Last-Mover Advantage Giant telecommunications companies blew billions jumping into the wireless Internet-access business. Here's how tiny TowerStream successfully avoided their missteps.
(Business 2.0) – Philip Urso used to make a great living as the owner of a bevy of rock radio stations in Rhode Island. His pal, Jeff Thompson, was equally comfortable running a small dial-up Internet provider. But on a spring day in 2001, they blithely traded that all in and, with money borrowed from family and friends, opened a new business that perfectly blended their skills: It provided offices with broadband Net connectivity over radio waves.
To some people the move sounded like an attempt to get noticed by the folks who hand out the Darwin Awards. The technology bubble was then in full implosion. And even if their tiny startup, TowerStream, managed to get off the ground, how could it hope to take on telecommunications giants that were already dominating the young field--and gasping for air? In fact, right around the time of TowerStream's launch, Teligent and Winstar, startups that had raised $3.8 billion and $5 billion, respectively, and put so-called fixed broadband wireless on the map, went bankrupt. Not exactly a great omen. "It was an oh-shit moment," says Thompson, now TowerStream's chief operating officer. "Here we are, two guys, trying to visit our first customers."
And yet, crazy as it sounds, Urso and Thompson may go down in telecommunications history as two of its heroes.
TowerStream, a 33-employee, privately held company based in Waltham, Mass., now generates $4 million in sales and looks like the little fixed-broadband-wireless provider that could. The firm is turning a profit and projects 100 percent revenue growth for 2003. Among TowerStream's 500 clients are MIT, Forrester Research, and NYC Wireless.Net.
And the future looks even brighter: By 2006 some 3.8 million people, or 10 times as many as today, are expected to be using fixed broadband wireless, according to Intex Management Services. If that pans out, who better than TowerStream to reap the rewards?
The case of TowerStream illustrates how, in the exponentially changing world of technology, smart timing is everything. The race isn't always won by the fastest. Urso and Thompson implemented their infrastructure prudently, maximized the number of customers for the minimum investment, and never, ever got starry-eyed about conquering the world. "If you're careful, you can make money," says Urso, TowerStream's CEO.
Here's how they did it.
Their business started with a good personal and professional partnership. The two men have been working together since the mid-'90s, when Urso merged his radio operation with Thompson's ISP. They sold their company for $9 million in 1997 and began looking to launch something new--like a wireless Internet service. At the time, fixed broadband was the hot technology uptick of the month.
Indeed, they had followed, with keen interest, the launches of Teligent and Winstar, which were barreling into the wireless connectivity business, erecting antennas on office buildings in dozens of cities. But Urso and Thompson didn't believe that the fixed-wireless era had yet dawned. Debates raged over how well the signal, as it ran in a narrow beam from a wired transmitter dish, through the air, and to an antenna wired to a PC, navigated heavy rain or flocks of birds. "We couldn't get a handle on the equipment," Thompson says.
One hardware limitation was obvious: The Teligent and Winstar systems relied on "line-of-sight" technology, meaning that the transmissions worked only if the companies' dishes directly faced the antennas.
Obsessed with carving out huge territories, the companies concentrated on erecting dishes and getting hardware up on every possible office building. During the frenzy, Teligent and Winstar reportedly paid exorbitant prices--$100,000 for a transmitter, and $5,000 to each building owner for the right to put an antenna on a roof. The telecoms had also spent millions to send their signals on a licensed portion of the radio spectrum.
The turning point came in 2000, when Cisco Systems and Adaptive Broadband unveiled "non-line-of-sight" technology. With it, a radio signal could hit receiving antennas at angles, which meant the antennas could be smaller and tucked away. Best of all, the improved hardware was 90 percent cheaper than the now-inferior line-of-sight technology it replaced. Urso and Thompson wanted in.
The partners didn't need a ton of money, but venture capitalists were in no mood to fund another fixed-broadband-wireless startup. So after hitting up their pals and loved ones for $5 million, Urso and Thompson erected a lone dish in Boston in April 2001. TowerStream saved more by opting to transmit over the unlicensed--and free--part of the radio spectrum. (The downside to this gambit, though, is that unlicensed spectrum could get crowded and signals could degrade.)
Shrewd as their timing was, Urso and Thompson delighted little in the telecoms' bankruptcies. They understood what went wrong, of course. The huge companies simply never pushed hard enough for sales. Teligent, for example, had antennas on more than 10,000 office buildings, but only 16 percent of the tenants in those buildings were signed up for service. It gave fixed wireless a bad odor and created a hurdle for TowerStream's sales team. "The first question people would ask us was, How many customers do you have?" Urso recalls. "It took almost two weeks to sign up our first client. I was holding my breath."
But there was plenty of reason for optimism. The radio transmitter sent out its signal in a wide, 90-degree arc, giving the company business opportunities over a 450-square-mile area. Plus, the mouse-pad-size receiving antennas could be mounted on customers' windows instead of building rooftops, eliminating "roof rights" costs and the need for laboriously sewing wires into Boston's office buildings. Watching its pennies, TowerStream advertised on Beantown radio for $800 a commercial. "Phil knew how to get maximum bang for the buck," Thompson says. "He knew how many times the ad should run."
Installations were completed in as little as 24 hours after TowerStream service was ordered, and at $500 per month, the T-1 subscription price was half that of the company's Baby Bell competition. Within 20 months the firm serviced nearly 250 clients but had added only six more towers in greater Boston. The move was calculated: TowerStream had smartly set up its facilities in a loosely knit circle to blanket the area with signal. Thompson figures the company can now reach nearly 40,000 Massachusetts businesses. "It's a ring 800 feet in the air, and it works," he says.
TowerStream is now picking its shots carefully and has expanded into three other Eastern cities (including New York), determined to slowly establish a presence in every nook and corner. The company turned profitable four months ago, Urso claims, and customers seem happy. "No problems whatsoever," says Terry Schmidt, chief technology officer at Emenity, a Wi-Fi operator and TowerStream customer in Manhattan. "They promised to provision us the same day, and did. It's a great service."
As TowerStream gains traction, other businesses could emulate its formula--Nextel recently purchased about $144 million in licensed fixed-wireless spectrum, for instance. Over time, the phone companies could also slash T-1 line costs. But easily expandable bandwidth still sets TowerStream apart. And the firm has a huge lead in the strategic placing of transmitters. Pretty compelling reasons for Urso and Thompson to look forward--instead of over their shoulders. --OM MALIK