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Mccaw Leaps Back into Wireless ; Billionaire to Offer High-Speed Internet Access, Local and Long- Distance Telephone Service

Posted on: Friday, 4 June 2004, 06:00 CDT

Wireless pioneer Craig McCaw, whose record of business successes weighs against some spectacular failures, said yesterday that he will offer U.S. consumers high-speed wireless Internet access - plus local and long-distance phone service - in a bold bid to compete with cable and telephone companies.

McCaw, a multibillionaire resident of Hunts Point who is often credited with virtually creating the cellular telephone industry, will serve as chairman and chief executive of his newly founded Clearwire Inc., based in Kirkland.

The company will offer service in two cities this summer - Jacksonville, Fla., and St. Cloud, Minn. - and will expand into 20 cities within the next year, said its president, Clark Peterson, a 15-year veteran with the McCaw organization.

Peterson said the 200-person company, through acquisitions over the past two years, has already assembled sufficient spectrum to operate in 100 cities, but the 20 to be opened by mid-2005 haven't been selected yet. Seattle may be among them, he said.

McCaw acknowledged yesterday the ambitious nature of challenging some of the nation's largest companies and best-known brands.

"We come into this opportunity with our eyes open to the challenges and difficulties associated with competing against giants," he said in announcing the venture at the Wireless Communications Association convention in Washington, D.C.

But McCaw said that he has both the technology and customer- service experience necessary to compete.

The Seattle-area native built McCaw Cellular Communications into the first national cellular phone network and later sold it to AT&T Corp. in 1994 for $12.6 billion to form what became AT&T Wireless Services Inc. At that time, it was the nation's foremost cellular carrier.

As for the technology, Clearwire's pitch, simply put, is simplicity - a characteristic he thinks will strongly appeal to the 75 percent of the U.S. population still lacking a broadband connection.

Clearwire says customers needn't install software or wait for a service truck to get fast Internet access or make phone calls using the inexpensive and increasingly popular Voice over Internet Protocol technology.

The five-minute setup requires only plugging a wireless modem - roughly the size of a large, thin paperback book - into an AC outlet, then connecting it to the Ethernet port of a laptop or a PC (or a router for a wireless network), said company spokesman Todd Wolfenbarger.

The connection is "always secure," according to the company's Web site. And it's portable, usable on computers transported anywhere within the service area.

It could also be used from a car, a boat or anywhere with AC power, although the network isn't intended for mobile use, Wolfenbarger said. Two or more computers can share a Clearwire connection on a home or office local area network, or LAN, through a wireless router.

Always-on connection speeds will average either 512 kilobits per second, 786 kilobits or 1.5 megabits per second, depending on the service package purchased. The latter speed is about 25 times faster than the average speed of a dial-up connection, three times faster than DSL and satellite connections, and twice as fast as cable, according to researchers ComScore Networks of Reston, Va.

Pricing will be "very compelling," possibly ranging between $40 and $50 per month, Peterson said. Service packages, yet to be finalized, could include unlimited Internet access, unlimited local- phone service and limited or unlimited long-distance service for one monthly fee, he said. Bundled DSL Internet access plus limited phone service costs $59 a month from Verizon, while Comcast's cable Internet access alone costs $53 a month.

Clearwire will use technology from NextNet Wireless Inc. of Minneapolis, which Clearwire acquired about a month ago for an undisclosed amount. NextNet spokeswoman Barbara Heine said the technology has been in commercial use for more than two years in 20 markets around the world.

"It's been very successful in markets ranging from open and rural to dense and urban," Heine said.

So-called fixed-wireless technology like Clearwire's has a sketchy past. Project Angel, a fixed-wireless initiative conceived in the early days of McCaw Cellular and launched by AT&T Wireless in 1999, lost roughly $800 million before flaming out after a two-year lifespan.

But this time, McCaw thinks he has it right.

Unlike Project Angel, Clearwire uses non-directional technology known as OFDM (orthogonal frequency division multiplexing). That means the company can use fewer antennas, mounted on new or existing cell towers, and still reach customers' modems. The modems don't have to be placed in a certain spot or be pointed in a certain direction to get a signal.

But while wireless technology has advanced, the formerly hide- bound phone and cable companies haven't stood still.

For example, Verizon Communications Inc. is preparing to offer fiber-optic cable service at 30 megabits per second, far faster than Clearwire's maximum average of 1.5 megabits. Projected to be available in 1 million homes by yearend, the network will be able carry voice and Internet traffic - plus data and hundreds of channels of conventional and high-definition cable TV, spokesman Eric Rabe said.

"We think there's a good opportunity here for us," Rabe said. "Plus, the cable guys are clearly coming after us, as is Voice over IP."

Experts differed yesterday in their assessments of Clearwire's likely success.

Albert Lin, a telecommunications analyst at American Technology Research, said the business makes sense because the Federal Communications Commission regulates data transmissions less than voice, and such transmissions are taxed at a lower rate than telecom, which helps keep prices down.

But Yankee Group analyst Lindsay Schroth said she doesn't understand how Clearwire can compete with blockbuster offerings like Verizon's.

"I would have to say I'm a little bit skeptical," she said.

For one thing, the equipment Clearwire is using doesn't comply with standards being developed by an industry group called The WiMAX Forum, Schroth said. It can't comply, because those standards, describing a technology known as 802.16d, are still being written, and compliant products won't be on the market until early next year.

Until then, prices for the equipment Clearwire uses will remain high - the modems now cost $250 to $350 - because the lack of a standard means chip sets can't be turned out in the massive quantities needed to drive down costs. That means Clearwire will need to subsidize the modems, which will cut into its margins, she said.

Where cable and DSL aren't already available, it might be worthwhile for Clearwire to implement its network, consisting of base-station antennas and the wired connections between those cell tower-like transceivers and the Internet, Schroth said.

But in other markets, "What will be (McCaw's) differentiator?" she asked. Speed alone won't do it, and anyway, a network's speed depends largely on how many people are using it, she said.

McCaw has taken chances before and been right. And, on other occasions, he's been very wrong.

In addition to founding the predecessor to AT&T Wireless, he's a major shareholder in Nextel Communications Inc., the nation's fifth- largest cellular company.

His less successful investments include XO Communications Inc., a broadband company he founded in 1994, which filed for bankruptcy in 2002. They also include Teledesic, which he founded in 1990 to provide high-speed Internet via satellite. Microsoft Chairman Bill Gates was an early backer, and the company had commitments of $100 million from The Boeing Co. and $200 million from Saudi Prince Alwaleed Bin Talal.

But Teledesic never could offer service. It canceled its orders for satellites and shut down in 2002.

In 1999, McCaw bought part of satellite-telephone company ICO Global Communications Ltd. for $1.2 billion, an investment that eventually lost him $5 million.

Lin, the analyst, yesterday called Clearwire "a first step for (McCaw) to become a full-blown telecom and data service provider."

Only time will tell whether it's a step or a stumble.

On the Net: www.clearwire.com

This report includes information from The Associated Press.

P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.com

CRAIG O. McCAW

Born 1950 in Seattle, one of four sons.

Raised in a 20,000-square-foot mansion in The Highlands (Seattle).

Graduated from Lakeside School and Stanford University.

In 1982, began buying the cellular spectrum of broadcast airwaves.

In 1994, having created the first nationwide cellular network, he sold McCaw Cellular to AT&T Corp. for $12.6 billion.

In 1990, founded Teledesic with the objective of providing satellite-based, broadband-service phone company. It folded in 2002 without having launched a single satellite.

SOURCE: O. Casey Corr, "Money from Thin Air"

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