The Microwave of the Future?
Two years ago, Alex J. Mandl did the unthinkable.
Throwing away the perks and power of his post as AT&T; Corp.’s president and chief operating officer, Mandl left the telecommunications giant in August 1996 to join Vienna, Va.-based Teligent Inc. Today, the upstart phone company is flush with cash and radio spectrum and is expected to launch its wireless Internet, phone and data network in Los Angeles this week and 14 other major cities by the end of the year.
Teligent wants to serve small and medium-sized businesses and will face competitors such as WinStar in the wireless field, as well as his former employer and other industry giants.
In a recent interview with The Times, Mandl discussed Teligent’s technology and strategy as well as post-Mandl AT&T; and the challenges of wireless.
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Question: When you left AT&T; for Teligent, what made you so sure you weren’t signing on with a flop?
Answer: There are no guarantees in life. Obviously, being in the industry and being in the environment, I have always felt that those who can build facilities-based local [phone] service capabilities in a low-cost way, that address the bandwidth requirements, will be doing very well.
So when this opportunity was brought to my attention, it fit very much that perspective. I then did a good deal of due diligence and did my homework, just because I had a pretty good job before. Having done that, I felt that this was a very attractive opportunity. Of course, the risk factor back two years ago was significantly higher than it is today.
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Q: What do you think of what AT&T; has done since you left?
A: I think [AT&T; Chairman and Chief Executive] Mike Armstrong is doing a lot of the right things. One of the things that Mike has clearly focused on, which clearly also supports what we are doing, is that reselling local phone service [from the Baby Bells] is a totally uneconomic and ineffective way of reaching customers.
Therefore, AT&T; acquired Teleport to build their business market local connectivity. Then they acquire TCI, which, as we know, the market was not wild about. But I think directionally, in terms of using the cable infrastructure--once it’s upgraded--to reach local residential customers with a broadband two-way network that would include voice service, I think it’s the right thing to do.
It’s going to take a lot of work, and it’s going to take time to make it work. But it is very much an endorsement of the notion that it will require facilities-based alternative local networks to reach customers and have a viable business.
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Q: With Teligent, your focus is just on the business market, which is attracting many new competitors. Why do you think there’s room for you in the market?
A: The data explosion is going on, but to some degree it’s still ahead of us. It’s going to grow as Internet services, as data services continue to grow and explode and as voice business migrates into the data environment--all that is going to require a lot of capacity to get to the end customer.
But therein lies the problem. There are a lot of backbone networks being built and a lot being contemplated. There’s probably eight to 10 huge long-distance networks out there. Not so in the local environment. In the local environment, in the context of this data explosion, there is still very much a bottleneck.
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Q: Why?
A: Because 97% of the local connectivity [by revenue and number of lines] is provided over the copper phone network.
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Q: To fill that gap, Teligent is one of a few companies offering a wireless solution. How does it work?
A: We have new technology that we’re deploying called point-to-multipoint microwave technology. If you think of a star configuration with a building in the center, and you’ve got buildings around it, you’re going to pull data from all these buildings back to a centralized location.
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Q: Why go that route instead of using fiber-optics?
A: Fiber requires you to tear up the streets, and there’s a lot of labor content, and therefore it’s very expensive. For the highest-density downtown buildings, fiber clearly makes terrific sense, and the economics make terrific sense.
But as soon as you go a little farther away from that highest-density environment, and you have to run fiber four or five or six blocks down the road to connect a building, the economics fall apart and it’s a lot less attractive.
That’s where fixed wireless solutions, fixed networks, come in, because we can reach those buildings much more efficiently at a much lower cost without tearing up streets.
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Q: So will you compete with companies that sell fiber-based data and voice services?
A: It turns out that fiber from [competitive local carriers] today reaches a very small percentage of the office buildings in this country--less than 3%. So I think of fiber and fixed wireless networks more in a complementary sense. That doesn’t mean we won’t compete in fiber buildings. We will and we are and we can compete on price and service and function against fiber.
But you tend to go where your low-hanging fruit is first. And your low-hanging fruit is the customers who tend to be underserved, who tend to be in buildings that are not fibered. Those are customers that don’t have the bandwidth they need, that don’t get the best communication packages, and they are certainly the customers that don’t get the best price.
We can offer small and medium businesses a significant discount from what they’re paying today and still make a very good margin. We’re talking 20 to 30% discounts compared to what they’re getting today, on average.
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Q: What about poor service quality, interference and other issues that some people associate with wireless technologies?
A: On the mobile side, we’ve all gotten very accustomed to really fundamentally lousy service. What we provide is a service that has to have quality standards at least as high as what’s being provided today such as the fiber-quality standards and reliability. That’s a bit of a trick in the mobile environment, to say the least.
In Los Angeles, you might have, initially, five or six overlapping areas. Within each one of these areas, you are likely to have a number of buildings closer and further away, and in some cases, given the overlap, there might be a building that you cannot see from [the hub], because there might be an obstruction. But you know what? You might be able to see it from [another hub]. So you engineer this so that you maximize the number of office buildings that you can reach, given the location of the base stations.
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Q: Who are the service providers working with you?
A: We are providing local, long-distance, data, Internet access, all of those things. For Internet, we have a contract with Concentric, which is an ISP that we use as a reseller. We use Frontier for long distance today.
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Q: How much money have you raised, and will it cover the cost of building out the U.S. network to the 74 markets where you hold spectrum licenses?
A: We have raised close to $1.7 billion of capital to help us build this out, which I think is a good foundation. It allows us to build out the business over the next 18 months without raising any additional capital.
This is a multibillion-dollar buildout. It’s not an insignificant number. And it’s certainly beyond the $1.7 billion that we have today, so we do need to raise more money to build out the rest of this.
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Q: What about demand overseas?
A: Clearly, using this type of network technology to deliver services in other parts of the world is something that is of great interest to a lot of people. It would be a terrific opportunity to be part of that and help make that happen. We have a small organization in place that goes after that.
Developing countries can use this network as their first network. There is also a great opportunity in developed countries, especially in Western Europe and Asia, where the communications markets are opening up.
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Q: What are the prospects for wireless service like yours extending to residential customers?
A: Today, because the prices have come down, it makes good economic sense to build this kind of microwave network for businesses. As that price continues to come down, that will extend the reach and the economic practicality of this type of network to a residential home.
But that’s probably more than two years out.
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Times staff writer Elizabeth Douglass can be reached via e-mail at elizabeth.douglass@latimes.com.
