5 Comments

Summary:

Amidst all the hubbub around Sprint Nextel’s wireless plans, the big AWS auction, and megafunding for Clearwire, many overlooked XO Communications as a company sitting on a lot of spectrum, some of it good enough for offering fixed wireless services. The company announced plans to offer […]

Amidst all the hubbub around Sprint Nextel’s wireless plans, the big AWS auction, and megafunding for Clearwire, many overlooked XO Communications as a company sitting on a lot of spectrum, some of it good enough for offering fixed wireless services. The company announced plans to offer metro services in nine markets over its LMDS spectrum. Like you, I also blanched a little when I read this news.

After all, this is the same spectrum that Nextlink, (a company that merged with Concentric to form XO) was trying to use as a last mile solution in the go-go 1990s, competing with the likes of Teligent and Winstar. While technology has improved quite a bit since the 1990s, the issues with the spectrum in the 28 GHz to 31 GHz frequencies haven’t really gone away. By focusing on the cellular backhaul and carrier-to-carrier market, XO hopes to not repeat the mistakes of the past.

The problem is that XO is not the only with that idea. First Avenue Networks (FRNS), a hodgepodge of failed fixed wireless companies and their spectrum, recently bought Fiber Tower to address the same market. First Avenue had $1.3 million in revenues and over $13 million in losses during fiscal 2005 – not exactly a sizzling business.

At the end of second quarter FRNS was still losing money, though the stock has climbed to $7.50 a share, giving the company a market capitalization of over $500 million. (Hmmmm… maybe it is the new magic mantra – wireless broadband!)

In comparison, XO which trades at around $4.50 and market capitalization of over $870 million had sales of $1.43 billion, and a loss of approximately $146 million. The profits are proving elusive for XO in 2006 as well. Hey maybe adding ‘wireless broadband’ will give a little lift to XO’s stock if not their fortunes… thoughts!

  1. XO and their peers’ spectrum I don’t believe is very valuable. It is limited to short range LOS type links and one would assume that base stations must be “on net.” It would seem the companies with LMDS spectrum don’t have much if any metro fiber limiting the choices available for base stations. Further, in most cases these “on net” buildings are close to other buildings on fiber rings. From a value standpoint, licensed wireless cannot compete with fiber. Therefore, it would seem that buildings –and cell towers not served by fiber are the best market opportunity yet the vast majority of these sites aren’t going to be servicable. Additionally, from a cost standpoint the buildout for a typical MTU with redudant licensed wireless along with the internal riser system isn’t that much cheaper than a fiber build assuming the MTU isn’t that far away from an existing fiber ring. This is a decent assumption since the LOS range of LMDS is limited.

    There are good fixed wireless business models, but those tend to be based on microwave spectrum and WiMAX style technology.

    Share
  2. It is still the same old story, just a different time and place. I am not sure how much the technology has improved, and Matt I agree with you about the limited utility of all this spectrum owned by XO, FRNS and others.

    Share
  3. I think both of your assumptions are outdated and not informed. Om, have you even attempted to speak to XO about this and get detailed info? Probably not.

    Share
  4. Jesse Kopelman Tuesday, August 29, 2006

    Providing competative backhaul in the US is a tough business. The Bells, who have already spent the money and built the networks in the profitable places, can come in and undercut the competition any time they want. The only reason there is even potential for competition is the truly horrendous customer service the Bells provide — especially to their own wireless arms, ironically. There is money to be made by focusing on underserved geographies and things like secondary backhaul for disaster recovery, but probably not as much as investors in XO and FRNS would like.

    The real market for wireless backhaul is outside the US. Many countries have poor wired infrastructure and laying fiber is much more expensive if you can’t overlay existing transmission lines or roads (also often poor compared to the US). Without this existing infrastructure the economic case for wireless is much more compelling.

    Share
  5. FRNS actually got bought by Fibertower, not the otherway around. The merger release mentions a 51/49 split in favor of FiberTower.

    Share

Comments have been disabled for this post