Subject: [NEXTEL-1] Craig McCaw's Secret Plan

From: [email-masked]
Date: Fri, 14 May 2004 04:38:17 -0400

MAY 24, 2004

Craig McCaw's Secret Plan
His deals in wireless broadband have the telecom world buzzing

Ever since he was a boy growing up near Seattle, Craig O. McCaw saw the
moneymaking potential of the public airwaves. His father, J. Elroy
McCaw, built one of the first rock 'n' roll radio stations in the
country, New York's WINS-AM, and netted about $20 million when he sold
it in 1962. An inveterate practical joker, Elroy sent his
then-12-year-old son into a New York bank to deposit the
multimillion-dollar check from the deal. Years later, Craig scooped up
licenses for radio spectrum and cobbled together the first nationwide
cellular empire, which he sold to AT&T (T ) for a neat $11.5 billion in
1994.
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Now, McCaw is trying to get back on the air. After losing billions on
several ventures in recent years, the reclusive entrepreneur is quietly
making wireless investments that could be the start of a new empire that
once again upsets the balance of power in the telecom industry. In March
he acquired Clearwire Holdings Inc., a Texas company that provides
wireless broadband service in Jacksonville, Fla., and holds the
exclusive rights to radio spectrum in about 100 other U.S. cities. In
April he snapped up NextNet Wireless Inc., a Minneapolis startup that
makes gear for delivering high-speed Internet access through the air.
And on May 3, he invested $36 million in Microcell Telecommunications
Inc., a Montreal-based cellular provider that plans to introduce
wireless broadband throughout Canada.

DISRUPTIVE FORCE
Although McCaw won't say what he's up to, the deals have again made him
the talk of telecom. The wireless broadband technology he's investing in
has the potential to be one of the most disruptive forces in the
communications industry in years. Cable and phone companies have
dominated the broadband business so far because offering speedy Net
access has required multibillion-dollar investments in a sophisticated
communications network. Now, however, the economics of wireless
broadband could shatter that duopoly. For less than $10,000, an
entrepreneur can start offering broadband within a limited area,
typically an eight- to 10-mile radius. Already, that has made the
technology attractive in lightly populated regions, where it can cost
phone and cable rivals four times as much to offer service. Over the
next two years, the costs of wireless broadband are expected to drop to
the point where it can be competitive with traditional wired service
anyplace in the country. "We think this is a tremendous opportunity for
the telecom industry to change the paradigm," says John Marinho, a
vice-president at equipment maker Lucent Technologies Inc. (LU ).

McCaw may be just the right person to grasp that opportunity. While
small companies have been using the wireless technology in isolated
markets, McCaw is the first person who has the money, reputation, and
skill to take on the current broadband players across the country on a
large scale. With the Clearwire radio licenses, he could offer
coast-to-coast Net service at speeds roughly the same as today's
broadband. Although he may try to build his own national brand, he could
just as easily offer wholesale service to existing players. One person
involved in McCaw's new venture says the entrepreneur is trying to
persuade Microsoft Corp. (MSFT ) and Time Warner Inc. (TWX ) to offer
their MSN and AOL Net services over his network. Two insiders say he is
trying to raise about $400 million, preferably in debt, to seed the
venture. "He has a fairly grand strategy," says Dixon Doll, an early
investor in NextNet who now has a stake in McCaw's venture.

What kind of price will the service carry? Although McCaw isn't saying,
industry insiders think consumers will end up paying $40 to $50 a month.
And that'll likely include free local and long-distance service, the
insiders say, since adding voice service based on Net technology doesn't
cost anything extra. The price tag for the same bundle from the phone
company runs about $100. "He's going to get a lot of takers," says Steve
Stroh, editor of Focus, an industry newsletter.

TROUBLING COMPETITION
The big telecom companies downplay the threat. They point out that
wireless broadband has flopped in the past, despite massive investments
from MCI Communications and upstarts such as Winstar Communications,
because of high costs and technological problems. Wireless broadband
"may turn out to be an effective technology in some rural areas, but
we're not focused on it as a big threat," says Eric Rabe, spokesman for
Verizon Communications Inc. (VZ ) Instead, Verizon is dishing up
cable-television service to compete with its cable rivals and is
boosting the speed of its Net services. It's rolling out fiber-optic
lines capable of hitting 30 megabits per second, well above the 1.5 megs
expected from wireless broadband.

Still, wireless broadband may prove to be troubling competition for
Verizon and its ilk. Already, thousands of small wireless Internet
service providers are delivering different flavors of the technology to
pockets of homes and businesses. "We're kicking sand in their face, but
on the edge of the beach," says Carlton O'Neal, vice-president of
marketing for Alvarion Ltd. (ALVR ), which makes wireless broadband
gear. The threat will grow more serious as chip maker Intel Corp. (INTC
) and other industry heavies get behind a wireless broadband standard
known as WiMax, which is expected to lower costs, drive demand, and
extend the technology's reach. The first WiMax equipment hits the market
next year, and by 2007 industry revenues could exceed $5 billion,
according to researcher Visant Strategies Inc.

McCaw isn't waiting on WiMax, although he's likely to adopt the
equipment when it becomes available. He's snapping up as much spectrum
now as he can, just as he did when he started McCaw Cellular
Communications in the 1980s. He's staying true to his roots, too. While
most small wireless broadband providers in the U.S. are using
unregulated airwaves for free, McCaw is investing in licensed spectrum
that's less vulnerable to interference from other radio signals.
Clearwire, for example, holds exclusive rights to airwaves that had been
set aside for universities and schools' educational programs, and McCaw
is buying up additional rights elsewhere, says Stroh.

McCaw will have easy access to equipment since he's getting into the
hardware business, too. It's an unusual move, likely made to ensure he
can hit the market quickly. Last summer, his aides traipsed to Mexico
City to examine a service built with NextNet equipment. The gear beams
broadband from base stations mounted on cell-phone towers to small
modems that sit on users' desks as far away as three miles.

McCaw's venture-capital arm was impressed and took a stake in NextNet.
That opened the door to McCaw's buying NextNet outright last month for
an undisclosed sum. On May 5, McCaw joined in on Microcell's quarterly
earnings call with investors and said he was particularly interested in
how Microcell could offer a combination of wireless broadband and
wireless voice service that bypasses phone companies completely. That is
"probably a global phenomenon we're going to see a lot more of," he
said.

McCaw needs a hit after two disappointing ventures. In the late 1990s he
helped finance upstart XO Communications Inc. (XOCM ) to take on the
Bells in the local-phone business, and the value of his stake peaked at
$5 billion. XO ended up in bankruptcy in 2002 after the telecom
meltdown, leaving McCaw's holdings worthless. Another McCaw venture,
Teledesic LLC, promised to put hundreds of satellites into orbit that
would drape the globe with fast Internet access, but technological and
financing problems have delayed those plans for years.

With McCaw's latest venture now coming into public view, he could
attract more competition from companies using the same wireless
technology. Sprint Corp. (FON ) owns swaths of spectrum suitable for
wireless broadband and could use it to roll out service. Nextel
Communications Inc. (NXTL ) recently bought MCI's spectrum and is
testing its own service. Still, no other company is making the kind of
financial commitment to the cutting-edge technology that McCaw is. Says
one close associate: "It's typical of Craig to go fishing in unfished
waters." If his instincts are right, he may finally come up with another
big catch.

By Andrew Park, with Steve Rosenbush, in New York

http://www.businessweek.com/magazine/content/04_21/b3884110_mz063.htm

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