Getting It Right The Second Time

By Gerry Blackwell

October 08, 2004

A closer look at TowerStream, the fixed-wireless service provider building a pre-WiMax cloud over major metropolitan areas to growing success.

A few years ago, fixed wireless access providers like WinStar and Teligent famously flopped after investing millions in Local Multipoint Distribution Services (LMDS) , AKA fixed wireless infrastructure in major population centers so they could offer high-speed network connectivity mainly to small and medium-size enterprises.

Now TowerStream Corp., the first service provider member of the WiMAX Forum, which recently announced its planned entry into the Los Angeles market, appears to be following in their footsteps—albeit with a few telling differences.

For one thing, TowerStream is using much lower-cost and more readily available pre-standard 802.16 infrastructure equipment from Aperto Networks and Alvarion, which operates in the license-exempt 5GHz band. One of the reasons LMDS providers failed is that they had to pony up for expensive spectrum licenses and then buy infrastructure equipment at premium prices in a not very competitive market.

When TowerStream launched four years ago, memories of the LMDS debacle were still fresh.

"We really wanted to learn from everybody else's mistakes," says president and COO Jeff Thompson, one of the co-founders. "We knew we didn't want to keep replicating old telecom models as we could see others doing. We wanted it to be scalable and reliable and we wanted to make a lot of money."

Sure. Easy.

TowerStream isn't there quite yet, but it has taken some significant strides. It first launched service in Boston and Providence R.I., its home base, in 2002. By earlier this year, it was in three major markets, including New York City.

It charges $500 a month for T-1 equivalent service with a standard service level agreement (SLA) guaranteeing 99.99 percent up time. It can also provide a 100-Mbps service for enterprise customers, using infrastructure equipment from DragonWave. In June 2003 it moved into the concrete canyons of Manhattan.

"That roll-out went very well. We got a lot of experience and learned a lot about opening new markets, about expanding the company, about how to make a roll-out better and how to give customers what they want. It was magnificent," says Thompson, who is nothing if not enthusiastic. (We're guessing this is code for, 'It was a mammoth challenge that we somehow got through.')

Chicago came next, in March of this year. The company's short-term goal is to be in 10 top markets. However, the ten are not necessarily the ten biggest, Thompson notes. "It's not purely population. We're looking at markets, visiting each one to see which are best for TowerStream." Its current pace is two new markets a year. "We'll hopefully be there [in 10 markets] by the end of 2006, but we don't have a stick in the ground [that says it has to be by then]," he says.

The company hopes to be up and running in Los Angeles, its fourth major market, by end of first quarter 2005. "We had a great response from a lot of businesses in LA when we announced we were coming," he says.

TowerStream is avoiding one mistake of the LMDS pioneers—it's not relying on windfall venture capital financing to fund its roll-out. The money market is different today in any case: the tens of millions available to WinStar et al just aren't there today. TowerStream's costs are also lower, as noted, so capital requirements aren't as onerous. Still, the company's "self-funded, organic growth model," as Thompson terms it, is one reason it's not moving faster. He is acutely aware that the right timing is critical.

"If we go too fast," he says, "we could end up like our predecessors, but if we do it too slow, we'll miss opportunities."

The organic growth model depends on getting markets up and running and generating significant revenues that the company can then plough back into opening more new markets.

"We're still a relatively small company," Thompson says, "but we're starting to grow now. We have over 700 customers today and that will quickly approach 1,000 now that those markets [Boston/Providence, NYC, Chicago] are starting to ramp up." Last year it doubled revenues while only adding four new employees, bringing the total to 33. "When you can double revenue and only add four new staff, that's incredible," he says.

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