From Anne Wagstaff:
Stay tuned, wireless broadband’s the way to go
August 29, 2005
The Sydney Morning Herald
Margot Saville looks at the three companies that dominate the market.
Workers beware – there’s a new way for the boss to contact you 24/7. It’s being marketed as a product that frees you up to work at the beach, in your Speedos.
The reality is that if you have wireless broadband there’s no escaping the office – you’re always on call, just like with a mobile phone. It’s also seen as the future of telecommunications and therefore attracting big money.
Three of the most prominent players are Unwired, Commander Communications and Telstra.
Two years ago technology veteran Steve Cosser became one of the founding shareholders in Unwired, which also has David Coe, Bill Ireland, Gerry Harvey and the Smorgon family on its share register.
Commander, which bought the company that owns iBurst in June, lists Babcock and Brown, Paradice Cooper and Sydney investor Joe Ross as shareholders. And Telstra, with 20,000 business customers using wireless broadband, launched its retail product last Thursday.
Basically, the technology allows you to hook into the internet with a laptop while on the move, without having to plug it into a fixed socket.
Depending on the supplier, you simply need to attach a small modem to your computer or insert a credit-card sized card.
Within 18 months the technology will encompass the use of voice, which will present “very fierce competition” to the existing mobile phone networks and their “very expensive call services”, according to independent telecommunications analyst Paul Budde.
According to industry researcher IDC, wireless broadband will be the fastest-growing broadband category during the next five years, increasing at three times the rate of the overall broadband market.
Warren Chaisatien, IDC research manager for wireless and mobility, said in June that local wireless broadband users were projected to reach almost 70,000 this year, generating revenue of $57 million.
All existing players say they welcome new competitors because this raises general awareness of the technology, which they hope will drive demand.
Each is chasing the new “road warrior”, someone who is not tied to a desk but works from a laptop at home, in the car or at a cafe. Some of these people are so mobile that they no longer have a fixed-line telephone.
The players are aiming at slightly different markets. Unwired is targeting the residential market; Commander, the small to medium sized businesses; while Telstra is selling to both.
Commander managing director Adrian Coote says another benefit of the technology is that a user can leave the office early to have dinner with his children, and then log back in when they are in bed “and get the same sort of service as you would from the office”.
Changing demographics mean more and more households could contain three or more workers with “multiple wireless interfaces with broadband”, he says, drawing a parallel with a three-car garage.
But it’s a capital intensive business. Commander bought 80 per cent of Personal Broadband Australia, the company that owned the iBurst technology, for just $5 in June, after that company had spent $65 million building a network. Commander also promised to lend it $15 million to fund operations.
Coote declines to give subscriber numbers or make projections but says he expects to repay the loan within three years, notwithstanding a projected loss of $1.5 million in the first year. Those figures are based on existing rates of growth, and do not include the Optus distribution partnership signed in May, he says.
Commander made a net profit of $23.6 million last financial year, up 150 per cent. Of course, this did not include results from the iBurst business but it does suggest the company is financially sound.
“The first people to take up wireless broadband are SME [small to medium size enterprise] business people. They are very data hungry and want very fast downloads and uploads,” Coote says.
“We are a large data business, we have a high degree of confidence in the technology but, more importantly, we have an edge on the distribution,” he says.
Unwired chief executive David Spence worked at internet service provider Ozemail from 1995 to 2000, becoming chief executive after the $320 million MCI Worldcom takeover in 1999. Many industry observers see Unwired as following a similar business model – building a brand by spending up big on marketing and then selling out for a high price. Ozemail’s sale made founders Sean Howard, Malcolm Turnbull and Trevor Kennedy very rich men.
Spence disputes this analogy, saying the company is in for the long haul. It did spend $6 million on marketing last year, including the costs of the launch, he says, but it will be a lot less this year. Unwired has used sports stars Layne Beachley and Brett Lee in its print advertising but recently signed a three-year sponsorship with the Alan Jones radio program on 2GB. The company, which has paid 2GB in shares, is hoping the change will help it to reach beyond its existing market of young, inner-city dwellers.
But Unwired is in a much more vulnerable position than Commander. Last year it lost $40 million, bringing accumulated losses to $68 million. Its shares closed at 58.5c on Friday, a third below the 90c listing price.
The question for Unwired is very simple: How long can it keep building its network and its business before going broke or being bought out? Unwired said in June that it had more than 28,000 customers and needed 70,000 to break even.
Spence says the company has $17 million in the bank “which will take us through to break-even in Sydney, hopefully with a few million to spare”.
Costs are $2 million a month, he says, which indicates they think they will get there in eight months or less.
In the meantime, Unwired announced last Thursday that US group Intel had made a $37 million investment which would enable it to build more network.
On the day, Mr Spence said that while the money was “sufficient for our immediate plans”, “we will look to other funds as we need it in the future”.
Foster Stockbroking senior analyst Mike Henshaw says Intel would be “pushing for integration of their communication chip inside the hardware – that will be a defining moment in which the technology succeeds.
“If you buy a laptop and can log on straight away, you are more likely to go with that without buying an extra piece of hardware.
Commander has a proprietary technology and I don’t think that lends itself to a consumer business.”
Unwired is successful “in a very small niche”, he says, but “there’s room in the market for both players”.
Spence says Unwired has “large shareholders who understand where the world is going: it’s wireless broadband”.
More importantly, they are patient, he says.
Certainly, London-based Steve Cosser is a true believer.
“Wireless broadband has always been a great idea,” Kosser told the Herald on Friday. “It’s hard to imagine that once you have sampled wireless high-speed internet interactivity, you would want to go back.”
Spence estimates that there will be more wireless broadband connections in five years time than fixed-line connections. In fact, 30 per cent of Unwired’s existing customers don’t have a fixed phone line.
Asked about a possible takeover, he is fatalistic.
“I can’t stop anyone mounting a takeover bid for the company. All I can do is grow the company to the best of my ability; I don’t think the true worth of the business is recognised,” he says.
“But I don’t think there will be a takeover by Telstra as the ACCC would stop it.”
Commander’s Adrian Coote has a different view.
“It’s clear to me that the industry will rationalise. An unrestricted Telstra might do some stuff and Optus has got to do something about its ability to grow. There’s a lot of interest in the space.”
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