Fixed Wireless Business

What the Licensed Competition is Doing

Outside of interference issues, wireless Internet service providers have had little to fear from major cellular carriers. To date, Sprint's foray into wireless broadband access has proven less than spectacular. This time, the company may be onto something that works. Time will tell if it's also an economically viable strategy.

by Gerry Blackwell [May 28, 2002]

In the ISP arena, broadband fixed wireless mostly means license-exempt 2.4 and 5 GHz wireless: grass roots, flying-under-the-radar competition for wireline broadband services offered by cable and telephone companies.

But wireless ISPs should be aware that cable and DSL may not always be the only competition. Despite the reverses of the past couple of years, licensed broadband wireless carriers could still emerge as strong players.

Sprint Corp., for example, which owns 2.5 GHz Multichannel Multipoint Distribution Service (MMDS) licenses in major urban centers across the country, is currently testing second generation equipment it believes will let it give cable and DSL—and by extension, other wireless Internet services—a serious run for their money.

Knowing what Sprint is doing could be useful competitive intelligence. Understanding the deliberate and methodical business process the company is going through right now also provides insight into developing any fixed wireless business plan.

Testing, testing ...
Sprint is testing second-generation systems from Navini Networks Inc. of Richardson, Texas, and IPWireless Inc. of San Bruno, Calif. Sprint started testing both systems in April—in Houston with the Navini gear and in Montreal, Canada with the IPWireless equipment. Sprint will wrap-up testing in both markets in June.

These tests are Sprint's first moves forward into the broadband fixed wireless market since announcing last October that it would stop adding new customers to its Sprint Broadband Wireless service. The service still remains in 14 metropolitan markets, including Chicago, Seattle and Phoenix. Sprint currently serves about 50,000 subscribers with high-speed Internet access.

"It was a good idea," Cameron Rejali, Sprint vice president of integrated products and market planning, says of the initial effort, "but it wasn't working with the first generation equipment we were using. We decided that what we needed was second-generation technology."

The first-generation equipment wasn't economically viable for a couple of reasons. Most importantly, it required line-of-sight (LOS) to work. This made acquiring and installing customers systems far too expensive.

It might turn out that only half the prospective customers responding to a marketing campaign could actually secure access. But to determine which could and which could not, Sprint still had to send out technicians to do site surveys on all prospects. And then installation for those prospects who could see the base station took a minimum of 90 minutes.

"In total," Rejali says, "it really hurts your profit and loss—both on install as well as acquisition costs. Right up front, you have a big expenditure to get customers on."

On top of that, scaling up capacity was expensive. Sprint, like other MMDS providers used a super cell approach, with one site—on the highest building or a nearby mountain—to cover an entire city. When it ran out of capacity in one area, it had to sectorize the cell, incurring fixed costs for the entire coverage area, including where it didn't really need additional capacity.

Based on this experience, Sprint knew what it wanted from second-generation equipment. It had to be non-line of sight (NLOS) gear. The customer premises equipment (CPE) had to be for indoor use only—no rooftop antennas—and it had to be self-installable by users.

The user would buy the gear at retail, take it home, plug it into a USB port on a PC and register for the service over the air, similar to the way cellular subscribers subscribe for services today. No more truck rolls. And no more customers—or far fewer—that could not be served.

All of this presupposes smaller cells to ensure the needed in-building coverage. That will mean more cells, which adds to initial deployment costs—but it's "all about tradeoffs," Rejali says. Smaller cells should also mean the company can grow capacity "more elegantly." Or more to the point, less expensively.

Finally, the technology had to provide data throughput—in the worst case, at the edge of the coverage area—of 512 Kbps downstream and 128 Kbps upstream.

"These were the things we were looking for in second-generation equipment," Rejali says. "It's a nice list. The question was whether there was technology out there to deliver it."

He's hopeful because the two systems Sprint is currently testing appear on paper and in the field to at least "come close" to meeting the technical parameters the company set.

"Of course, whether they meet the economic parameters—eventually creating some monetary return on base station costs and CPE subsidies—is "another matter," Rejali says. "It may be that we could build the network with this technology, but if the CPE is too expensive, it wouldn't work economically."

"At this point, though, we're very much focused on whether it can meet the technical parameters," he says. "Then we'll go on to the next question."

Stress testing
And can Sprint meet the technical parameters? So far, so good.

In Houston, Sprint has established three cells and is testing the network for providing service in offices, hotels and residences. It's shooting over highways to investigate possible interference from moving vehicles. It's crowding cell sectors with modems to check interference there and testing data capacity with simulated heavy traffic.

In Montreal, Sprint is testing the IPWireless equipment in similar ways. But the network "morphology" in Montreal is quite different, Rejali notes. Houston has many trees, which impacts wave propagation. Montreal has many stone buildings, which could impact in-building penetration and multipath interference.

"One of our challenges will be assessing the performance of the two technologies," Rejali says. "We have to make sure not to penalize one because of that difference in the setting."

Rejali is satisfied both systems can meet the user-install requirement. The current CPE is very small and portable—both vendors are promising PC modem cards eventually.

This means Sprint will be able to offer portable wireless services. Customers will be able to take their system anywhere in the coverage area. This would include roaming to other cities where Sprint operates.

The service would even allow a certain amount of mobility. Both technologies allow smooth hand-offs between cells at pedestrian speeds, the IPWireless system at even higher speeds.

"The notion of portability [and roaming] could be an important differentiator for us," Rejali says.

In-building penetration is also proving out so far, and the networks are bearing up under stress testing.

Going the distance
The big questions that remain involve the cell size required to meet other specifications—Sprint would like them to be at least two miles—and whether the networks can keep speeds up in high network population scenarios.

"The testing," says Rejali, "is very methodical." Sprint plans to complete it in June. July will be taken up with analyzing results. Then a range of outcomes is possible later this year.

One possible scenario is that that neither technology will meet Sprint's technical requirements and the company will have to look further afield. Another is that neither system will meet the economic parameters for making a viable business plan. Rejali believes CPE prices will have to be in the $200 to $300 range.

It's more likely, however, that one or both vendors will meet all technical requirements. If product pricing makes a network look, at least on paper, economically feasible—and that's a big if—Sprint would likely deploy a test market.

But not necessarily.

To obtain the economy of scale necessary to make this a profitable business venture over the long-term, Sprint is probably looking at an investment of $1 billion to reach user populations in the millions. "I don't know if that's exactly the right number," Rejali says. "But it's certainly in that range."

It obviously would not cost that much to deploy a single market, but as he says, "There is no point in doing one, unless you're mentally prepared to go the distance."

With capital tight and take-up rates and revenue streams still uncertain, will Sprint be willing in the end to make this level of commitment? It remains to be seen.

"We believe this spectrum has value," Rejali says. "We just have to figure out ways to generate value from it. Whether that involves using these technologies or not remains to be seen."

Not very conclusive, to be sure. But it gives you an idea of the kind of competition that could be on the horizon since Sprint is willing and able to go back to the drawing board when it comes to fixed wireless broadband access for the masses.

—End