THE BUSINESS JOURNAL

Vol. 19, No 52                                              September 13 , 2001

In the communications game, it's all about the last mile -- either own it, pay to use it or find a way around it.

The last mile is the final leg of a network, the direct connection to the customer. Without it, a network is like a light bulb with the filament detached -- the power is there but it's useless.

Only a few companies, such as San Antonio-based Southwestern Bell Telephone Co. and New York - based AOL Time Warner Inc. own every segment of networks providing telephone, Internet or television services locally. These networks -- underground cable or overhead wire -- run from the central office to the customer's front door. The money flows back -- undivided -- to a single provider.

Most other providers that want to offer Web and local phone service through traditional means must pay Southwestern Bell to piggyback on its lines. This leaves aspiring competitors in a bind: build their own outrageously expensive traditional network or pay the behemoth on the block.

SWB lines, however, are not the only way to traverse the last mile.

Fixed wireless companies can jump over the last mile and beam a broadband signal right into a home or office. Companies can do it the hard way and dig a new trench up every customer's front path. Some may be able to string wire from the utility pole in the house.

MILE: Fixed wireless seems to offer best hope for smaller competitors

But stringing wire works best in the most remote areas, and even then, the regulatory costs are a killer. Building out a traditional network is a labor and regulatory nightmare.

The only company that has succeeded in building out a traditional network locally is St. Louis-based Everest Connections Corp. Everest is operating an in-ground fiber network in Lenexa, President Kevin Anderson said. The company is seeing penetration rates of 30 percent to 50 percent within the first 90 days of turning up a node. The company has more than a dozen nodes, which serve an average of 150 homes a piece, operating in Lenexa. The company lays in-ground cable from each node to a customer's location

In May 2000, Everest had signed a contract worth $400 million with North Kansas City-based PAR Electrical Contractors Inc. to install the network. In April, the company scaled back efforts on the planned 11,000-mile network and now is proceeding more slowly. The company also ran into difficulty securing rights of way from area municipalities.

That leaves fixed wireless as the most likely avenue.

Although this method is costly upfront -- $20,000 an antenna for smaller companies to more that $100,000 apiece for national players -- it offsets the $12 to $20 a line companies must pay Regional Bell Operating Companies (RBOCs) to use their equipment, said Dave Scott, president and CEO of Kansas City-based competitive local exchange carrier (CLEC) Birch Telecom.

CLECs such as Birch must queue up on Southwestern Bell's lines to offer services because building their own network, mirroring SWB's is cost-prohibitive. That means giving revenues to the competition, Scott said.

"If we operated our own network, we could reduce our costs in the range of $20 million to $50 million a year," Scott said. "Right now, we are closing in on paying Southwestern Bell $100 million a year for their equipment."

Not everyone is paying.

Fixed-wireless companies own the connection to their customers, slapping receivers on businesses and homes within the provider's line of sight and beaming in a signal providing telephone and high-speed data services. Although not as trustworthy as a land line, the technology improves every day.

Companies such as Independence-based wireless broadband provider CTC Inc. and New York-based AT&T Wireless are making a go with the fixed-wireless option. Both are relatively new to the game, and penetration rates are low right now, but expectations are high.

AT&T Wireless launched service in the KC area in late August, spokesman David Hale said. The technology "cuts the cord" by eliminating the land-line connection while still providing telephone and Internet services.

President and CEO Graeme Gibson said he has set the network up to carry competitors' traffic and would use a revenue-splitting agreement should anyone want to use the equipment.

This could work for the other providers attempting to do business without an end-to-end network. Instead of using Southwestern Bell's central office, long-distance providers such as Westwood-based Sprint Corp. and the CLECs would at least have the choice of going airborne, which may cost less.

Sprint already has licenses to operate fixed wireless throughout most of the country and does so in 13 locations outside Kansas City, spokesman James Fisher said. If the technology works well enough, look for Sprint to roll out the service in a big way. Of course, Sprint also is relying on RBOCs in 18 states.

"One thing that is very important to our network is our PCS system because eventually that certainly holds a lot of promise." Fisher said. "But for today, the key to getting that last mile is using copper wire that the RBOCs control.

"Right now is a very pivotal time. The (1996 Telecommunications Act) was supposed to have opened up markets for competition, just like you see on the long-distance side. Clearly, that has not happened. Hopefully, new technology will help."

REACH M. STEELE BROWN at 816-421-5900