InformationWeek: The Business Value of Technology

If equipment costs decrease, wireless players will be in good shape compared with fiber competitors. That's because fiber installations are much more labor intensive than their wireless counterparts. "Today, when we go in to hook up our network to a building, 80% of the costs are technology and 20% are labor," says Rick Calder, Winstar's executive VP and chief marketing officer. "Fiber, meanwhile, is 80% labor and 20% technology."

Hoping to work the more receptive audiences first, the wireless players are focusing their sales efforts on bandwidth-hungry small and midsize businesses. The wireless companies argue that smaller businesses have more incentive to try wireless technology because they'll save money--unlike large businesses that already get big-volume discounts on a wide range of wired broadband services, says Keith Kaczmarek, senior VP of network services with Teligent.

But not everyone is writing off big businesses. Winstar recently created a division to pitch LMDS to the largest companies. Calder says some big-name customers already are interested in the technology for last-mile access to company intranets and other high-speed data applications; however, he declines to name any such customers.

To sweeten the deal, the carriers are aggressively pushing discounted voice options with T1 or T3 Internet connections. Teligent, for example, sells bundled local and long-distance voice and data services, offering up to 30% discounts to companies that buy multiple options. Winstar is offering one year of free local phone service to businesses willing to sign up for its high-speed Internet service; it also offers discounts of as much as 30% on overall bundles, depending on the volume.

Sometimes, discounts are even higher. First City Funding, which buys 12 of its 13 T1 lines from NextLink, says it has saved 40% over the landline services it replaced from Southwestern Bell. Competitive local exchange carrier Third Rail Wireless Services is selling fractional T1 and T1 LMDS links for $300 to $500 a month, which is about $200 to $500 a month less than what competitive landline providers charge. And the Billings School District pays only $188 a month for 3-Mbps dedicated access. That's less than what it had been paying for the T1 frame relay access that LMDS replaced.

Price isn't the only driver, though. LMDS has proven a good option when deployment speed is an issue. "We needed our lines in four weeks after contract, and NextLink had it installed in three weeks," says First City's Perkins. Business customers routinely complain that it takes regional Bell operating companies up to three months to install circuits in certain areas.

Customers who run voice and data infrastructure over the T1 lines, such as Perkins, may be the best hope wireless providers have of carving out a secure position. Though wireless broadband frequencies can and do support data, they're an even niftier way of bypassing the infrastructure controlled by firmly entrenched local carriers.

To date, the regional Bell operating companies and other incumbent local exchange carriers still command control of the critical last mile between carrier and building, even though a major goal of the Telecommunications Reform Act of 1996 was to open local markets to competition.

Competitive local exchange carriers and traditional long-distance providers are using both wired and wireless infrastructure to bypass the incumbents. "When [rival carriers] decided that they'd been blocked by the incumbent local exchange carriers and by AT&T's move into cable, they turned to broadband wireless as a key component of their broadband strategy," says Rick Kent, VP of Phillips-InfoTech.

Bypassing the incumbent local exchange carriers isn't just politics, carriers say. Building out proprietary networks--wireless or otherwise--may be the only way to get the control they need. "Our view is that our core competitive advantage is to have the lowest cost of providing service," says Dan Kohn, director of strategy for NextLink. "And the way we can do that is by investing in infrastructure ourselves rather than trying to resell someone's network elements."

But one thing the landline providers have is a reputation for reliability--something LMDS players have yet to earn. To counter fears that service will be unsteady, the wireless carriers are engineering their networks to "five nines," or 99.999% reliable networking, executives say. Whether they can offer service-level agreements to back up those claims remains to be seen. Generally speaking, carriers say, they're prepared to offer service-level agreements, but they warn that terms may vary from customer to customer.

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