But replace last-mile fiber strands with wireless frequencies, and small businesses could find themselves in a better bargaining position. New wireless providers are hungry for customers, so they're willing to charge the small guys the same for wireless links as the big guys pay for comparable fiber circuits. And this isn't low-speed, poor-quality cellular service; it's new broadband wireless, providing access ranging from T1 (1.54 Mbps) to T3 (45 Mbps).

The wireless carriers are placing high-odds bets that the broadband wireless market will take off soon. They're trying to lure small and midsize businesses with discounts as high as 40%, and that could result in healthy growth for broadband wireless. The driving technology, local multipoint distribution service (LMDS), is expected to climb 140% within the next year, according to Current Analysis, a research firm.

Aside from lower prices, early users say the new technology is flexible in handling a variety of traffic. "Wireless allows for a lot more options in the form of convergence, such as multimedia, voice, streaming media," says Darran Perkins, CIO of First City Funding, an indirect auto-lending company in Dallas. "Anything you want to send, broadband wireless will push."

That sounds great. But broadband wireless faces its share of hard-core cynics, most of whom are skeptical that prices will fall enough to make the technology practical. "If you compare the cost of fiber-optic lines or copper at the same speeds, there are technologies available that are literally one-tenth the price of wireless," says Tom Nolle, president of consulting firm CIMI. "I think it's completely unrealistic to assume that it will ever capture major market share."

Still, broadband wireless is new, and it may be too soon to draw such conclusions. The market includes two main technologies: LMDS, a high-frequency band that handles integrated, two-way voice, video, and data, typically for business use; and multichannel multipoint distribution service, a lower-frequency band that provides slower connections for voice, data, and video traffic, usually for consumers.

LMDS is leading the broadband wireless charge so far. But if the success of spectrum auctions is any indication, that technology may be headed for trouble.

The FCC held its first series of LMDS spectrum auctions in early 1998, selling 986 licenses. But then it was forced to follow up with a second auction in May 1999 to resell 161 of the licenses after the original bidders defaulted or lost interest in their projects.

The auctions drew only $580 million in bids, a paltry sum compared with other wireless spectrum auctions. For example, this year's auction for the Location and Monitoring Service spectrum, which is being used for transportation communications infrastructure, drew $3.4 billion in bids for only 528 licenses.

Part of the problem may be that the technology has limited usage. "LMDS has to have a specific transmission point for a specific receiver point, and it's used for large metropolitan areas," says Erv Paw, a consultant with Phillips-InfoTech, a consulting firm. "That probably limited which companies would bid."

It also concerns users, who realize that without line of sight, they won't be able to get reliable service. In fact, for one LMDS customer--School District 2 of Billings, Mont.--that's about the only downside to the technology. "As long as you have a good line of sight, I don't have any reservations" about wireless, says technology director Steve Greene, who decided to deploy LMDS for communications between buildings previously served by frame relay.

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Photo of Greene by David Grabbs