X stream wireless

X stream wireless

Kevin Fitchard

Byline: Kevin Fitchard

Unlike their counterparts in the broadband wireless industry, TowerStream founders Urso and Thompson are unconcerned with underserved rural communities and suburbs. They’re indifferent to outlying retail zones and beautifully landscaped business parks or to lazy residential communities with two-car drives and shady elms in the backyard. To put it simply, Thompson and Urso are city folk. They like concrete as far as the eye can see and glass towers that blot out the sun. They feed off of dense urban cores with dozens of zip codes per square mile.

It’s in those urban markets that TowerStream has chosen to deploy their fixed wireless access service. In doing so, CEO Urso and Chief Operating Officer Thompson are defying all industry wisdom – they’re basically following the path of Teligent and Winstar. Those two companies also dreamed of access networks perched on city skylines, but both companies collapsed during the telecom bust, their business models proven bunk. (Both Teligent and Winstar remain in business under different ownership and changed business plans.)

Since then, fixed wireless carriers have retreated into the hinterlands, offering services in Tier II and III markets or on the fringes of major cities, never daring to venture back downtown. Urso and Thompson, however, think they can make the cities safe for wireless access once again, and they’ll do it by avoiding all the mistakes Teligent and Winstar made.

“We’re not chasing any Internet rainbows,” Urso said. “We knew what we wanted to do, and we knew that we didn’t have to be like Teligent to do it. We’ve seen those rainbows for what they are – dreams with little substance.”

It’s hard to imagine an odder pair founding a fixed wireless access carrier. Thompson was a former pro-skateboarder who blew out his knees on one too many vert ramps, so he packed it in to go to engineering school at UMass. Urso was a moderately successful radio station owner and manager in Providence, R.I., who was capitalizing on the new “alternative rock” radio format in the ’90s.

What brought these two together was an annoying radio ad.

By 1995, Thompson had graduated and was looking to put his new degree to work by founding his own ISP. He literally ran his new business out of his bedroom. He had a T-1 line installed directly to his studio apartment in Providence and four dial-up ISP modems clicking, whirring and beeping just a few feet away from his mattress.

Meanwhile Urso, like all radio station managers, was looking for advertisers when he got a phone call from Thompson offering to build the station’s Web page in exchange for some free on-air promos. The strange thing was, Thompson wasn’t the only one making such offers. Small ISPs were dying to get on the air, which made them unique in the world of radio, where salesman cajoled advertising out of you, not the other way around, Urso said.

Sensing an opportunity, Urso proposed the two go into business. They formed a new ISP called EdgeNet, and Urso began flooding the airwaves with EdgeNet promotions, filling any slot where there wasn’t already a paid advertiser. “We were like those annoying furniture commercials you hear constantly,” Thompson said. “The ad played all of the time. I’d run into friends and they’d demand that we take it off the air.”

But the broadcast deluge brought returns. In two years EdgeNet grew into a 20-market regional ISP (Thompson no longer ran it out of his bedroom) at which point Citadel Communications bought them out along with Urso’s radio stations. The two stayed on with Citadel to manage what became eFortress, but after a few years Urso and Thompson decided to start anew. The problem was the world already had more dial-up ISPs than it could use. The business model had run its course.

“If we had started up EdgeNet back in 1991 instead of 1996 we could have been the largest ISP in the U.S. instead of the 4036th largest,” Thompson said. “If we were going to be an ISP we had to do something new.”

They weren’t just thinking new. They were thinking big. They were thinking well beyond the provincial confines of Providence. They were thinking Manhattan and Boston. They wanted to go into the most competitive marketplaces in the world, and they wanted to go after the lucrative business market.

Normally that means forming a CLEC, but Urso and Thompson had a queasy feeling about such a venture.

“The problem with the CLEC model is your competition is part of your business plan,” Urso said. “There’s something fundamentally wrong about relying on your competition to run your business properly.”

They decided that they would own their own network from customer premises to point-of-presence, but to lay fiber in a place like New York was just silly. Verizon Communications had the city laced with fiber rings and dozens of other carriers had already dug up its streets and sewers. So Thompson and Urso put their network in the only other place they could, 800 feet in the sky.

In early 2001, TowerStream’s first base station went up on the Prudential Building in downtown Boston. By that summer, TowerStream had blanketed all of greater Boston and Providence, using Aperto PacketWave gear tuned to 5 GHz unlicensed frequencies. They were offering connections as high as 100 Mb/s and selling T-1 equivalents at half the price of Verizon.

Instead of leasing space on a Sonet ring from another carrier, they built their fiber ring in the sky, using Cisco point-to-point gear to link their base stations and backhaul their data to co-location facilities, where they would finally hand off their traffic to another carrier.

Thompson puffs up with pride when he talks about the network he’s built. He points out the fully redundant paths linking each base station to multiple other base stations and back to an Internet hub in each market. He elaborates on the multiple peering partners, redundant network operations centers and the bevy of monitoring and fault detection instruments designed to avert any potential catastrophe, whether meteorological, spectral or electrical.

“These aren’t Pringles cans we’re installing on these roofs,” Thompson said. “We’ve put $60,000 to $70,000 into each base station. We’re not a WISP with a best-effort product. We’re selling T-1s to corporations with quality of service that they need.”

Thompson and Urso appear to have all of the technological pieces in place, but if Teligent and Winstar proved anything, it was that technology doesn’t make a business plan. Both those companies spent billions acquiring spectrum and rooftop rights and building out their metro fixed wireless networks. Both wound up in bankruptcy with billions in debt and the most meager of revenue streams.

So far, TowerStream seems to have avoided the pitfalls that trapped its predecessors. Many of Teligent and Winstar’s problems originated from their desperate drive to expand as quickly as possible and their overconfidence in a first-generation wireless point-to-multipoint technology that hadn’t fully proven itself. While the two companies spent hundreds of millions of dollars on local multipoint distribution system (LMDS) licenses, TowerStream hasn’t spent a penny on licenses – its plan calls for unlicensed spectrum from here on out. While Teligent and Winstar went into enormous debt expanding into market after market, TowerStream is ambling along, building out one market at a time, even one base station at a time. After its successful launch in Boston and Providence, TowerStream waited a full year to deploy in Manhattan and another nine months to launch in its latest market, Chicago, this spring.

The broadband wireless sector is changing. While the investment community may not have much confidence in fixed wireless now, point-to-multipoint technologies are reaching their prime, said Emmy Johnson, principal analyst for Sky Light Research. Just compare today’s equipment prices to those four years ago: According to Sky Light data, the average CPE prices for LMDS gear were $4000 a unit and a base station was $100,000. Now the average CPE unit is $400 and a base station runs $20,000 to $30,000. And prices will only get lower. TowerStream and its primary vendor, Aperto, are both active participants in the WiMAX Forum and both companies plan to make the conversion to WiMAX Forum-certified gear as soon as the final specifications are set. The economies of scale that standardization will create will drive down carriers’ costs even further and the involvement of powerhouse vendors like Intel will give the sector the respectability it deserves, Johnson said.

“North America has always had a jaded view of fixed wireless,” Johnson said. “But it’s becoming more receptive. Thanks to Wi-Fi, the barriers are coming down.”

George Kilguss is the voice of temperance at TowerStream. A former investment banker and acquisitions guru at Stratos Communications, Kilguss provides the financial restraint to counter any inclinations Urso and Thompson might have to grow too quickly. That’s not to say that Kilguss is a peevish accountant looking only to the bottom line. He firmly believes in Urso and Thompson’s vision for TowerStream and can be as aggressive and bold as its CEO and COO. He just has to make sure the company doesn’t go under while doing so.

“We know how to build out markets,” Kilguss said. “We’re getting even better at it. We’ve almost got our formula down and we’re constantly refining it. That doesn’t mean we can rush ahead and build out the whole country. We have a business plan that calls for us to grow using only self-funding, which places limitations on our ability to grow. We could raise capital and expand more rapidly but only if the conditions were right.”

TowerStream is a family company in the most literal sense. Since its founding in 2000, TowerStream hasn’t raised a dime of institutional money. In fact, 60% of the equity and two-thirds of the board votes belong to Urso, Thompson and their family members. TowerStream actually did seek out capital investment in 2000, but the terms were unacceptable. Urso and Thompson would have essentially handed their company away for a faster deployment timetable. So TowerStream went it alone, building its network slowly and meticulously, always waiting for one market to mature before it went to the next. Though the company is private and doesn’t publicly release its financials, TowerStream went EBIDTA (earnings before interest, depreciation, taxes and amortization) positive last December before it launched in Chicago, Kilguss said, and in June it went cash flow positive.

TowerStream hasn’t discounted a capital infusion entirely though. The markets may not have been right during the telecom bust – and they may have been particularly adverse to a company like TowerStream due to the bad taste broadband wireless left in investors’ mouths three years ago – but there are signs the markets may be warming up to fixed wireless again. Last month, wireless pioneer Craig McCaw announced his own broadband wireless venture using multipoint distribution system (MDS) spectrum. His commitment to dump his millions back into a sector people had given up on is certain to draw the attention of other institutional investors. The success of newer generation technologies and the domestic success of Wi-Fi have also helped soften perceptions of fixed wireless.

“The technology is there – it all depends on the capital markets,” said Jai Bhagat, the SkyTel founder who has created his own broadband wireless venture Air2LAN in the South. “The money part has always been difficult. Once the equity markets open up, there’s a lot of potential for expansion.”

A company like TowerStream is sure to attract more attention from curious investors than most. The carrier is in the big name markets where competition is fierce. Unlike other carriers focusing on the hitherto-ignored small-business market, TowerStream is going after large customers and has shown it can take local access business away from the mighty RBOCs. Its 650 customers include 16 universities, the U.S. Department of Justice and even the corporate headquarters for TJ Maxx. (“They’re not little Moms ‘n Pops and pizza stores,” Thompson said.) Admittedly TowerStream today isn’t even a mosquito in Verizon or SBC’s peripheral vision, but if it continues to gain customers, selling T-1 equivalents at $500 a month and 100 Mb/s of capacity for $5000, the major carriers are bound to take notice. A few in the financial markets already have.

The phone calls from perspective investors have started coming in, Kilguss said, and while he’s looking into those offers, he doesn’t see any need for TowerStream to jump at them. “We’re not in any dire need of money right now,” Kilguss said. “We’ve got a plan that allows us to grow on our own.”

Sitting in a Marriott Hotel lounge in Washington, D.C., last month, Urso and Thompson looked rather smug. They were in town attending the Wireless Communications Association conference and they had a lot of reasons to feel confident. Their company was mere days away from crossing over the line into positive cash flow. They had just heard that TowerStream was the sole wireless carrier to win TIA’s SuperQuest award, given out annually at Supercomm. And just one week earlier, they had mounted a base station on that most prestigious of American architectural icons, the Empire State Building.

That kind of confidence sparks bold statements – statements that Thompson and Urso were perfectly willing to make: “Why stop growing when you’re growing?” Thompson asked. “We have the momentum.” Said Urso: “We want to become the number one wireless access provider in the country. Why not?” But the two quickly reined themselves in.

The goal now is to build out 10 markets – that will be their major milestone, they explained. They’re in four currently and working on their fifth, though neither Thompson nor Urso will reveal where it is. If capital comes under the right conditions, then great, TowerStream will build out those 10 markets more quickly, Urso said. If not, then they’ll continue to execute their business plan in their own meticulous manner, choosing each market carefully and building out one skyscraper at a time.

“I’ll tell you what a bad market to go into is,” Urso said, looking dismissively out of the window at D.C.’s low-slung skyline. “Washington – the buildings aren’t tall enough.”

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