International). A few MMDS could be used to launch next generation services. spectrum owners installed first generation Details – Spectrum, Part 2 – History Even an MMDS Wireless Internet Access equipment abbreviated history of the 2.50 – 2.69 GHz from vendors such as Vyyo and Hybrid MMDS/ITFS band would consume many pages, Networks – initially one-way with dialup uplink, so I’ll skip the customary “30,000 foot” view but eventually two-way wireless. Such systems and offer a “view from space” highly-condensed worked reasonably well, but user stations had to summary of MMDS. I do this because a basic be installed professionally, the base station understanding of the convoluted history of the equipment was costly (it was, essentially, 2.5-2.69 GHz band is necessary to understand modified television broadcast equipment), and why McCaw has targeted this portion of the systems could not scale cost-effectively to spectrum. more than a few hundred users. The 2.50 – 2.69 GHz band was originally In the Summer of 1999, flush with Internet- allocated for Instructional Fixed Television bubble cash, Sprint and Worldcom acquired the Service (ITFS), essentially private television numerous small companies that owned MMDS broadcasting for use by educational and not-for- licenses for US “Tier 1” cities. By mid-2000, profit entities. An example of the intended use is each of them had acquired 45-50% of the for a school district to transmit daily lessons MMDS licenses in major US markets, ultimately from a single Latin instructor to all schools in the paying approximately US$1B each. At that time, district, with each school having only a handful Broadband Wireless was envisioned as “then of students interested in Latin, thus not justifying next big thing in telecom” because DSL and the expense of a Latin instructor at each school, cable modems would take many years to satisfy or even traveling to each school on a schedule. the rapidly-growing demand for Broadband There were some very useful ITFS systems built Internet Access. With venture capital plentiful, a that were highly effective… but not many. wave of Broadband Wireless Internet Access The Multichannel Multipoint Distribution startups were launched to aim for “the big Service (MMDS) was created in the 2.5 – 2.69

6 Issue 2004-02

FOCUS on Broadband Wireless Internet Access payoff” of a contract with Sprint or Worldcom, wireless businesses such as Skytel and the or “designed for acquisition by Cisco”. MMDS operations offered up for sale via Sprint launched Sprint Broadband Direct bankruptcy court auction. To the great surprise (SBD), a credible service offering to consumers of almost industry observers, the winner of the to offer “DSL-like” service in areas where DSL bankruptcy auction for Worldcom’s MMDS was unavailable. SBD was expensive because a spectrum was Nextel, paying US$144M. (So truck roll was required, and the first generation much for Sprint’s hope for a killing in selling its equipment being used could not scale effectively MMDS licenses.) without requiring the use of (precious) multiple It’s instructive to note at this point that Nextel’s MMDS channels. Ultimately Sprint added too purchase of the Worldcom MMDS spectrum many customers to existing systems, coinciding came during, or immediately after Craig with the Internet bubble causing Sprint severe McCaw’s time on the Nextel Board of Directors. financial pain, and Sprint placed SBD in McCaw certainly had inside knowledge of “suspended mode”; existing customers were Nextel’s plans to bid on the Worldcom MMDS allowed to stay on the system, but new spectrum. customers were not accepted, and almost all After the successful purchase of Worldcom’s service and support personnel were laid off. MMDS spectrum, Nextel bought the assets, Worldcom launched their equivalent to SBD, including MMDS spectrum licenses, of but targeted at businesses and was thus able to Nucentrix, a distant-third MMDS spectrum- more easily withstand the costly customer holder which was also in bankruptcy. installs and scaling issues. Ultimately, There has been much speculation as to Nextel’s Worldcom’s BWIA service was at most a minor motivations for buying the MMDS spectrum. experiment for them, done mostly in response to While Nextel has tried to posture, notably their primary rival, Sprint. Ironically, in the through a keynote speech at the January WCA proposed, but ultimately disallowed Technical Symposium, that Nextel is prepared to Sprint/Worldcom merger, the combined MMDS “be disruptive” in Broadband Wireless Internet spectrum licenses that would cover most US Access as it has been in wireless telephony by markets, was mentioned prominently as a offering a highly differentiated service, just as it significant factor in seeking the merger. has done with DirectConnect. Sprint retains its MMDS licenses and The most likely scenario for Nextel’s purchase occasionally makes presentations at trade shows of MMDS is that it is largely a fallback in case stating phrases like “Sprint has active plans for its “Consensus Plan” for relocating from the 800 MMDS”, and has continued to conduct trials MHz band (where some Nextel systems cause with new generations of BWIA equipment interference to public safety radio systems) to a suitable for MMDS use. The prevailing wisdom nationwide, contiguous 10 MHz band near 1.9 in the BWIA industry is that Sprint, with the GHz. This plan is, to say the least, controversial very significant challenges in its wireline within the wireless telephony industry, despite telephony business and the ongoing financial the US$800M+ that Nextel is willing to commit demands of its Sprint PCS wireless telephony to help “realign” public safety radio systems to business simply does not have the financial make use of the vacated Nextel 800 MHz resources to make significant use of its MMDS spectrum. For Nextel, spending a “mere” licenses, and is likely holding on to them for US$144M on spectrum, and a few tens of future, hopefully lucrative, sale or lease. millions more for trials of BWIA systems would Once Worldcom’s financial shenanigans seem to be a prudent investment. became public and new management appointed, There is an effort underway by a number of “Wireless” was quickly declared to be “a non- MMDS/ITFS under the aegis of the Wireless core business” for Worldcom and the various Communications Association (WCA) to

Issue 2004-02 7 FOCUS On Broadband Wireless Internet Access completely revamp the more onerous regulations of organizations that have ITFS spectrum that apply to MMDS/ITFS, especially the licenses such as colleges, school systems, public onerous application process necessary to put a television stations, and not-for-profit new system on the air. This is a legacy of this organizations. (Dallas) Clearwire had “first spectrum being used for broadcasting, and the rights” to lease ITFS spectrum in use by IFTS “no hurry” slow, deliberative process that was Alliance members. (Dallas) Clearwire also had felt necessary to minimize interference to deployed its initial BWIA system in broadcasting operations in adjacent areas when a Jacksonville, Florida, using IP Wireless change was made or a new system was equipment (to great fanfare, by all reports the constructed. The WCA proposal also includes a Jacksonville system performed well. The new “band plan” which would accommodate acquisition of (Dallas) Clearwire is the both legacy television broadcasting operations “spectrum centerpiece” of present-day (centered around 2.60 GHz) and new types of (Kirkland) Clearwire’s available spectrum. It services towards the low end and high end of the should be noted that the ITFS Alliance did not band. The “new services” portions of the band represent all ITFS licensees. It is very difficult to would be “de-channelized” (currently the entire work through the public and FCC records to see band is partitioned into 6 MHz channels). The just how much ITFS spectrum (Kirkland) WCA plan has been proposed to the FCC and is Clearwire has “title” to. Due to new FCC being studied. policies that specifically allow leasing of Details – Spectrum, Part 3 – Present Several spectrum by current licensees (done to promote years ago, McCaw created Fixed Wireless the spectrum actually being put to use, instead of Ventures to opportunistically acquire spectrum being “warehoused” which is so often the case), licenses that became available; at the time it was that it may well fit (Kirkland) Clearwire’s felt that McCaw had no specific use in mind for purposes to merely lease ITFS (and MMDS) the acquired spectrum. Reportedly, McCaw licenses rather than buying them outright, in acquired licenses in several different portions of which case there’s no record at the FCC of the the spectrum and thus had little chance of ownership change of an MMDS/ITFS license. actually using it efficiently. Very little is known Immediately “below” MMDS/ITFS, the about Fixed Wireless Ventures. In a December license-exempt 2.4 GHz band, best known for 20, 2003 article in the Seattle Post-Intelligencer “Wi-Fi” wireless local area network equipment, by Miles Weiss of Bloomberg News, a has become an “incubator” for entirely new regulatory filing revealed that McCaw had generations of BWIA services such as: formed Flux U.S. in October for the purpose of • A mobile broadband Intranet system acquiring MMDS spectrum licenses, including installed in each San Diego County licenses for the cities of Jacksonville and (California) Sheriff’s Department patrol Daytona, Florida. Near the end of 2003, McCaw cars resigned from Nextel saying, in effect, his work • Prairie inet, based in Iowa, which provides there was done. McCaw had begun quietly Broadband Internet Access in numerous buying ITFS and MMDS licenses as he was able, communities throughout the Midwest through newly-formed Flux U.S. • A growing number of “Metro Wi-Fi” In mid-April, 2004 it was disclosed that deployments such as the town of Cerritos, McCaw had acquired Clearwire Technologies / California that provide “saturation” Clearwire Holdings of Dallas, Texas. (Dallas) coverage of Wi-Fi signals through the city Clearwire’s primary asset is an exclusive • A proposed system in Newark, New Jersey agreement with the ITFS Alliance, a consortium by IDT to use Wi-Fi and Voice Over

8 Issue 2004-02

FOCUS on Broadband Wireless Internet Access

Internet Protocol (VOIP) Wi-Fi phones to included, which has already been proposed) will provide a very low-cost wireless telephony create even more economic activity, which has service largely been the single area of growth throughout Such highly successful uses of 2.4 GHz, despite the Internet downturn. fears of interference, overcrowding, and Details – Equipment competing uses, have begun to be noticed – by A formative lesson that McCaw learned during legislators… regulators (after a number of his time on the Nextel board was the dampening hearings to learn more about Wireless Internet effect that Motorola has had on Nextel because Service Providers, especially those in rural Nextel did not have a choice of suppliers for areas)… press… and increasingly, investors. iDEN technology, which is proprietary to The intense usage of 2.4 GHz… and the stark Motorola. While iDEN met all of Nextel’s contrast of the nearly unoccupied 190 MHz of functional requirements (which are unique within spectrum “just above” 2.4 GHz has given rise to the wireless telephony industry), Nextel could a movement to “reclaim” 2.5 – 2.69 GHz or at not truly able to “drive” Motorola to decrease least allow low-power, license-exempt their prices, and add new features and even operations in 2.5 – 2.69 GHz. It is being pointed create new device form factors without Motorola out that a number of “Wi-Fi” cards that normally deciding to allocate the necessary resources. As operate from 2.40 – 2.4835 GHz (the US 2.4 Motorola has grown increasingly troubled, it is GHz band) can be simply reprogrammed to also problematic for Nextel to get Motorola to update operate from 2.40 – 2.70 GHz. In fact, such iDEN as competition demands; Motorola doesn’t reprogrammed “Wi-Fi” cards are used in other “have to” – Nextel cannot go to any other countries for small, by small Wireless ISPs. Of company for iDEN systems. course, the FCC strongly discourages such Projecting forward, in the BWIA industry, the “grass roots” discussions of permitting the use of various proposed and ratified IEEE 802.16 such reprogrammed devices, but there seems standards, and WiMAX-certified interoperability little that they can do to effectively stop it other will cure the “Nextel/iDEN problem”, but than onerous rules and regulatory actions to interoperable WiMAX-certified systems are, at prohibit and punish the use of such “mod” best, several years. With his purchase of NextNet software. Wireless, McCaw has apparently decided not to I have publicly proposed an even more radical wait for WiMAX systems to emerge. change for 2.5 – 2.69 GHz, that the US McCaw’s equipment plans center around Government buy it back from the current NextNet Wireless, Inc. headquartered in licensees at fair market value, allowing current Minneapolis, MN. licensees a return on their investment. The US NextNet’s Expedience government would then allow low-power system was designed license-exempt use of 2.50 – 2.69 GHz much around the stated like 2.4 GHz. If innovation is flourishing in 83 requirements of Sprint and MHz of spectrum where baby monitors compete Worldcom, primary with cordless phones which compete with owners of MMDS “saturation” enterprise wireless LANs, which spectrum in the US, for a compete with Amateur Radio high-power Broadband Wireless television repeaters which compete with Internet Access system Wireless ISPs which compete with public safety NextNet Wireless that would not require a agencies… and all of which is working Expedience CPE “truck roll” to install. A surprising well reasonably well… it stands to truck roll is when reason that expanding the band from 83.5 MHz professional installation of an antenna and/or to 290 MHz (if 2.4835 to 2.4990 GHz is radio is installed, typically on a pole or on the

Issue 2004-02 9 FOCUS On Broadband Wireless Internet Access side of a building so that the antenna is pointed interoperability and cost-reduction targets as well in the right direction towards a base station and as a certifying a WiMAX “profile” for MMDS. is positioned “up and in the clear”. Mounting is Because the core technology behind trick enough, but there is also the issue of routing Expedience is OFDM, NextNet will likely be the cable between the antenna (more often the able to migrate Expedience to WiMAX actual radio is mounted directly behind the compatibility with a minimum of issues; antenna) and the indoor unit, and other issues certainly no more so than any other vendor with such as proper grounding for lightning existing BWIA hardware. Not widely understood protection. Having to do truck rolls is hugely is that WiMAX is not a “technology” per se, but expensive – labor, rolling stock, inventory tied rather a certification of interoperability and an up in trucks, etc. and are a major consideration of accompanying branding campaign for systems the economics of a BWIA system. Many analysts that achieve WiMAX interoperability posit that to succeed in direct competition with certification. Current WiMAX activities are cable modem and DSL service providers (which centered around achieving interoperability are now largely user-installable), BWIA systems certification for systems that operate in 3.5 GHz will have to be also have to be user-installable. bands that are used extensively overseas (in the NextNet elected to achieve “no truck roll” by US, the 3.5 GHz band is in use by the designing its CPE to use higher allowable Department of Defense). A strong second in transmit power limits (compared to license- priority is WiMAX interoperability certification exempt spectrum), along with an efficient for license-exempt 5.8 GHz operation, which is antenna design and one of the first production heavily used in the US. In every WiMAX uses of Orthogonal Frequency Division presentation I have seen, achieving WiMAX Multiplexing (OFDM). OFDM is a much more interoperability for MMDS is a distant third in robust modulation technique than previous priority… mostly because that band is owned by BWIA systems such as Frequency Hopping a relative handful of companies, such as in the Spread Spectrum (FHSS) and Direct Sequence US, Nextel, Sprint, and now Clearwire. Spread Spectrum (DSSS). The higher power and This means that WiMAX-certified MMDS better antenna “delivered the signal” and the use systems likely will not emerge for several years, of OFDM “made sure the signal could be and whenever they do emerge, it will take understood”. NextNet optimized Expedience for several years for full interoperability (there are MMDS; there was no “fallback plan” for other always glitches that are missed by the formal spectrum bands if MMDS didn’t “take off”. processes) and “commoditization” price declines MMDS did not, in fact, take off in the US and to occur. NextNet barely survived long enough to supply a One “wildcard” in this timetable is Intel, which few small systems in the US. Just in time for claims that their proposed WiMAX chipset, NextNet, MVSNet in Mexico decided to use intended for use in laptops, will support all three Expedience in a pilot deployment in Mexico City “WiMAX bands” – MMDS, 3.5, and 5.8 GHz. and Expedience was proven to live up to Intel’s “bet” on WiMAX is that the “WiMAX” NextNet Wireless’ claims for “self-installable”, bands will be used for “metro” services such as scalability, and overall performance. It was this Clearwire’s to provide ubiquitous and mobile demonstrated ability to scale with the MVSNet coverage. One problem with that view is that deployment that likely convinced McCaw to companies such as Tropos Networks and base Clearwire on NextNet Expedience, at least RoamAD appear to have developed highly- for system deployments for the next several effective “metro Wi-Fi” systems… that don’t years as WiMAX ultimately achieves require WiMAX but instead leverage the huge

10 Issue 2004-02

FOCUS on Broadband Wireless Internet Access installed base of Wi-Fi systems. More to the For a service provider to build their own point with Clearwire, much of the usability of proprietary technology is attractive on the NextNet Expedience comes from the use of the surface, for all the reasons discussed above. The larger antenna and higher transmit power (with downside of such a decision is when the service corresponding electrical power requirements) provider gets “comfortable” with its proprietary from the CPE; it will take another round of technology and does not feel driven to keep pace technology evolution before the usability of with other vendor’s technology… and with every Expedience can be easily integrated into a laptop proprietary system installed, there is more and form factor. more “built-in” resistance to changing systems or Because McCaw now exerts direct control over technologies. The most recent example of this is both a Service Provider in Clearwire, and a Metricom Ricochet, whose technology was very system vendor in NextNet Wireless, McCaw can good, but ultimately rendered irrelevant by quickly drive features into the NextNet hardware 802.11/Wi-Fi (which is considered by most to be that Clearwire identifies as requirements to better technologically inferior to Ricochet). [I’m not sell Clearwire service. One example is Voice trying to imply that Metricom’s choice of Over Internet Protocol (VOIP) telephony, which technology is what caused its failure. –Ed.] is growing very rapidly. While the Expedience This “rest on your technological laurels” system “accommodates” VOIP very well (VOIP problem does not seem likely for Clearwire or is recognized as a special type of data and NextNet Wireless under McCaw because of the prioritized so that VOIP calls to not “suffer” looming emergence of WiMAX; that threat is from being used on an Expedience system), keenly felt at NextNet Wireless, as evidenced by VOIP is not integrated. For example, Vonage their joining WiMAX as a Principal Member. users are required to install a router to bridge Overall, McCaw’s purchase of NextNet between the Internet connection and Wireless is a sound decision. NextNet’s conventional telephone equipment that’s already Expedience system demonstrably works well, it found in the household and businesses. It would is available now, at reasonable price points seem logical to integrate the “Vonage router” allowing Clearwire to begin revenue operations into an Expedience CPE, but a vendor would immediately. Going forward, assuming that have to be convinced that there was sufficient NextNet is given sufficient resources, market for such a product before committing to Expedience will achieve WiMAX compatibility build it. In the case of NextNet and Clearwire, with its corresponding interoperability and that cycle can be accelerated. When Clearwire commodity-driven price reductions. decides that a new feature or upgrade is needed, Details – Talent Analyzing executive presumably those requirements will be highly pedigrees is not a strong point of FOCUS, so prioritized. here I’ll rely heavily on reports from other news It remains to be seen if NextNet Wireless will sources. The primary point… above and beyond continue to be the system of choice of other the experience and qualifications of each Service Providers now that the company is individual is that McCaw has assembled an owned by a competitor. The “knee jerk reaction” unusually well-qualified team for Clearwire. is that such companies would cease buying from This indicates strongly that Clearwire will be NextNet in favor of a vendor whose ownership is able to quickly and effectively integrate the not a direct competitor. But those companies acquisitions, get systems up and running, and have a significant investment in Clearwire scale the company and its operations. These are systems, and there is nothing on the market that traits which few companies have in the formative provides the features of Clearwire… especially stages. The depth of talent that McCaw has in the MMDS band. recruited for Clearwire clearly indicates that Clearwire will not be using a “take it slow and

Issue 2004-02 11 FOCUS On Broadband Wireless Internet Access easy” approach. Here is at least a partial talent • SEA Marine Communications lineup, from the Dallas Business Journal, Fixed • SGC wireless play, April 16, 2004: • T-Mobile • President Gerard Salemme, former AT&T • Teledesic and McCaw lobbyist • Tenzing Communications • Board member James Mansour, former • Terabeam (optical, but still wireless) CEO, (Dallas) Clearwire Technologies • Wavtrace • Nicholas Kauser, former Chief Technology • Western Wireless Officer, AT&T Wireless • And… Boeing (airplanes have a lot of • Robert Mechaley, former “Technical Guru, radios). AT&T Wireless and Founder and Chairman Not to mention that the greater Seattle area of RadioFrame seems to have become the area of the country • Clark Peterson, former General Manager, most heavily saturated by Wireless HotSpots due Nextlink (now XO Communications) to Starbucks being headquartered here and In addition to the “star” talent, Clearwire will Cometa deciding to make the Seattle area its first have little trouble finding well-qualified staff “saturation” market. locally with little need to recruit nationally. Suffice it to say, McCaw won’t have a hard That’s because, once again, McCaw’s timing is time finding sufficient, and qualified staff for excellent; due to the impending acquisition of Clearwire. AT&T Wireless in nearby Redmond, and the Details – Financing Unfortunately, I have no shutdown of Bellevue’s Monet Mobile details to offer on financing, other than to note Networks, there is ample talent available for that Clearwire represented approximately nearly any required position in a Broadband US$100M in investments, and NextNet Wireless Wireless Internet Access venture – Wireless was valued at US$80M in 2002. To quickly Engineering, National Deployment, Tower execute spectrum acquisitions, McCaw needs Procurement, Information Technology, National ready access to capital… and it’s apparent that Marketing, Corporate Sales, Customer Service… spectrum acquisitions are in fact occurring. It is all that talent is currently available for reasonable rare for McCaw to commit much of his personal prices as AT&T Wireless drags itself along funds; more typical is for McCaw to arrange towards the culmination of the merger at the end investment partners, which in previous ventures of the year, leaving ample time for employees to have including Boeing and a Saudi prince. It’s polish their resumes. unlikely, but conceivable that McCaw could be But AT&T Wireless isn’t the only “wireless” planning on a relatively early IPO; given the talent pool to draw upon in the Seattle area. reaction to Google’s impending IPO, given that While it’s lesser-known that Silicon Valley, wireless is “hot”, and the “McCaw Star Power” Dallas, and San Diego, the Seattle area has been is present. home to a surprising number of wireless Details – Branding Branding seems one of the companies: hardest things for BWIA companies to get • Advanced Radio Telecom (ART) right… probably because they’re usually loathe • Broadstorm to spend money on something so “soft”. Any • Connexion by Boeing business that plans to market to consumers needs • Icom’s US Headquarters a memorable, non-offensive, not-too-techie, and • Meteor Communications Corp. (yes… at-least-vaguely-representative brand name. In that’s just what it sounds like) acquiring (Dallas) Clearwire. McCaw had such a • Metawave brand… barely developed, but otherwise meeting

12 Issue 2004-02

FOCUS on Broadband Wireless Internet Access the criteria above (though the logo has been splash in a number of smaller markets, or completely changed.) Admittedly… it’s pretty make a small splash in a number of bigger good – “Clear” as in “sky, or air” and “clear of markets. Things simply take longer and cost wires” implies “wireless” without actually more to get done in larger markets. saying it. In short, it’s an easy-to-say, easy to • To compete aggressively in Tier I markets, remember, “friendly” brand. Companies can Clearwire may decide to wait for WiMAX spend years and millions of dollars and not do so interoperability and cost reductions to take well. Not much more need be said about the effect, and to allow the VOIP telephony Clearwire brand, other than that is one more option more time to mature. “item of business”, critical in the aggregate, that • Tier II (and below) customers are actually is completed in preparation to aggressively grateful to be offered an option. The launch the new venture. original Clearwire targeted Dayton, Ohio as Details – Target Markets Information to date one of its first markets, and was well- suggests that Clearwire will initially target Tier received there because Dayton businesses II markets in its initial deployments; Sacramento, were grateful to have a choice of early not Los Angeles; Jacksonville, not Miami; broadband Internet access other than what Columbus, not Cleveland. [The cities listed are Ameritech chose to offer. illustrative; they do not reflect hard information Details – Base Stations, Backhaul, and on Clearwire’s initial markets – Ed.] Doing so is Internet Bandwidth In comparison to McCaw’s a sound strategy. buildup of McCaw Cellular, building towers in • Sprint and Nextel own the majority of 2.5 – the right areas is rarely an issue. Almost always, 2.69 GHz spectrum in the Tier I markets. there’s a suitable tower already in place and the • Spectrum licenses are less expensive and owner is happy to take on another client. This is more easily procured in Tier II markets in a legacy of as many as ten national wireless comparison to Tier I markets. companies each building out their own dedicated • For wireless services, Tier II markets wireless infrastructure. In many cases, the only require fewer resources (tower, base way to get tower space in a critical service area stations, backhaul connections) to provide was to build one’s own tower. Eventually, sanity, effective coverage than a Tier I market. budgetary pressures, and community backlash • Tier II cities are “less aggressively prevailed and most wireless service providers defended” by incumbents; for example divested themselves of tower ownership and now Verizon will deploy its Broadband Access simply lease on existing towers managed by service initially in Tier I markets; it offers “tower management” companies. In particular, 300 – 500 Kbps speeds, the CPE is a there is a wealth of “PCS” towers, built and sited PCMCIA card, it works almost anywhere, for use with 1.9 GHz digital wireless telephony and is offered by a “name brand” for such systems… which have about half the range of the services. Another example is that startup previous generation 800 MHz analog wireless TowerStream offers fixed BWIA service in telephony systems. Providence, Boston, New York City, Spectrally, 2.5 GHz is more than close enough Chicago, and at least one other major to 1.9 GHz, so Clearwire should be able to find market by the end of the year. usable PCS towers wherever they need them. • Clearwire’s primary advantage (now that Not only is this an economic advantage, it’s a “Stealth” has been stripped away) is to huge time-to-market advantage. Assuming an emerge rapidly, in a number of markets, existing tower, antennas can be bolted on, with a compelling service offering. It’s a feedlines run, and equipment installed in a day simple calculation; whether to make a big (I’ve actually witnessed an “under one day”

Issue 2004-02 13 FOCUS On Broadband Wireless Internet Access deployment – show up in morning, test of system and XO could easily constructed licensed P-P by evening.) wireless links to supply backhaul to Clearwire It’s said that when discussing war, “amateurs base stations. discuss tactics, but true professionals discuss Clearwire could also handle its own backhaul logistics“. The corollary of that story for by using its spectrum as both user-access and Wireless communications would be something backhaul; the two systems can be isolated from like “amateurs discuss tower siting, but each other to allow extensive frequency reuse, professionals discuss backhaul.” Backhaul is and may well reduce Clearwire’s costs problematic to arrange, reliability is an issue (if significantly, allowing it to “shop” for the backhaul fails, a tower is useless), and connectivity to a base stations within a several expensive (backhaul is one of the primary mile radius of the base station. Find reasonably- expenses for wireless service providers – of all priced connectivity and connect from there to the kinds. base station via a Point-to-Point link. This Clearwire has a number of backhaul options: approach is being used to great effect in Mexico • Conventional approach – order up a T-1 or by MVSNet to construct its own backhaul multiple T-1’s from the telco to the cell site. network using its own spectrum and equipment Doing so will take a long time, be costly, be from Aperto Networks, and thus avoid paying of limited capacity, and be “feeding the Telmex, the wireline telephony incumbent, at all. enemy. XO is also quite capable of supplying • Fiber from a Competitive Local Exchange Clearwire with Internet backbone access because Carrier (CLEC), plenty of capacity, lower it is one of a handful of large price than the telco, but takes a long time telecommunications companies who directly • Wireless backhaul interconnect with each other at very high speeds The second and third options to form the majority of what is now the are easily accomplished by XO Internet’s backbone connectivity. There are few Communications, a company other Internet backbone companies that that McCaw founded as Clearwire could partner with where there isn’t NextLink. McCaw no longer some competitive overlap, such as Sprint or has any formal holdings or position in XO, but AT&T. likely there are “good feelings” and Upon examining the history, and the potential “understanding” between the founder and the synergy of Clearwire partnering with XO founded. Such feelings, if they in fact exist, are Communications, it seems highly unlikely that minor in comparison to the synergies between such a relationship isn’t in the making. The XO and Clearwire. The biggest synergy is that advantages to Clearwire are simply too XO has an extensive footprint of fiber already compelling. To XO, having recently emerged installed, most of which is “dark”. XO also from bankruptcy caused by the Internet acquired fiber and other “route” assets as part of downturn, it would be foolish not to quickly its recent acquisition of Allegiance Telecom. embrace the amount of new business that a It is simply faster, easier, and cheaper to partnership with Clearwire would bring. “extend” fiber than it is to install it for the first Details – Mobility It’s been apparent for a time. XO may well be able to get fiber to number of years that “Fixed” Broadband Clearwire base stations for a reasonable price. Wireless would evolve into “Mobile” Broadband XO also has extensive 28 GHz licenses (another Access, which is why I have used the phrase McCaw influence, bought at about the same time “Broadband Wireless Internet Access” and as the Sprint/Worldcom MMDS acquisitions) almost never “Fixed Wireless”. NextNet

14 Issue 2004-02

FOCUS on Broadband Wireless Internet Access

Wireless has joined a growing number of replacement, but at much higher cost. Some vendors whose BWIA systems are capable of public safety agencies have resorted to building mobility. “WiMAX hype” has asserted itself to their own mobile broadband systems such as San the point that most of those with casual Diego County Sheriff’s Department using knowledge of BWIA assume that Mobile BWIA Alvarion license-exempt equipment. will have to wait until the efforts of the 802.16e Clearwire could offer public safety (and all and 802.20 standards groups complete their work municipal service agencies) mobile BWIA and WiMAX embraces those standards. But service on its existing systems for attractive that’s not the case at all, and NextNet Wireless’ prices – essentially the cost of the equipment and Expedience system is an excellent example of installation and the “regular” fee for Clearwire why that’s not the case. For Expedience to work service. Limiting the sale of mobility service in while mobile, its algorithms had to be improved this way minimizes Clearwire’s support (mobility wasn’t a high priority for initial overhead, establishes a new source of revenue products) and there had to be sufficient processor and a somewhat captive customer base. Offering power in the customer premise equipment to mobility service would also significantly execute those algorithms in a rapidly changing differentiate Clearwire’s BWIA service from radio-frequency (RF) environment – mobility. wireless telephony (higher speeds, lower prices) NextNet does not seem to publicly offer the and wireline Broadband (we can do mobility!) mobile version of the Expedience CPE. Much Details – Voice Over Internet Protocol like an early wireless telephone, “Expedience- (VOIP) Most current BWIA systems make Mobile” needs to be permanently mounted in the specific provision for VOIP; such systems will vehicle, an external, roof-mounted antenna prioritize VOIP and minimize latency that VOIP connected, and adequate cooling and electrical works well on BWIA. This capability is yet power provided. While Expedience-Mobile isn’t another differentiating feature for BWIA in “easily portable” (that will take another general and one that Clearwire can actually generation of refinement), mobility is a market, as illustrated by the following (purely significant advantage, offering higher speeds fictional) “radio spot”: Love your Vonage phone, than wireless telephony while mobile. [The but hate how it works on your cable modem at standard Expedience CPE and system fully night when everyone else in your neighborhood supports “nomadic” use; turn it off, take it is online? Clearwire Wireless Internet’s system somewhere else in the coverage area, turn it takes special care with Vonage and other VOIP back on, and connectivity is quickly re- services… unlike the cable company, who wants established. – Ed.] to sell you their higher-priced, sounds-worse There’s a proven “voice over cable” service. Call Clearwire today market for mobile and your Vonage phone will work better than BWIA services, ever.” especially in I use Vonage above only to illustrate how public safety. popular VOIP is becoming; Vonage markets to CDPD is widely consumers using inexpensive advertising slots on used as a low- late night cable television… and it works. As speed, reasonably discussed previously, Clearwire could easily Lincoln County (Washington) priced service but Sheriff’s Department patrol car partner with XO Communications to offer their CDPD is being own branded telephony service using VOIP. To phased out along with the analog wireless re-emphasize, that the Expedience system telephony systems upon which is operates. seamlessly accommodates VOIP with Quality of Wireless telephony providers are positioning Service (QOS) mechanisms makes VOIP their data/Internet services as a CDPD completely viable on Clearwire service where it

Issue 2004-02 15 FOCUS On Broadband Wireless Internet Access may well not be feasible on other Broadband officials of communities for who lack of Internet Access services due to their lack of QOS affordable broadband is an economic mechanisms. development issue. So much so that Vonage currently requires customers to install a communities are obtaining economic small, Linksys-like router in their system, and development grants and creating their own plug their telephone(s) into the router’s community wireless systems… and that Telephone Line 1 jack (there are two; use of a approach does work well. There are a second phone line is optional). The router number of high-profile such efforts such as provides dial tone, decodes touch tones, and Cumberland County Maryland and generates ringing signals; in short a phone works Scottsburg, Indiana. Increasingly, wireless completely normally when plugged into a is seen as a viable way to bypass the Vonage router and using Vonage’s service. telephone companies when they’re not You start to appreciate the synergies of owning willing to deploy broadband. Broadband an equipment vendor when you consider the Wireless Internet Access is now being seen possibility of adding the functionality of a VOIP as mainstream. router / telephone interface into a new version of • The future of MMDS is uncertain; the the Expedience CPE. Because Clearwire is in a WCA plan has been proposed to the FCC position to directly drive sales of telephony but not accepted. The lack of use of MMDS services, it could recoup the non-recurring is increasingly visible, and the FCC may be engineering expenses and higher unit costs of the forced, by Congress and/or activists to Expedience “telephone” CPE relatively quickly. adopt an effective “use it or lose it” stance Other vendors have to endure such expenses on on MMDS their own, with no guarantees that a buyer will • The publicity push from the WiMAX forum value the work that went into integrating VOIP, and especially Intel (and its investors) is nor pay the extra cost for the VOIP functionality. intensifying the pressure on BWIA vendors. Inexpensive, or bundled telephony services are Those who don’t have a solid migration likely to be a large draw for potential Clearwire path to WiMAX compliance and aren’t well customers. capitalized will be under severe stress. Details – Timing There are so many ways in Those who have solid products, good which McCaw’s timing is perfect for launching customer bases, and reasonable financial Clearwire in the Summer of 2004. It’s easiest to positions will are still being stressed by the simply list them. WiMAX juggernaut. The result is that • First and foremost, Wireless is hot – with Vendors are “willing to make deals” for potential customers, potential investors, pre-WiMAX systems. regulators… in short, Wireless has “Buzz”, • The wireline telephony industry is which helps enormously in launching a distracted with dealing with line-sharing new venture because the impact of your issues which it has finally gotten changed to launch is magnified because every editor its full advantage… just in time for VOIP wants to cover a new angle on a hot topic; and wireless telephony to start becoming a Clearwire’s launch will be just such a hot major threat to its revenue base by poaching topic. profitable voice customers. • Frustration at the lack of progress in • The wireless telephony industry has even “finishing” broadband deployments by more challenges: completing E911 telephone companies is rampant – by the compliance; consolidation issues following FCC, by lawmakers, and especially by Cingular’s pending acquisition of AT&T

16 Issue 2004-02

FOCUS on Broadband Wireless Internet Access

Wireless; dealing with the lingering issues available a pool of skilled and motivated of the NextWave spectrum ownership workforce at precisely the time when debacle; trying to appear relevant in Clearwire needs to form such a workforce. “Broadband” Internet Access when the • The markets are coming back with the Internet Access speeds that can be offered pending Google IPO; once again “tech on GSM systems are considered paltry at investments are cool”. Coupled with best; wireless telephony’s looming VOIP “wireless is hot”… McCaw may well have threat – VOIP over Wi-Fi (especially a far easier time raising money for metro-area Wi-Fi systems), trying to Clearwire in the Summer, 2004. staunch the inclusion of Wi-Fi in the Details – Integration / Consolidation Quite phones they sell and/or trying to “lock simply, McCaw and his Clearwire lieutenants are down” the Wi-Fi capability so that it can highly experience at acquisition, integration, and only be used at (carrier) selected Wireless consolidation of acquired assets. To date, HotSpots. With all that, the wireline (Kirkland) Clearwire will be busy consolidating telephony business is faced with two (Dallas) Clearwire and the operational and “nightmares”. The first is that Nextel will management functions of NextNet Wireless to prevail with its consensus plan to vacate Clearwire facilities in Kirkland, Washington. 800 MHz for a nationwide 10 MHz Going forward, one of the most effective ways spectrum allocation at 1.9 GHz. The for Clearwire to rapidly gain market share is to prospect of Nextel armed with such choice acquire existing ISPs; not necessarily just those spectrum and the chance to completely with wireless experience and consolidate them reinvent its network (likely with current- under the Clearwire brand. This has been tried, generation broadband + VOIP technology with mixed success in the past with ISPs, but rather than continue with Motorola’s McCaw’s past experience with McCaw Cellular proprietary iDEN) is daunting. The second was (as such things go) one of the most “nightmare” is that as a result of years of successful of such “rollups”. This scenario is one pressure from the wireless telephony of the most plausible reasons why McCaw would industry (Want better cell phone to have have assembled such a strong lineup of more reliable coverage? Call your management talent. congressman and tell him that the FCC Details – Market Positioning While it’s not needs to free up more spectrum for cellular yet clear what Clearwire’s business model will phones!) the current administration has be, the fact that “Clearwire” is well-positioned to succeeded in pressuring the US Department become a strong brand suggests that Clearwire of Defense (DOD) to vacate 90 MHz of will operate “retail” – marketing to and selling “3G” spectrum… which will be auctioned, its services directly to customers under the with the “winner” to pay the cost of DOD Clearwire brand. That approach is certainly the systems to other parts of the spectrum. With most efficient, but doing so “locks out” the the NextWave spectrum, the consolidation potential revenue stream of partnerships. In the of AT&T Wireless and Cingular systems, last few years, a new model has emerged in the the wireless telephony industry will soon be wireless telephony industry – the “Mobile awash in spectrum… before the DOD’s 90 Virtual Network Operator” (MVNO). The most MHz is factored in. high-profile MVNO currently is Virgin Mobile • (Discussed previously) The pending in the US. Virgin owns no infrastructure; its acquisition and almost certain liquidation of services are purely “overlay” with Sprint PCS’ AT&T Wireless operations in Redmond, wireless telephony system. Apparently the WA and to a lesser degree the failure of MVNO model works, at least well enough for Monet Mobile Networks will make convenience retailer 7-Eleven to soon begin

Issue 2004-02 17 FOCUS On Broadband Wireless Internet Access marketing its own MVNO which will in turn be deployments in the US and Canada (one of virtualized (7-Eleven doesn’t even want to do its which, Microcell, McCaw is an investor.) own customer service or deal with the Experience with MVSNet’s operational model “underlying” wireless telephony carrier – is likely to be particularly instructive. MVSNet Cingular.) operates as “carrier” – constructs the network of Internet Service Providers AOL, MSN, and base stations and backhauls, and a number of Earthlink operate as “Virtual Network “retailers” actually procure the customer using Operators” (VNO’s); typically they own and their own marketing, branding, and back-end operate only their servers and directly related services such as web hosting, email, etc. operations. The network through which MVSNet simply provides the wireless subscribers connect to them, either via dialup or connectivity and transports each individual Broadband connection, is built, owned, and customer’s “bits” to and from each retailer’s operated by another entity. Often the exact same network. Each “retailer” has different financial facilities (the non-virtual Network Operator) will models. Some require the customer to pay for the service competing companies such as dialup CPE up front and the customer owns it. Others calls to Earthlink and AOL terminating in the bundle the price of the CPE into the service same “modem bank”. price. Some bill the monthly service charges to a Similarly, Clearwire could simultaneously offer credit card while others require the use of retail (Clearwire) and wholesale (VNO services prepaid cards bought over the counter. Some for AOL, MSN, and Earthlink). AOL, MSN, and retailers offer “premium” services – faster speeds Earthlink are highly motivated to find a with Quality of Service (QOS) guarantees while cooperative, reasonably priced partner capable of other retailers offer only “best effort” service. “wholesaling” Broadband Access for their Using customer profiles, managed by the branded services on a national basis. The “Big retailers, MVSNet’s Expedience system Three ISPs” are increasingly being squeezed out accommodates all of those operational and as their former Broadband Internet Access financial models simultaneously. partners cut prices and more directly compete As well, McCaw has no shortage of high- with them for customers. A partnership with one profile BWIA service provider failures to study or more of the “Big Three ISPs” in the formative in depth for clues on how to avoid a similar fate. years of Clearwire could, again, allow it to grow Such companies include Advanced Radio quickly and rapidly gain market share at the Telecom (ART) in nearby Bellevue), AT&T’s expense of wireline Broadband Internet Access. Project Angel, Darwin Networks, Metricom It’s hard to tell at this point whether Clearwire Ricochet, Mobilestar, Monet Mobile Wireless in will opt for a “retail” operational model, a nearby Bellevue, Sprint Broadband Direct, “wholesale” operational model, or simply do Teligent, Terabeam next door in Kirkland, both. Winstar, XO Communications, Worldcom’s Details – Lessons Learned In addition to the Broadband Wireless… even AT&T Wireless lessons from McCaw Cellular, Nextel, NextLink itself, so weakened in the AT&T spinout that it / XO Communications, and even ill-fated “ICO / began quietly looking for a buyout partner within Teledesic”, McCaw has had plenty of months of becoming independent. experiences to learn from. In buying NextNet, FOCUS On Broadband Wireless Internet Access is Clearwire inherits a large base of direct Copyright © 2001-2004 experience from the successful deployment o by Steven K. Stroh. All Rights Reserved. Expedience in Mexico by MVSNet, as well as a This publication may not be reproduced or distributed in any number of smaller NextNet Wireless way without the express written consent of Steven K. Stroh.

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FOCUS on Broadband Wireless Internet Access

Details – The “McCaw Factor” The “star McCaw sees dollar signs in undervalued power” of Craig McCaw is a significant factor in spectrum. the ultimate success of Clearwire that cannot be McCaw may well have been “pulled” into underestimated. McCaw’s now-legendary sale of forming Clearwire by his talented lieutenants McCaw Cellular to AT&T Wireless is the stuff that felt like “nothing really interesting is going of Wall Street legend, and McCaw’s moves have on in wireless or telecom… “Let’s do a huge following among investors. While something.” Or the lieutenants may have spotted “personality” discussions are almost entirely an enormous opportunity. excluded from discussion in FOCUS, I’m Overall, as I’ve tried to make clear at several making an exception in the case of Clearwire points along the way, for Clearwire to have as because McCaw’s entree into the BWIA industry much potential as it has would not be nearly so is equal parts personality, accomplishment, and much so if McCaw was not a formative and reputation as “telecom visionary” as well as the ongoing influence. Clearwire could not have overall soundness of the company, its market happened the way it has, or positioned itself prospects, and the technology behind it. nearly so well without McCaw. Likely the primary motivation for McCaw to McCaw may be reluctant about it, but he will “get back in the wireless game” is that McCaw is inevitably be thrust into the role as figurehead wants to get his blood pumping fast with for BWIA as the “new” wireless and “new” another challenge akin to building up McCaw Internet industries. McCaw’s voice will be Cellular from scratch. McCaw is still young, he’s needed as the wireline telephony industry in its got billions of dollars to play with, and the dying throes will be lashing out at the Internet as telecommunications industry is in disarray with the cause of its death. With Clearwire, McCaw no clear winner emerging from that disarray. will be able to demonstrate the future of Internet McCaw apparently… and correctly, perceives Access… and telecommunications in general… that conditions are ripe for a new “McCaw” play, won’t be a gloomy one once we’re deprived of this time in Broadband Wireless. the pervasive influence of wireless telephony. McCaw is known for “thinking outside the Similarly, the wireless telephony industry will box” and one example of this was the creation of also “lash out” as its difficulties grow more the Cellular One brand that could be used by any severe, (profiled previously) especially the lack independent (non-telco) cellular service provider. of acceptance of its flavor of “Broadband In the infant cellular industry, McCaw was able Internet Access” (at the offered price points) and to create a new paradigm with the Cellular One the increasing obviousness of its trending- brand; it had better brand identity for potential towards-obsolete choice of technology. customers of cellular service than did the far It is a stretch of imagination… but not much… better-established wireline carriers. to posit that Clearwire and McCaw will Another reason McCaw is likely getting ultimately run afoul of mighty Microsoft. involved in MMDS is that he sees distinct Clearwire, from all indications, will benefit most parallels in his experience in the cellular business from open standards as it straddles the wireless and later with his involvement in Nextel, where and Internet industries… precisely those spectrum assets were acquired early and industries that Microsoft targets as its highest relatively inexpensively, and with considerable potential for growth. A younger, less development, were later valued at millions and experienced McCaw might have given over to billions of dollars. Given the ultimate potential Microsoft’s machinations as simple expedience. of services based on 190 MHz of spectrum just The Craig McCaw of this era, of an age that above the “more-amazing-every-day” 2.4 GHz “legacy” is a tangible concern, may be inspired license-exempt band… you can understand how to “do the right thing” with Clearwire and resist Microsoft’s trend towards dominance.

Issue 2004-02 19 FOCUS On Broadband Wireless Internet Access

Backup: Why Another Type Of Wireless; • BWIA can be deployed at the speed, and ease of Why Another Network; Why Now? [This section installing towers (if indeed, towers are even needed; was prepared as the original lead-in to this issue It rooftops of “taller” buildings, existing structures work contains enough useful information to make it worth fine, and dynamic wireless mesh networking has the including for readers. – Ed.] Why another type of potential to remove the need for most towers.) wireless? Because it offers the potential to be better, • BWIA can deliver higher bandwidth than is cheaper, and… most of all different (as in the fabled economically feasible with cable modem or DSL, or facilities-based competition) than what we have now. even T-1. While cable modem and DSL have Space and time don’t permit an exhaustive discussion of demonstrated the capability to achieve much higher the deficiencies of typical wireline copper infrastructure. speeds, it is unlikely that cable modem and DSL Technology that can offer next-generation broadband via service providers will be willing, or capable, of wireline copper infrastructure is available, but too investing the capital to do so. While fiber optic cable expensive for widespread deployment in typical US urban inherently can deliver very high bandwidth, it is and suburban scenarios. Fiber-to-the-premises is capable similarly very expensive to deploy and upgrade and of meeting any conceivable future service requirements… thus will remain unavailable for the vast majority of but is simply too expensive for wireline companies to residences and businesses. seriously consider widespread deployments. Wireless • BWIA can easily be upgraded to higher bandwidth or telephony companies have locked themselves into new services – new radios on the tower, and the user “optimized for voice” infrastructure that doesn’t buys a new unit. accommodate new requirements such as Voice Over • BWIA can offer mobility and portability; no longer Internet Protocol (VOIP) (needs relatively low latency), does Broadband Internet Access require connection to and lowered costs to compete with a new competitor in wireline, or even proximity to a Wireless HotSpot. wireless – Wi-Fi HotSpots/HotZones, Wireless ISPs, • Broadband Internet Access enables entirely new Broadband Wireless Service Providers, municipalities, categories of services and the corresponding ability to enterprises… campuses, and most recently, neighborhood generate additional revenue above and beyond current groups. services. As stated in the tenets of this newsletter, Broadband • BWIA offers new companies the ability to create an Wireless Internet Access has the potential to be “…the infrastructure that’s completely independent of using most likely technology to provide cost-effective, Incumbent Local Exchange Carriers (ILECs) ubiquitous, always-on Broadband Internet Access.” In infrastructure – no leasing of copper pairs, nor even 2004, there is a confluence of factors that hasn’t existed the need to lease access rights to poles (although previously: mounting low-power, localized-coverage radios on • It’s now widely accepted that Broadband Internet poletops is one scenario for creating ubiquitous Access is being driven or pulled towards absolute wireless coverage) ubiquity. For those that don’t have need of “Internet • Wireless telephony companies have created access” (web, email), they will get Broadband Internet expectations for Broadband Wireless Internet Access Access whether they know it or not as a result of in the minds of customers and potential customers that always-on connectivity required for less expensive cannot currently be met, and potentially cannot be met telephony service based on VOIP, entertainment at all. The various flavors of “3G” suffer from high (downloading content onto a TiVo-like settop box), or service costs, low capacity per cell, widely varying even at-home medical monitoring, security systems, speed and latency, and lack of true ubiquity. BWIA etc. service providers could potentially capitalize on that • Accepting that Broadband Internet Access will be lack of satisfaction with wireless telephony companies present in every household and business, achieving by offering a superior and/or less expensive ubiquity is a matter of cost to deploy and operate, Broadband Wireless Internet Access experience. ability to deploy, and timing. In all these areas, BWIA • BWIA, more so than any other form of Broadband is, or has the potential to be, superior to wireline Internet Access, is evolving at the pace of Moore’s alternatives. Law; the newest generations of BWIA devices will be • BWIA can easily be cheaper to deploy and operate faster, smaller, cheaper, and work better. Moore’s than wireline – no low-capacity, expensive-to- Law advances are far less important in wireline maintain network of copper wires, or obscenely- Broadband Internet Access. expensive-to-install fiber optic cable is needed.

20 Issue 2004-02

FOCUS on Broadband Wireless Internet Access

Steve Stroh, Editor www.focusonbwia.com

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Issue 2004-02 21 FOCUS on Broadband Wireless Internet Access

Steve Stroh, Editor P.O. Box 84 Redmond, WA 98073-0084 USA 425-939-0076 [email protected]

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Steve Stroh is the perpetrator of the "FOCUS on Broadband Wireless Internet Access" newsletter, an in-depth review that gets it. The subscription fee is worth every penny. - David Isenberg Independent technology writer Steve Stroh again provided his unique blend of comprehensive and informative insights in his newsletter “FOCUS On Broadband Wireless Internet Access.". The newsletter continues to provide personal interpretations on industry developments that are worth knowing – and supporting. - Andrew Kreig, President Wireless Communications Association International Clued-in is Steve Stroh , whose understanding of the technical issues involving wireless broadband is first- rate and fine-grained. - Dana Blankenhorn, A- Clue.com To the increasingly large group of people who talk sense about broadband wireless services, I have to add Steve Stroh. His subscription publication is full of sensible advice born of deep technical and market knowledge. Anyone trying to make a living, start a company, or run a division in which this is your market shouldn't hesitate before subscribing. - Glenn Fleishman, 802.11b Networking News (now Wi-Fi Networking News) There is a very good writer named Steve Stroh who specializes in wireless technology..- Robert X. Cringely, PBS.com Technology columnist, I Cringely Steve Stroh is *the* most knowledgeable writer about emerging Wireless issues, and is far ahead of the journalistic curve on the growing role of License Exempt businesses, from manufacturers, and Wireless ISPs, to emerging efforts to form national companies aggregating local 802.11b hot spots. - Dave Hughes, Principal Investigator, National Science Foundation Wireless Field Tests

Some Background On FOCUS Since beginning my professional writing career, I have specialized in the emergence of Broadband Wireless Internet Access. Many readers have repeatedly told me how valuable my articles and columns in Boardwatch Magazine, CLEC Magazine, Broadband Wireless Business Magazine, and other publications have been to them in understanding the companies and technologies of the Broadband Wireless Internet Access industry. I’ve been asked many times if there was any way to read more of what I have written about Broadband Wireless Internet Access. In answer to those readers, in June, 2001 I began publication of a newsletter- FOCUS On Broadband Wireless Internet Access. FOCUS is founded upon the following tenets: • Internet technology is becoming the foundation for nearly all communications, commerce, and entertainment services; • For Internet access to be truly usable, always-on Broadband Internet access is required; • By the end of the first decade of the 21st century, Internet access will be ubiquitous; • In the “last mile”, wireline-based technologies and systems will generally prove to be insufficient or not cost-effective to provide ubiquitous, always-on, Broadband Internet to most homes and businesses; • In the near term, Broadband Wireless Internet Access in all its forms – Sub 11 GHz, Above 11 GHz, Free Space Optics, Ultra Wideband, Licensed, License-exempt has emerged as the most likely technology to provide cost-effective, ubiquitous, always-on Broadband Internet Access.

FOCUS on Broadband Wireless Internet Access is written in an informal, easy-to-read style, with an emphasis on clear explanations of why a particular company, product, or development in the Broadband Wireless Internet Access industry is significant. FOCUS is not an investment newsletter, merely recommending or highlighting particular companies for their investment potential. Each issue contains a number of original, in-depth articles and news stories. FOCUS is a just-in- time, short-lead-time publication, using Adobe Acrobat (.pdf) format, and email distribution In every issue, FOCUS on Broadband Wireless Internet Access will profile the companies, technologies, and developments that are creating the Broadband Wireless Internet Access industry. FOCUS’ coverage is independent and accepts no advertising; FOCUS is entirely reader-supported. Key events such as Broadband Wireless World Forum and Wireless Communications Association International’s Summer Tradeshow and Winter Technical Symposium, and other significant wireless and Internet events will receive extensive coverage in FOCUS. I intend that FOCUS On Broadband Wireless Internet Access will be in a state of continuous evolution. My promise to readers is that FOCUS will be relevant, honest, and interesting.

22 Issue 2004-02