The race is on for local multipoint distribution service carriers to launch service, but many players remain confused about which services to offer and which markets to target.

“One of the most influential factors in delaying the LMDS market is the actual conceptualization of what LMDS will offer the customer and what the customer wants,” said Larry Swasey, analyst with Allied Business Intelligence in Oyster Bay, N.Y. “And part of that question is: Who actually is the customer? LMDS operators are still trying to figure that out.”

LMDS carriers will operate in the 28 GHz to 31 GHz band, and have the choice to offer two-way voice, video service and high-speed data services that include Internet and intranet access via a network much like a fixed cellular network that operates at millimeter-wave frequencies. The choices become more complicated when carriers consider which transmission protocols to use, such as asynchronous transfer mode or time division multiplex.

Earlysville, Va.-based WNP Communications Inc., which walked away from March’s LMDS auction with rights to build in 30 of the top 50 markets, said it expects to have service up next year, providing first- and last-mile connection to and from fiber rings for downtown office buildings.

“We view ourselves as being in the broadband communications business rather than the broadband local wireless business,” said company President Thomas Jones. “LMDS enables us to provide the first- and last-mile connection at very high speeds at much lower costs than can be achieved with running fiber. We intend to respond to the demand growing for increased bandwidth. The driver of real demand is clearly on the data side. There also is an opportunity to provide integrated high-speed communications. A lot of voice traffic is carried over data.”

Nextel Communications Inc. is exploring offering commercial wireless local loop service in early 1999 through its joint venture, Nextband Communications L.L.C., the second-largest bidder in the LMDS auction, indicated a recent report from Prudential Securities. Such a service would tap a $100 billion local exchange market, said Prudential, but Nextband has not chosen a technology, vendor nor made any definitive marketing plans.

John Nitzke, senior analyst with Forrester Research Inc. in Boston, said most LMDS players have ruled out offering wireless cable TV systems since broadcast, cable TV operators and satellite providers can offer service cheaper than LMDS operators could. Serving residential areas may not justify the cost of customer premise equipment.

“Internet access for corporate use is the first thing mentioned,” said Nitzke. “There is a lot of interest in providing service to multiple-dwelling buildings. You pick an office building, cut a deal with a landlord and sign a certain number of people for the service. The office-building concept is a hot one … Carriers can go to some clusters of buildings where they may not be wired out for fiber optics anytime soon.”

A recent report from Pioneer Consulting in Cambridge, Mass., predicts LMDS operators to earn about $6.5 billion in revenues by 2007. More than half of the revenues will be generated by the small-business market, where tremendous unmet demand exists for low-cost, high-speed access services, said the firm. Wireless access provides a significant cost savings to installing fiber.

However, ABI’s Swasey said LMDS operators must consider the time frame within which they deploy services. The market quickly will become crowded with landline and other broadband wireless providers-like WinStar Communications Inc., Advanced Radio Telecom and Teligent Corp., which are further along in deployments-offering similar services, he said.

A study from ABI indicates LMDS carriers will face some steep challenges from ADSL, or asymmetrical digital subscriber line-a one-way T-1 to the home over the plain old, single twisted-pair wiring already going to homes-and cable modems for providing broadband services. According to the firm, ADSL will hold 36 percent of the broadband market by 2003, while cable modems will have a 26-percent share. LMDS will hold 9 percent.

“We will experience the introduction on a wide-scale basis a number of technologies that can virtually perform similar applications to LMDS,” said Swasey. “By 2006 or 2007, ADSL, satellite broadband on demand, cable and fiber systems will be present in the consumer’s basket of choices. This doesn’t even include the technologies that already are in use like ISDN.”

Nitzke has similar concerns and believes as many as eight different carriers will enter a large city intent on stealing the entire broadband market.

LMDS carriers may “need to be prepared to weather a 50-percent price reduction,” said Nitzke. “The good news is that they paid one-fifth as much as they might have been prepared to pay [at auction]. They have a lot of room to cut prices.”

“The most important things for carriers to do these next three years is to find out what the customer wants and what he is willing to pay,” said Swasey. “That sounds very obvious, but that is what will make or break an operator is how he competes with all of these other options, and success may be being able to identify a key application or key price point.”

Suresh Arora, vice president and general manager of Hughes Network Systems’ Broadband Products Group, Wireless Networks Division, said many operators are fixated either on the data market or voice market, but he believes operators will only be successful if they offer a myriad of choices that include both data, voice and key vertical applications.

“They have to carry everything. Competition is going to come,” he said. “Data is the driver, but when you break down the local exchange market, that number is a $100 billion-a-year market. Out of that, data is $2 billion. If I’m a displacement player, it doesn’t matter how I open the door to pick away at the $100 billion market. But to get richer, you have to deal with some vertical applications. That is where the money is going to be-in private networks, IP services and other forms of data services.”

Jones said WNP plans to offer a mix of services.

“There will be some customers for whom bundled services will be attractive. Others will be just interested in a particular service,” he said. “LMDS will have a significant advantage in terms of overall capacity. With each of these [broadband] technologies, they are good in some locations and situations and not good in others. You have to identify where each has an advantage. That’s where the sweet spot for [LMDS] technology will be.”


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