Portable Broadband: The world as your hotspot
If smart phones like Palm’s Treo have arrived, could broadband wireless be far behind? Smart phones can support data-intensive applications such as Voice-over-IP, video gaming, video conferences and movies, all of which need much bigger pipes to transport data than cellular phone networks can provide. Consumers and businesses want to have the same experience with the broadband Internet on their mobile phones as they have at home or in the office.
People on the move are still tethered to hotspots when it comes to gaining access to the Internet; their-WiFi enabled connections do not reach beyond 100-300 feet. On their cellular phones, interrupted service is sometimes a problem with voice calls, and Internet capabilities are mostly out of the question.
Telecommunications companies such as Verizon Communications Inc. (NYSE: VZ), Sprint Nextel Corp. (NYSE: S) and AT&T Inc.’s (NYSE: T) Cingular revived their mobile Internet data services by investing in broadband wireless networks, which commonly go by the moniker 3G. These third-generation networks are capable of transporting more data, equivalent to broadband connections available in homes and offices, but are concentrated in densely populated metropolitan centers. Their signals cannot reach the entire area of a city, let alone rural regions.
Enter WiMAX, a technology that has the ability to provide complete coverage in metropolitan areas, with data transfer rates that are about four times faster than 3G networks. WiMAX can be provided as fixed broadband access as an alternative to DSL or cable, with a range of 30 miles. It has mobile versions as well, with a reach of 3-10 miles so that mobile phone users will not need hotspots to gain access to the Internet.
Anytime- and anywhere-access to the Internet opens the possibility of selling new services. Live sports events, such as those offered by Major League Baseball (MLB.com), are already open for subscription to mobile phone users. Businesses are interested in applications such as the use of radio frequency identification (RFID) for inventory management, which involve gathering massive amounts of data from sensors that track the movement of goods and services all along the supply chain.
Clearwire Corp. (Nasdaq: CLWR), formed by serial wireless entrepreneur Craig O. McCaw, is the pioneer in the space that provides fixed WiMAX in 34 cities in the United States with VOIP and email service. The deployment of mobile WiMAX will begin this year, with the option to buy data services as well. Clearwire’s first-quarter 2007 financial results provide one of the first measures of the potential of the WiMAX market. The number of Clearwire’s subscribers, at 258,000, grew 41% (100% in the initial markets where deployment was completed a year back) over the first quarter in 2006, while service revenue tripled to $29 million from $9 million (161% in the initial markets). Gross margins increased to 43% (72% in the initial markets) from 39% as average revenue per user increased to $35.80 from $32.37. The growth is expected to be sustained with 375,000 to 400,000 subscribers by the end of the year.
The infrastructure created by Clearwire paves the way for smaller companies to offer related products and services.
Alvarion
Alvarion LTD. (Nasdaq: ALVR), an Israeli company, recently made a transition to WiMAX products, including BreezeMAX for broadband access. Its 4Motion consumer package, to be launched this year, is intended to get networks ready to offer mobile TV, online gaming, video conferencing, virtual private networks, and location based services. Concurrently, Alvarion phased out its non-WiMAX wireless broadband access products, which affected the financial performance of the company in 2006. Losses increased by $28 million in 2006 to $40 million, of which $36 million were contributed by discontinued operations. However, sales of BreezeMAX products more than doubled, rising to $72 million, from $30 million.
Progress in WiMAX products has been maintained in the first quarter of 2007 ended March 31, with $25 million in sales of BreezeMAX and an overall increase of 19% sales growth compared with first quarter 2006. These gains come after a near stagnant growth between 2005 and 2006. Clearly, Alvarion is shaping up to be a successful turnaround story and this is reflected in a 15% increase YTD in its stock price.
Alvarion achieved its 52-week high of $8.79 on May 2 and has since retreated slightly. The year-low of $4.92 was set July 27.
This company will be a compelling buy if its 4Motion package is successfully launched this year.
Terabeam
Terabeam Inc. (Nasdaq: TRBM) is a holding company for Proxim Wireless, an equipment provider, and Ricochet Networks, a wireless internet service provider that also now supplies equipment. The focus is on existing markets for WiMAX for so-called backhaul of traffic, or moving traffic generated at WiFi hotspots to the nearest wireless network. Other areas of focus include LAN-to-LAN interconnection within university campuses, municipality networks and security services such as video surveillance.
Over the last year, revenues have declined while losses continued. In the first quarter ended March 31, Terabeam posted revenues of $17.7 million, down 3% from the previous quarter and down 4% from a year earlier. The first-quarter loss totaled $3 million, or $0.14 per diluted shared, compared with a loss of $2 million, or $0.09 per diluted share the previous quarter, and a loss of $4.5 million, or $0.21 per diluted share, in the year-ago period.
Company executives attributed the revenue decline to a change in product mix, with an increasing share of “meshed” WimMAX products used for backhaul from hotspots, while non-meshed products declined sharply. Terabeam’s ability to provide a complete product for backhauling traffic to national networks is its advantage. In order to stave-off bankruptcy, the company is selling two of its patents and outsourcing development to India. In addition, Terabeam is looking to raise its revenues by promoting sales to emerging markets aided by an Israeli partner.
Terabeam is currently trading at around $2.25. Its 52-week high of $3.00 was established October 23, while the 52-week low of $1.75 was set about two months earlier.
Considering that Terabeam is undergoing a great deal of restructuring in a market segment that holds promise, this is a company worth watching.
