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How to play latest hotspot: the wireless Web
Broadband bills tend to sputter and die in Congress. But a new technology and its proponents are making another brave attempt to win over the opposition. Here are some of the stocks to watch if they succeed.
By Jon D. Markman
If information is the oxygen of the digital age, then we are all gasping for breath as soon as we step out of our homes and offices. Walking in streets, commuting in carpools or sitting in restaurants, the urban American working man and woman is largely denied the one thing that keeps us breathing, productive, entertained and connected in the stationary part of our lives: fast and easy access to the incandescent pleasures and powers of the Internet.
Maybe thats a good thing, who knows? Future scientists might decide our eyes needed a rest from all that text scanning and link-hopping. But they could have said the same about the outdoors as a sanctuary from assault by telephone -- and now street cellular is ubiquitous. Earlier scolds could also have said the same about radio.
So why has it taken so long to make access to the Internet as common as the FM radio? The glib technical answer is that the Internet has long been imagined and implemented as a phenomenon solely of the wired world, something that requires AC power and a dial tone.
But a grass-roots campaign of hackers and hobbyists who believe the Net deserves to be unfettered and unwired have in the past few months joined forces with an unlikely set of corporate and political desperadoes to rip a big hole in that boring old thesis and push this country toward a future of unlimited wireless connectivity whenever, wherever. And they might even help patient investors make a buck or two with well-placed bets.
Wi-Fi to the rescue
The enabling technology is Wi-Fi, lively marketing jargon thats short for wireless fidelity and refers to a high-speed wireless data communications standard known in the trade as 802.11. For most of the 1990s, Wi-Fi was considered an out-there protocol that fired the imagination of geeks at electronics conventions but was never expected to make the big time. Instead, grander, and in many ways more ponderous, wireless technologies known as 2G and 3G took center stage.
But the lunkheads who run our federal communications bureaucracies frittered away so much time arguing about how to extort billions of dollars in auctions among telecom carriers for 2G and 3G licenses that a stealth army of Wi-Fi brats stole their march. And they may never yield it back. The speed of 802.11b is rated at 11 megabits per second, which is about 10 times faster than the fastest wired lines, such as T1s. Compare that to 3G, which promises speeds of only about 2 megabits at best and more like 144 kilobits in practice, or less than half as fast as your average DSL or cable modem. New standards due next year, called 802.11g or 802.11a, promise speeds five times as fast, or about 54 megabits per second (Mbps) -- more than good enough for the sort of streaming video that will make advertising a success. There is, to be sure, a big difference between the two standards. The Gs would flow directly from the thousands of retrofitted cellular antennas in the world over a very wide area, while the range of the best Wi-Fi transmitters today is only about 500 feet. But this difference may not persist, as youll see in a moment.
My own first discovery of Wi-Fi came when Microsoft installed a 802.11 network around its corporate campus in 2001 and issued employees wireless cards for their laptops or Pocket PCs. Usage was instantaneous and amazing. Suddenly the Internet was all around us, just like FM radio -- and you could productively do mail while sitting in meetings, or grab documents off your server on the fly while doing a presentation in the cafeteria. Then earlier this year, the first inexpensive consumer versions of Wi-Fi became available and I ordered one for my house. For $200 and less than 30 minutes of configuration, my little Wi-Fi router essentially broadcasts the 768 Kbps DSL signal from my wall to every corner of my home and back yard, allowing me to work on a laptop from my bedroom when the kids want to watch TV in the den, or to do e-mail in the kitchen while watching a ballgame and chatting with my wife as she makes dinner.
Yes, its true that Im probably online too much. Mea culpa. But now I and the rest of the family can indulge our online habits in a more social (or less egregiously anti-social) way. And a little bit of mobility is a dangerous thing -- next I want to step out of my house with my laptop still warm and get that same fast, rich connection in a neighbors house, or on the bus, or at the bank, or the gas station or McDonalds. (I dont know exactly why I want broadband at McDonalds, but give it to me and Ill figure out what to do with it.)
Technology trumps bureaucracy (we hope)
Now enter those political and corporate desperadoes. The first are Sens. Barbara Boxer, D-Calif., and George Allen, R-Va. This pair crossed party lines in late November to jointly circulate a draft of a bill they plan to introduce into Congress early next year that calls for the Federal Communications Commission to allocate 255 megahertz of continuous spectrum in the 5 gigahertz band for unlicensed use by wireless broadband devices. That means, in plain English, that they want government officials to hand over a big patch of federally regulated air space to those cowboy Wi-Fi operators for free. Broadcast spectrum, after all, is like urban land and the FCC is like your local metropolitan zoning commission. Just as a developer cant put up a 10-story apartment building any old place in a city (except maybe Houston), a Wi-Fi operator cant just set his transmitter to any old channel because it may interfere with other broadcasts -- such as, for instance, Defense Department radar or even cordless phones. However, the FCC can create mixed-use zones for more spectrum if all parties agree to let that happen. That, in part, is what the Boxer-Allen bill proposes in order to win Pentagon approval.
Boxer and Allen both hail from states that have been devastated by the tech-industry depression. They are both anxious to jump-start their constituents business interests by finding ways to encourage corporations, governments and consumers to buy new telecom gear. The last major effort to promote ubiquitous national broadband came in the form of a bill, sponsored by Reps. Bill Tauzin, R-La., and John Dingell, D-Mich. They proposed to make wireline DSL and cable-modem service more profitable for regional Bell operating companies by removing current requirements that they share broadband lines with upstart competitors. The Tauzin-Dingell bill died in the Senate earlier this year, and with it died the dream -- held equally by tech companies, consumers, local governments and economic planners -- of getting high-speed Internet connections into virtually every home in America. Researchers at The Brookings Institution have estimated that widespread, high-speed broadband access would increase the national gross domestic product by $500 billion annually by 2006. Tauzin-Dingell will undoubtedly be revived in 2003, but it is likely to perish again so long as Sen. Fritz Hollings, D-S.C., author of the Telecommunications Act of 1996 that Tauzin-Dingell would amend, continues his opposition.
In a letter to colleagues, Boxer and Allen stressed that their new legislation was designed to foster an alternative mode of broadband communication that would do an end-run around barriers that Tauzin-Dingell encountered. If the big wireline carriers cant get along and compete, the bill essentially says, let technology go around them. "Unfortunately, much of the current debate in Congress over broadband services has focused on two platforms, cable and DSL, and whether we should support competition versus deregulation of telecommunications as the best mechanism for encouraging broadband deployment," the letter from Allen and Boxer states. "This debate has reached an unproductive stalemate and fails to consider that other technologies are available that can jump-start consumer-driven investment and demand in broadband services." A legislative aide in Boxers office said the bill attempts to work within the confines of both the Telecom Act and Tauzin-Dingell, suggesting that Wi-Fi and 3G are like peanut butter and jelly -- complementary, not competitive.
Treyton L. Thomas, a Boston hedge- and venture-capital fund manager whom I profiled for his efforts to encourage President Bush to mention broadband in his last State of the Union address (see, "What the U.S. needs now, Mr. President: broadband"), said he has come to believe that anyone who thinks wireless broadband will not be a major force in high-speed connectivity in the future is being either nave, or they have a vested interest to look the other way because theyre locked into fiber optics, DSL or cable in their business model.
If he were advising old-line telecom giants like Verizon Communications (VZ, news, msgs) or SBC Communications (SBC, news, msgs), he said, I would urge them to look seriously at this technology before David loads his slingshot with the proverbial stone and brings them down. Thomas said his venture-capital fund is looking at investments in private companies that are focusing on expanding the Wi-Fi transmission footprint to 12 miles from the current 500 feet, which would allow the technology to become a high-speed connection solution in rural communities that are essentially red-lined by the big carriers today.
Anywhere, anytime access
The Boxer-Allen bill will face obstacles from intransigent incumbent telephone companies who object to Wi-Fi broadcasters getting free unlicensed spectrum after they paid billions for exclusive spectrum. But one new technology company that will no doubt supply them with as many friendly lobbyists as you can shake a blank check at is Cometa Networks. Announced last week, Cometa is a joint venture of IBM (IBM, news, msgs), AT&T (T, news, msgs) and Intel (INTC, news, msgs) that proposes to create a seamless nationwide network of 20,000 Wi-Fi hotspots. The ambitious idea is to install over the next 9 months to 24 months, reliable, scalable high-speed wireless broadband transmitters within a five-minute walk of anyone in an urban area and within a five-minute drive of anyone in a suburban area. The team wants to create a service mark, much like the Visa credit card, that will identify participating coffee shops, restaurants, gas stations, department stores, hotels and office lobbies as Cometa Networks wireless broadband stations.
According to Ted Schell, chairman of the new firm and general partner of a venture-capital firm that is putting up some of the money, the team believes it only can kick-start wide use of Wi-Fi if consumers believe that if they buy a receiver for their laptop they can find a place to use it anywhere at anytime. We believe there is both a psychic and physical dimension to the concept of ubiquity, he said. If you carry five or six brands like Blockbuster or McDonald's or Shell in your head where you know you can get a signal, you would just assume its around the corner without needing to look one up in a directory.
Cometa Networks is taking a wholesale approach to its ambition to be the Johnny Appleseed of wireless broadband. It wants to sell transmitters to existing commercial AT&T customers and encourage them to cooperatively place them in locations where the signals would overlap with other customers -- creating a virtual web of Wi-Fi waves that would benefit all. Cometa would not have a direct relationship with consumers, ceding that to Internet service providers and wireless carriers who would share revenues. Initially, the expected consumer is what the industry calls windshield warriors -- auto-based sales people and insurance adjusters whose business would materially benefit from the faster movement of information from buyer or claimant to a central office.
What this means for Intel, IBM and AT&T
Investors should note that IBM will supply back office support and data-system software; AT&T is responsible for designing and managing the networks, as well as providing the hardware and Internet backbone, while Intel is responsible, according to Schell, for providing insight into where the technology is going. Bill Calder, an Intel spokesman, noted that his company plans to release a new microprocessor for laptops next year, code-named Banias, which will sport integrated wireless functionality -- eliminating the need to buy an extra card. That fits neatly with Intels corporate goal -- which suddenly doesnt sound so pie in the sky -- to make all computers communicate and to make all communication devices compute. The Cometa business will not be material to any of these companies bottom lines for years, if ever, but its the sort of enabling that big companies can and should try, especially in difficult times like today.
So who will make money in Wi-Fi? Unfortunately, the prices of Wi-Fi chips and access points are plunging and the revenues for the entire nascent industry arent expected to top $3 billion until 2006, according to an industry research group. That leaves a cloud over battered Wi-Fi chip makers Intersil (ISIL, news, msgs) and Broadcom (BRCM, news, msgs), and even microcap hotspot aggregators like GRIC Communications (GRIC, news, msgs). But Mark Anderson, publisher of the influential Strategic News Service technology trends letter and a longtime booster of the technology, said he thinks surprise winners could be the likes of Global Crossing (GBLXQ, news, msgs), WorldCom (WCOEQ, news, msgs) and Level 3 Communications (LVLT, news, msgs), since vastly higher broadband usage would finally get their fiber-optic networks usage up to levels that make economic sense. Wi-Fi goes around the regulators and the monopolists to get broadband to consumers, which has to happen for the Internet backbone to be used more efficiently, he says.
If broadband speeds greater than 2 Mbps on average are achieved, thus allowing video advertising, he added, all the ad-based dot-com business models that were annihilated in the past three years might be reawakened.
Over the next year, I will follow the progress of Cometa and the Boxer-Allen bill and monitor the Wi-Fi movement. If you have any ideas on which public players are the most likely to make the best bets for investments in the space, let me know at supermodels@jonmark.com and Ill pass on the suggestions in a future column. In the meantime, if you care about the prospect of affordable, widespread wireless broadband, write to your representatives in Congress and encourage them to back the Boxer-Allen legislation when it surfaces in 2003. (Use the links at left under "Related sites" for e-mail addresses.)
Fine Print
The Wi-Fi propaganda home page is here. For help in finding devices makers involved in the Wi-Fi market, see this ISP Planet article. And here is a Wi-Fi Alliance listing of participating manufacturers. To read Sen. Boxers press release on her broadband bill, click here. To read the Dear Colleague letter that she and Allen sent around, click here. To read the current draft of the bill, click here for the PDF. ... To learn more about Cometa Networks, check its sparse Web site. Check out the New York Times report on Cometa. ... For a cynical view of Cometa from a knowledgeable industry source who says he was misquoted in the New York Times story, check out Dec. 6 edition of Reiters Wireless Data Web Log. Veteran tech writer Peter Lewis weighed in on his gadgetry weblog at Fortune magazine.
Jon D. Markman is senior investment strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at supermodels@jonmark.com. At the time of publication, his fund owned Level 3 Communications, but positions can change at any time.
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