Winstar's Windfall

It's clear by now that Microsoft has a thing for wireless. Last week, the Redmond, Wash. powerhouse made a pact with wireless handset manufacturer Ericsson to get Internet Explorer into wireless phones. A month prior, Microsoft was part of an investment team to award wireless broadband provider Teligent a half-billion dollars. And just this week, Bill Gates did it again. His company led other investors in a pledge of almost 1 billion dollars to another broadband wireless company, Winstar Communications, in exchange for a stake in the company that uses fixed wireless to bypass the local exchange carriers.

While Microsoft spreads its plentiful money around and the announcement continues to boost Winstar's stock price, wireless broadband is still an uphill climb. There are several challenges that await fixed wireless before these service providers can make a meaty dent in the local market. First, market watchers estimate the fixed wireless market has only about 5 million fixed wireless subscribers worldwide, and less than 1 million subscribers for both voice and data provided by fixed wireless, according to Mike Paxton at Cahners In-Stat.

Wireless broadband companies have to get the rights of rooftops before they can offer service. Both Winstar and Teligent use antennas affixed to buildings in order to deliver voice and high-speed Internet services to the fiber-challenged small and midsized businesses underserved by local exchange carriers. Those antennas must be sited on buildings that agree to lease space to the fixed wireless service providers. Both companies are making progress in this area, but there's still a ways to go.

Another big hurdle that faces broadband wireless operators is the dearth of equipment. Point-to-point transmission is available today, but in order for fixed wireless operators to efficiently - and economically - offer services via wireless, a point-to-multipoint transmission is desired. But point-to-multipoint equipment is still being designed and implemented. In the meantime, these fixed wireless operators often have to resell the capacity from their competitors - the local exchange carriers.

There is also the physical problem that fixed wireless demands "line of sight." This refers to having a clear line from the transmitter or repeater to the receiver. If there is foliage or rain in the way, transmission can be comprised.

Finally, something Bill Gates should look at is the market potential and competition for high-speed Internet access. There's the local exchange carriers. There's the competitive local exchange carriers. There's the burgeoning technologies such as Digital Subscriber Line and cable modems. And, even though its mainly targeted at residential customers, there will be Multichannel Multipoint Distribution Service. Fixed wireless operators will have to make their prices especially enticing to attract the customers that they need.

While the $900 million that Winstar is set to receive from Microsoft and other investors - including Cascade Investment; Credit Suisse First Boston Equity Partners; and Welsh, Carson, Anderson and Stowe - will help address these problems, even that huge sum of money won't make it go away.

However, according to the companies, another part of the deal cements a relationship between Winstar and Microsoft to promote broadband applications. The companies said they will collaborate on offerings to business customers that will include e-commerce and multimedia applications. Differentiated service offerings could make the difference between a potential customer and one that signs on the dotted line.