Broadband Wireless Battles To Get Grounded

Telecom analyst Scott Clavenna figured he'd reap the benefits of big-time service competition when he recently moved his company, Pioneer Consulting, to an office park in Cambridge, Mass. Sure enough, WinStar Communications quickly came calling with a sweet deal for fractional T1 service.

WinStar made the pitch even though it still hadn't received permission to install its broadband wireless gear from the owner of the building where Pioneer moved in. No problem - to get Pioneer's business, WinStar still offered Clavenna the lowest price and the shortest provisioning time - four weeks.

"Despite not being on their network, WinStar's service is cheaper than many of the other providers we could have gone with," Clavenna says.

As it turned out, there was one unstated catch: Not long after he signed on with WinStar, Clavenna got a surprising letter from the service provider. WinStar asked Pioneer to petition its landlord for permission to put the wireless provider's equipment on the building's rooftop.

"Our building was recently sold, and the new owners haven't spent much time figuring out what to do with the telecom infrastructure," Clavenna says, adding that he feels "somewhat awkward" about writing a letter to the landlord on behalf of his service provider. "We haven't done it yet - there's something a little odd about us doing it," he says.

Push Comes To Shove

For providers of broadband wireless service, pushy behavior is basic survival. Service providers face a tough dilemma: They need to prove to customers that their technology can deliver robust and reliable service, but they can't establish that proof unless they actually get access to those customers' real estate.

Operators also are pumping up the volume on the lobbying front. The Federal Communications Commission is now investigating claims by broadband wireless operators that their ability to compete with wireline service providers - particularly the Bell companies - is being hindered by the inability to gain access to the big office and apartment buildings that are key to their business plans.

"This is the most important single proceeding pending before either the FCC or Congress in the telecom field," says Andrew Kreig, president of the Wireless Communications Association, a trade association for providers of wireless broadband services.

The battle over access rights could drag on for some time. Building owners insist that they have the right to deny access to their private property to any outside vendor, regardless of the federal government's desire to promote telecom competition. And even if broadband wireless operators gain access to building rooftops to install their antennas and other gear, they must then gain access to inside building wiring - an issue that can also lead to service provisioning delays.

Ultimately, the success or failure of broadband wireless operators may hinge more on building access than on the power of their technology - which is why business owners like Scott Clavenna are getting tapped on the shoulder by service providers.

WinStar says it pulls out all the stops to get access to buildings across the country, including using tenant testimonials to persuade landlords to open up their doors and rooftops. "We absolutely use this as a marketing technique to further this education process with property managers," says Rick Calder, executive vice president of marketing at WinStar.

For broadband wireless competitors such as WinStar, Teligent, Advanced Radio Telecom and Nextlink Communications, gaining access to office and multitenant buildings could ultimately determine whether they can compete successfully against the Bell companies. By putting customers on their own networks, these providers realize a much greater profit margin than if they have to serve customers through facilities leased from the Bells or other local carriers.

Getting 'On Net'

In fact, the focus among broadband wireless operators has shifted from accumulating customers to building up the percentage of those customers that are "on net" (served by wireless access). In this year's second quarter financial report, WinStar reported that only about 27 percent of the 453,000 access lines it serves were handled by its own wireless facilities. For the same quarter, Teligent reported that about 43 percent of the 3,534 buildings it serves had wireless access. All told, Teligent reported 37,526 access lines in place.

Since starting its door-to-door campaign in 1994, WinStar has gained access to more than 5,500 buildings nationwide - the most so far among broadband wireless operators. According to WinStar Chief Executive Bill Rouhana, getting that access is the biggest limiting factor in broadband wireless deployment.

"The chief impediment to extending our networks rapidly and bringing a second communications pathway to millions of end users is the difficulty of obtaining access rights to every building where we have a potential customer," Rouhana testified in May to the U.S. House of Representatives Subcommittee on Telecommunications, Trade and Consumer Protection. According to Rouhana, it takes an average of nine months of negotiation to get into a building, and some deals can take up to two years to complete.

"At this rate, it will take decades to obtain access rights to all the buildings and customers that our networks are designed to reach," Rouhana testified. "In reality, many building owners do not view access by competitive carriers as a priority for their tenants. Some completely prohibit access to their tenants, and many others impose unreasonable conditions or rates that effectively preclude entry by competitive carriers."

Those unreasonable conditions, Rouhana said, included a request from one East Coast building owner for WinStar to pony up a $50,000 bonus, with an additional fee of $1,200 a month for rent.

Although Teligent says it has been successful getting into and onto buildings this year - even raising the estimate of buildings it plans to access this year from 5,000 to 6,000 - the problems continue. Some landlords who have watched cellular providers pay large sums to locate their antennas on rooftops view wireless local loop providers the same way. "Some want to quantify us as a cellular provider to pay exorbitant rents to serve customers that do not exist in the buildings, but we're not here to service anybody outside the building," says Craig Olsen, senior vice president of sales at Teligent. "We're willing to pay a fee to be in a building, as long as everyone else is charged that same fee." That includes the incumbent provider, Olsen says.

One of the buildings WinStar has had difficulty getting access to is 1130 Connecticut Ave., N.W. in Washington, D.C., where telecom market watcher The Strategis Group is located. "We are a WinStar building - a WinStar fiber building - because they can't get rights to inside wiring," says Peter Jarich, an analyst at Strategis. "Even if they put antennas up, they have to rewire inside the building," he adds.

Both WinStar and Teligent now serve most of their customers via leased landlines, not by broadband wireless. It's a strategy that builds their customer ranks faster, but the longer it takes to move their customers onto their own facilities, the slimmer their hopes for long-term success.

"When we launched early in cities like New York, the strategy was to build market share," says WinStar's Calder. WinStar used its own core switching center, but bought unbundled loops or special access loops from other providers to reach new customers.

The strategy worked - but as of early this year, four out of five access lines served by WinStar came from resold wireline facilities. In December 1998, the provider shifted its strategy to focus on getting more customers on its network from the start.

Going Wireless

WinStar now waits until it has from 30 to 50 office buildings equipped with its broadband wireless gear before it starts marketing service in that area. In the second quarter of this year, WinStar installed nearly half of its new access lines directly onto its network. In cities where WinStar first launched service - New York, Los Angeles, Chicago, Boston and Dallas - 62 percent of the lines added during the second quarter were fully on WinStar's network, up from just 19 percent a year ago.

Teligent also upped its number of on-net customers in the second quarter. Customer buildings with installed point-to-multipoint or point-to-point wireless technology increased from 471 to 737. At the same time, wireline installations also increased, from 328 buildings to 783 buildings.

"The vast majority of the buildings we want to light are with wireless technologies, but we won't walk away from quality margin business just because it's a wireline solution," says Teligent's Olsen. But he concedes that there's an "exponential difference" in the cost structure between leasing wireline links and providing service over Teligent's network.

WinStar says it makes a small margin on wireline connections to customers. "They're not losing money, but they're not earning as healthy of a profit margin as if those customers were on their own facilities," says Jonathan Atkin, vice president of executive research at Ferris, Baker Watts, a telecom market watcher. "Even Nextlink Communications, which is well regarded, doesn't see more than 70 percent to 75 percent of its customers over the long term on their own network."