Subject: [NEXTEL-1] Wireless Review article

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Date: Sat, 25 Jan 2003 15:18:13 -0500

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Dr. Brilliant Has the Remedy for What Ails Wi-Fi

Ed Gubbins and Lynnette Luna

Wireless Review, Jan 1, 2003

Dr. Larry Brilliant has led an impossible life — so much so that it's tough to read his bio with a straight face. His name is unlikely enough, but come on — did he really heal the blind in Nepal and eradicate smallpox in India? (Yes.) Was he really a friend of Woodstock poster boy Wavy Gravy and personal physician to Grateful Dead frontman Jerry Garcia? Did he really deliver a baby on Alcatraz Island in the 1970s? And did he really forge the world's most influential online community out of a magazine subscription list? (Yes, yes and yes.)

So how did Brilliant end up as the interim CEO of Cometa Networks, the newly announced AT&T/IBM/Intel-owned venture that plans to build 20,000 Wi-Fi access points in 50 markets by 2004 and resell services to wireless operators, ISPs and cable providers?

Simple: It was an impossible job.

The story begins when Brilliant, a Detroit-born physician who studied under Indian gurus in the 1960s before launching a checkered list of technology start-ups, gave a keynote speech at the 2001 Comdex convention in Chicago. The topic was 3G and Wi-Fi wireless LAN systems; Intel executives in the audience asked him to repeat the performance for their employees, and they soon put him on the payroll as a consultant for Intel Capital, the chipmaker's investment arm.

There, Brilliant received and rejected dozens of Wi-Fi business plans before Ted Schell, general partner at international venture capital firm Apax Partners (one of the major investors in Cometa alongside venture firm 3i), proposed getting three of the world's biggest technology titans in the same room together. The charismatic Brilliant, at first just Intel's emissary to the triumvirate, soon took on the role of diplomat between industry giants.

It's a familiar role for Brilliant. In stamping out smallpox from India (a U.N.-backed effort his spiritual adviser suggested), he once had to negotiate a treaty between India and Pakistan to help stop the disease from spreading across their borders. “That was a perfect preparation for negotiating the nondisclosure agreement between Intel, IBM and AT&T,” Brilliant said. “It was harder to get the NDA in place than to negotiate that treaty.” Brilliant became so central to the project that when Cometa finally had an official name, the group asked Brilliant to deliver their baby.

But was Cometa's birth premature? Although Wi-Fi has been on the radar screens of all major wireless providers for some time, the industry is still struggling to figure out how to generate substantial recurring revenues by adding the technology to service portfolios, especially when forecasts are a drop in the bucket when compared with total carrier revenues. After all, an average of just one user per day accesses the hot spots T-Mobile USA has installed in Starbucks coffeehouses across the country.

In short, Wall Street demands the kind of short-term returns that Wi-Fi doesn't yet offer.

But mobile operators agree that Wi-Fi is a way to future-proof their businesses because 802.11b technology will almost surely usurp future 2.5G and 3G traffic. So they are peeling away the layers of Cometa, trying to determine whether Dr. Brilliant is everything his name promises.

Those who know Larry Brilliant describe him as a visionary, but not always in a good way. Brilliant has divided his career between commercial and philanthropic works like the Seva Foundation, a nonprofit whose efforts have restored the sight of millions in Asia and Guatemala. Unfortunately, some of his commercial pursuits could be confused for nonprofits, too: In the mid-1980s, as the CEO of Network Technologies International, he presciently saw the need for computer conferencing systems for businesses.

Sadly, not many businesses saw the same need. NETI folded in 1991, but it left behind a more lasting contribution: The Well, one of the first online communities, which Brilliant launched (with NETI funds) in 1985 along with Stewart Brand, whose intellectual magazine “Whole Earth Review” supplied much of The Well's initial user base. A sort of thinking man's AOL, The Well was highly influential (several Silicon Valley firms started out as discussions in its chat rooms), but it was not financially successful.

A later effort, SoftNet Systems, hedged its plans between three overly ambitious subsidiaries: ISP Channel (an @Home look-alike), Intellicom (a VSAT play) and Aerzone, which promised to sell 11 Mb/s Wi-Fi access throughout the nation's top 50 airports. Any one of these efforts by itself would have been Herculean; together they were impossible.

ISP Channel ran into the same problems @Home did — an unappealing cost structure amid thorny relationships with cable companies. Aerzone got its foot in the door by acquiring Laptop Lane's airport cubicles in 2000 but closed its doors when, according to Brilliant, it became clear he had overestimated both the demand for airport Wi-Fi and the number of devices that could receive it.

Though Aerzone, like NETI and The Well, never found financial success, they all inspired more lucrative incarnations from other companies later, giving Brilliant the reputation of jumping on the right technologies at the wrong time. Call it the drawback of leading an impossible life: You have a hard time accepting what's impossible.

“He's a techno-freak,” said Douglas Sinclair, Brilliant's chief financial officer at SoftNet. “He sees the benefit [of new technologies], and he assumes everyone else will. Unfortunately, the rest of us are mere mortals. We're a little bit behind.”

Brilliant himself is quick to admit this. “I do tend to see things way too early,” he said. “When I saw [Wi-Fi hot spot aggregator] Boingo being launched, I felt, ‘Good! Somebody else sees it!’”

Brilliant hasn't always suffered from bad timing. For nine years he helmed Brilliant Color Cards, an innovative and well-respected prepaid phone card outfit, before selling the company in 1998. He also founded and chaired the International Telecard Association (now the International Prepaid Communications Association) in which he successfully marshaled regional Bell companies together with competitors Sprint and AT&T — a good precursor to his current gig.

The fruit of a long-rumored research project dubbed Project Rainbow, Cometa (a name derived from the word “comet”) is positioning itself as one-stop Wi-Fi shopping — IBM will provide the back office infrastructure, AT&T will deliver the IP network and the backhaul, and most important, Intel will use its integrated Banias mobile processing software to drive the technology into portable devices. It's a power proposition from some of the market's biggest players, but does Cometa's business plan pass muster when previous pure Wi-Fi players like MobileStar have tanked?

Wi-Fi initiatives have so far failed in the market because of excessive customer acquisition costs, insufficient revenue streams, high backhaul costs and poor footprints. Schell likens previous Wi-Fi business models to failed start-up CLECs and DSL companies. “They had neither the clout nor the resources nor the capabilities to effectively take on comprehensively the entire set of activities they stepped up to,” he said. “We're leveraging the capabilities and business relationships of established parties. We rely on the retail channels of others. We don't have to build a brand. We don't have to build capabilities and services to support end users.”

Brilliant said the current Wi-Fi business model is inherently flawed because existing Wi-Fi services require users to sign up for a new ISP, a new password and new billing arrangement instead of allowing users to port their virtual private network (VPN) connections or existing ISP. “You have AOL at home and VPN in the office, but if you want to go to Starbucks, you have to sign up for a new ISP, a new password and a new billing arrangement,” he said. “We heard a resounding ‘no’ to that model. It doesn't work.”

Brilliant believes the secret sauce this time lies in Cometa's ability to accommodate users in a seamless way — everyone from those 37 million AOL users to the 50 million or so cable and DSL customers. Intel's move to integrate 802.11b chips in every laptop and the presence of AT&T's massive backhaul and IP infrastructure won't hurt, either.

For all their innovations, Cometa's founders understand that it will take some time to tee up a critical mass of Wi-Fi users because several devices still aren't 802.11b capable. However, the multiple competing market channels Cometa will tap into through wholesale agreements can achieve scale.

“You need to aggregate the market,” Schell said. “This model does that.”

Cometa's business model, however, hinges on one critical factor: The willingness of service providers to share the same network and agree to use AT&T's backhaul services. While the facility and backhaul cost savings look good on paper, Cometa will likely build hot spots in spaces it finds most economically beneficial — for instance, anywhere AT&T already has backhaul in place and where Cometa can strike favorable deals with tenants.

But these sites are not necessarily where operators want to target key subscribers and differentiate service offerings, said Roberta Wiggins, director of advanced mobile services for The Yankee Group.

That already seems to be a sticking point for Cingular Wireless. While the carrier is evaluating various Wi-Fi business models and talking with a number of partners, a spokesman noted the obvious synergy between Cingular's parent companies — BellSouth and SBC Communications — in terms of the carrier's ability to combine its RF experience with its parents' expertise in backhaul and facilities.

Moreover, AT&T Wireless appears poised to build out the majority of its own Wi-Fi hot spots. “If we need access to any areas, there could be a potential to buy services, but we still want to rely on our own network,” an AT&T Wireless spokesman said. “Whatever traffic I can keep on my network is beneficial to me.”

Maybe Brilliant knows more than we do. He claims T-Mobile is the only operator that cares to build out its own hot spots and that no one wants to invest in another network when they can resell services cheaper, especially if they don't see immediate returns.

Nextel Communications could stand to most benefit from Cometa's services because the carrier is talking about skipping the migration to 3G, said John Byrne, senior analyst with Kagan World Media. “If it can sidestep 3G altogether, that's a lot of money it is saving, and it would be offering the same speeds and networks everyone else can offer without the big investment,” Byrne said.

Although Cometa will become the largest Wi-Fi hot spot provider, it probably won't be the single-source solution for carriers because, for the most part, executives don't plan on aggregating access to hot spots that are already established. Nor will Cometa be the only provider — carriers may still have to negotiate deals with the 10 or so other Wi-Fi providers to put together their own Wi-Fi plays. “That leaves too many different players in the market, and that's a problem,” said Ken Hyers, senior industry analyst with Instat MDR.

Brilliant and Schell say closing off roaming with other Wi-Fi providers is the only way to ensure quality of service and offer customers a simple way to sign on and register themselves on the network. If other Wi-Fi operators want to meet Cometa's technical specifications and allow the company to migrate its hot spots into its network management center, Cometa would embrace those players.

“This notion of roaming across different parties' hot spots just doesn't work,” Schell said. “You get into a situation where the ATM card only works in one out of seven ATMs. That problem will slow down the marketplace.”

Brilliant's overall track record also may lead some to question whether Cometa will end up as another casualty of his premature technology pushes. That's why Schell and Brilliant are both quick to underscore that Cometa is not Brilliant's brainchild and, as such, is free from his curse.

“This is not some wild-ass Pied Piper vision,” Schell insisted. He said Cometa is instead the end result of more than 40 employees conducting hundreds of interviews with chief information officers to assess demand and refining that data through months of analysis.

What's more, say Brilliant's supporters, the man's mistakes are worth more in experience points than most people's triumphs. “Larry learned a lot from SoftNet,” Sinclair said. “I think he's going to come out of this maybe more humble, wiser and more conservative.”

Brilliant provided evidence of SoftNet's lessons when he talked about Cometa's wholesale business plan. The word “modest” came up more than once. And when asked about his specific contributions to Cometa, he admitted, “I don't think I've done that much.”

Pressed further on the subject, he ducked into his role as diplomat again. “If you know anything about diplomacy, the best skill is being invisible,” he said. “If you take credit for something, you destroy it.”

As Cometa's interim CEO, Brilliant vows to step down when a replacement is named, which he said would be sometime in the next six months. Schell said it could even be this month. Then again, Brilliant had originally agreed to be SoftNet's interim CEO for just six months; he stayed for years. Could it happen at Cometa, too? Nothing's impossible, right?

No, this time he means it, he said, although he intends to stay on Cometa's board of directors “forever,” guiding its strategy as a consultant. But at 59, he claims to be “too old” to manage another public company day after day.

So he's a mere mortal after all.

With additional reporting by Jim Barthold in New Jersey.

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