Companies Strike While Wireless Prospects are Hot

Wireless technology usually has meant the world of cellular phones, but within the past few years a new generation of high-tech companies has emerged in Southern California focused on what may be the key to the next wireless revolution--high-speed Internet access through the air.

Little-known companies such as Malibu Networks Inc. of Calabasas and BreezeCOM Inc. of Carlsbad, have popped up with the idea of leapfrogging over the web of optical fiber and copper wires that are now the only ways to get high-speed Internet access.

Unlike cellular phone systems, which are mobile but slow, so-called broadband wireless networks are designed to shoot Internet access to fixed locations at extremely high speeds--dozens to hundreds of times faster than analog telephone modems.

The ease of setting up a wireless network, and the potential cost savings of connecting homes and businesses without running miles of wire, have positioned the broadband wireless industry to experience a burst of growth in the next few years.

Seth Spalding, a vice president of research for C.E. Unterberg, Towbin in San Francisco, estimated that wireless Internet access eventually could make up 20% to 30% of all high-speed connections. He estimated high-speed wireless access growing into a $3 billion to $5 billion industry over the next four years.

“The prospects are fantastic and the timing is now,” Spalding said. “Internationally, the opportunities are even better.”

The local companies are facing a daunting uphill battle since the major telecommunications and data networking equipment makers, including Lucent Technologies Inc., Nortel Networks Corp., Cisco Systems Inc. and Nokia Corp., are also intent on seizing ground in this market. In addition, there are a host of technical hurdles such as the ability of severe rainstorms to disrupt transmissions and the vexing problem of broadcasting in crowded areas where trees and buildings can break up a signal.

But the enormous demand now for high-bandwidth connections to the Internet have sparked a burst of companies intent on entering the market regardless of the competition.

“This is all motivated by the demand from customers to get access quickly,” said Bill Baker, chef executive and founder of Malibu Networks. “It has become pretty obvious that bandwidth has become the number one problem that has to be solved.”

While both fiber optics and cable Internet access remain hot industries, what has become clear is that laying wires and fiber is an expensive and time-consuming proposition.

International Data Corp. of Framingham, Mass., has estimated that only about 5% of the 750,000 office buildings in the United States are now reached by fiber. The cost of laying optical fiber in urban areas can reach as high as $500,000 a mile, according to some estimates.

Wireless always has been a possibility, but it wasn’t until the Federal Communications Commission in 1997 opened a band of frequencies for fixed wireless networking that companies began jumping into the fray.

BreezeCOM, an Israeli company that has its U.S. headquarters in Carlsbad, was created in 1993 to make wireless products for corporate networks, but it began work on wireless Internet access equipment for homes and small businesses four years ago.

The company makes what is called a point-to-multipoint wireless network. In other words, one base station located around an Internet service provider’s antenna tower could beam Internet access to many subscribers in a radius of up to 10 miles.

Typical home subscribers can expect Internet access at speeds that are similar to digital subscriber line and cable--from 256,000 bits of information per second to 3 megabits per second.

The company’s main focus has been to make equipment for the home and small-business market that is low-cost (about $300 in large quantities), simple and easy to install.

It was one of the first companies to actually begin selling lower-cost point-to-multipoint wireless equipment, although the field has become more crowded since then.

“It’s actually better to have more competition just to show that the market is vibrant,” said Bernard Herscovich, the president of the company’s U.S. operations. “I would be much more worried if we were the only ones.”

BreezeCOM had its initial public stock offering Thursday and its stock promptly doubled on its first day from $20 to $39.81.

Malibu Networks, a private company, was formed in 1997 and is still at work developing its system. Baker, the company’s founder, said a product could be on the market by next year.

Malibu has taken a similar approach to BreezeCOM, focusing on roughly the same range of frequencies--from about 2 to 10 gigahertz--that are geared more for small business and home users.

As with BreezeCOM, Malibu says it is designing equipment that will cost homeowners and small businesses about $300 a unit.

“It just has to be priced to be competitive with DSL and cable,” Baker said. “You can’t cost any more. It has more to do with consumer psychology than anything else.”

One of the biggest problems faced by wireless is the vulnerability of radio signals to rain, buildings, trees and other problems. Something as simple as a worker bumping an antenna can bring a wireless system to its knees.

The wireless industry has focused on two technologies to lessen the problems. The first, known as “frequency hopping” or “spread spectrum,” actually was invented in the 1940s by movie star Hedy Lamarr and composer George Antheil.

Their idea was to make radio transmissions hop through many different frequencies, thus making them impossible to intercept or jam. Only those radios that were properly synchronized and aware of the hopping sequence would be able to understand the transmissions.

Today, spread-spectrum communications not only provides a degree of security in wireless networks but also helps lessen problems with interference since so many different frequencies are involved.

A newer technology, called “orthogonal frequency division multiplexing,” actually relies on the interference caused by buildings, trees and other objects.

When a radio signal hits an obstruction, it is partially reflected, creating an echo of the original signal.

With OFDM, the reflected signals are used to snake around obstructions. The job of the receiving device is to synchronize the echoes so the transmission makes sense.

Cisco Systems announced late last year that it had devised a working OFDM system that could be used for high-speed Internet access, and other companies have announced similar technologies.

Even with these technical solutions, wireless faces an even bigger problem--the simple reality that, at least in the United States, cable, telephone and increasingly fiber optic lines are widely installed.

The more wires that exist, the less compelling wireless becomes.

Baker, of Malibu Networks, said that wireless likely will evolve into a complementary system to wired services in areas that are poorly served by cable, DSL or fiber.

Spalding, of C.E. Unterberg, Towbin, said that even as a complementary system, wireless will still have a significant share of high-speed Internet access in the United States.

But he added that the technology’s strongest market could be overseas in less-developed countries that have yet to build extensive wired networks.

“You’ve got a much more compelling reason,” he said. “The cost advantage is just tremendous compared to digging trenches from scratch.”