Subject: [NEXTEL-1] In Matters of Love & Wireless It's What's on the Inside That Counts

From: Marcel <[email-masked]>
Date: Mon, 07 Apr 2003 21:45:35 -0400

In Matters of Love & Wireless It's What's on the Inside That Counts

April 7, 2003 11:18am

Midway through a trip to Shanghai last month, Ed Cantwell had an epiphany of
sorts as he surveyed the
massive construction projects that dotted the cityscape. Where most tourists and
business visitors see a
massive city of more than 4500 skyscrapers and a building boom that will
eventually create the equivalent of
seven Manhattans, the CEO of InnerWireless saw what could be the biggest
opportunity his company will
ever encounter.

“The trip to Asia really cemented a
fundamental shift on what InnerWireless is
going to be all about,” Cantwell said.

What the in-building wireless developer is all
about is covering those hard-to-reach areas
like skyscraper lobbies, underground malls and
the warrens of cubicles that dot corporate
campuses around the world. Using a series of
antennas arranged around a specific area —
which Cantwell calls a “wireless utility” —
InnerWireless acts as the go-between for
carriers and building owners that want to
extend wireless coverage to the great indoors.

InnerWireless, based in the Dallas area, is one
of a small handful of companies that act as a
neutral host, treading the fine line between
traditional equipment vendor and service
provider. In public spaces that need coverage but where it isn't economical to
deploy cell sites — places
like subway stations — the company works with local government entities and
carriers to extend wireless'
reach.

For carriers, the promise of in-building wireless is not only to bring greater
coverage to the last great frontier
of indoor spaces, but also to generate more traffic and reduce the number of
irate phone calls from
customers who expect landline-like quality from their wireless phones. And for
building owners, in-building
wireless not only means possible added revenue, but a significant perk to offer
potential tenants.

For Cantwell, the appeal of all those buildings going up in Shanghai lies in the
materials used to build them:
They make for great heat retention but lousy RF coverage (for a related sidebar,
go to
www.wirelessreview.com). Now the question before Cantwell and the half-dozen or
so vendors that sell
indoor coverage systems is where to start.

If InnerWireless begins its crusade in China, it wouldn't be the first time
Cantwell has changed course
midstream. Two years ago, the company planned to use the World Trade Center as
one of its showcase
installations. (InnerWireless' showcase system is located in the Rockefeller
Center Concourse, a maze of
shops and restaurants that snakes around the New York landmark.) In fact,
Cantwell met with the WTC's
owners in their offices — on Sept. 10, 2001.

“[September 11] was a profound event for the company because never before had
the emphasis been placed
on communicating in the building,” he said. “We found ourselves going, ‘Holy cow
— we just had a
worldwide event that placed a focus on this.’”

Immediately after the attacks, Cantwell huddled the InnerWireless senior
leadership team along with the
company's lending syndicate (which had closed a series A round of funding on the
Wednesday before the
Sept. 11 attacks) to determine the viability of the company's business plan.

In the end, the group decided to move forward with a model that makes
InnerWireless not only the vendor,
but the operator of the system. At the same time, InnerWireless had an
opportunity to sell the idea of indoor
coverage to entities other than just carriers. The result is Cantwell's wireless
utility model, in which
InnerWireless provides coverage for cellular/PCS service providers, emergency
services, maintenance crews
and Wi-Fi carriers.

The idea wasn't radical at the time, but making the business case work was. It
also was a familiar spot for
Cantwell, who, along with much of the company's leadership, came to
InnerWireless in August 2000 after
leading the pioneering LMDS efforts of Texas Instruments and later Bosch
Telecom. As a leading advocate
of LMDS, Cantwell became familiar with the underdog role, trying to convince
carriers that using broadband
wireless technology was easier and less expensive than putting wires in the
ground. Although the plan
worked great on paper, few carriers bought into the idea.

“We could write a novel on some things we did well and some things we didn't do
well,” he said. The first
chapter: Don't mix big companies. The entity that was spun out of Bosch was spun
into a joint venture with
Motorola and included an investment from Cisco Systems. “Putting Cisco and
Motorola on the same board
of directors is not a wise thing,” Cantwell said. “And then there was the
fundamental collapse of the LMDS
market.”

He uses that failure to provide guidance for his current efforts at
InnerWireless, vowing to pay close attention
to the two issues critical to success: good governance and good economics. “The
business has to make
sense at its most fundamental nugget,” he said. “I have to make money, the
building owner has to perceive
value and the carrier has to see value.”

And as it turns out, more than one company had the same idea. Most of them sell
directly to carriers,
which have started to find economic reason to pay attention to the long-ignored
indoor areas of their
footprints. In fact, according a recent report from IDC, indoor coverage ranks
as one of the 10 most
important service issues for 2003.

Like everything in the current environment, indoor wireless coverage begins and
ends with economics. For
most, it's a relatively simple equation: If there is enough traffic (read:
revenue) that will be generated from a
specific location, carriers can justify spending the capital dollars to cover
it.

“We take a look at the number of businesses that are in the building and our
opportunity to get them as
customers. Based on that, we'll do a simple cost benefit analysis,” said Mike
Irizarry, chief technology
officer with U.S. Cellular, which has started deploying indoor antennas using a
variety of technologies in
Milwaukee.

“In some cases we may have already secured an account and we want to keep it so
we'll set up a system
there. One of the things we want to do is improve the quality of service within
buildings. It's going to be more
important as data starts getting deployed.”

With up to 40% of all wireless calls coming from an indoor location, that need
is increasing. “I believe ninety
percent of it is an economic question,” said Mike Gulledge, vice president of
sales and marketing for EMS
Wireless.

However, there are as many economic models for in-building wireless as there are
buildings to cover. For
some carriers, including AT&T Wireless in some markets, the best option is not
to set up their own
systems but lease capacity from neutral hosts like InnerWireless. Numerous
vendors, including EMS, ADC
and Nortel Networks, are approaching the market in the traditional supplier
role, not wanting to jump into the
operating side.

“We approach the carriers because it's their spectrum and they've got to control
it.” said Gary Spedaliere,
director of product management for the Wireless Business Unit at ADC, which is
providing equipment to
U.S. Cellular.

More to the point, vendors that dip into the neutral host role risk stepping
into a political quagmire, said
EMS's Gulledge. Drawing a parallel with the tower industry, multi-carrier indoor
installations have too many
fingers in the pot to make them effective, he said.

“You get mired down in politics,” Gulledge said. “The building owners saw this
as incremental revenue for
them at the expense of the carrier. They had all these things that killed the
business model. We've kind of
stepped back and said, ‘Pigs get fat; hogs get slaughtered.' We're in this
together.’”

Still, some vendors straddle the line by working with both building owners and
carriers. For example,
RadioFrame Networks is providing indoor systems to Nextel, but CEO Jeff Brown
said that model will
evolve and the company is selling directly to some enterprise users. He also
uses the tower model.

“Our view is the pathway to success is through the operators initially because
they own the spectrum,”
Brown said. “You're not going to do anything without their permission. Through
the carriers, we think you'll
get to a neutral host model in time much like the tower market evolved.”

According to Cantwell, the time is ripe for the neutral in-building wireless
host partly because of the failure of
another group of carriers: building local exchange carriers and data LECs. Those
carriers, whose rise in the
late ‘90s was hailed more than once as the model for the new century, often
promised building owners
double-digit percentage cuts on revenue in exchange for exclusive access to
tenants.

Now, with virtually every one of those carriers dissolved and building owners
often left to explain the
disappearance of options to tenants, the neutral host model comes at an
opportune time. InnerWireless
promises building owners a percentage, but nothing near the amount offered by
BLECs and data LECs.

“I told [owners] bluntly, ‘This is not a big moneymaker for you boys. If you
want to make it a big
moneymaker, the wireless carriers are going to stay away and I'm going to stay
away,’” Cantwell said. “The
fact that 13 bankruptcies [of BLECs and data LECs] happened sobered them up.”

Indeed, in the current environment carriers appear to be testing out both
approaches, not wanting to commit
to any single strategy lest they be locked into a losing business case. U.S.
Cellular is looking at every
available option but is leaning toward those models that offer fixed costs,
Irizarry said. “My experience has
been that carriers tend to favor the fixed cost, and that's where we're
looking,” he said.

In the end, it's likely that some form of sharing will be needed to justify the
capital expense of covering the
indoor landscape. InnerWireless' jump to what some see as the logical approach
to the market is rooted in
the idea that resources are just too scarce to put the onus for indoor coverage
on any single entity. And
given other failed forays into the building market, Cantwell is convinced that
using the straightforward
economic approach is the most effective.

“We can't expect the PCS/cellular guys to bear all of the burden,” Cantwell
said. “Because if you do, they're
not going to do it.”

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