Hiwire's High-Wire Act
Aloha Partners has a big business plan for a wireless company that doesn't have any customers, much less a cellular network. Aloha Partners President Charles Townsend is about to take on chipmaker Qualcomm and wireless tower operator Crown Castle in one of the hottest areas of tech: TV over mobile phones.
It's an attractive market for Qualcomm (QCOM), Crown Castle (CCI), and other companies hoping to crack it. Mobile TV is expected to grow from $100 million today to $1.5 billion by 2010, says consultancy Frost & Sullivan.
Townsend's Providence upstart might have a fighting chance, says Ken Hyers, an analyst with ABI Research. Aloha's subsidiary, Hiwire, may be on the verge of signing its first big customer and it might have more staying power than Modeo, the venture backed by Crown Castle that's also planning to construct a mobile TV network, Hyers says.
Hiwire could end up becoming the main rival to Qualcomm's MediaFLO, the mobile TV network expected to come online in the next six months, which already boasts Verizon Wireless as a customer. As other wireless service providers—Cingular, Sprint Nextel (S), and Deutsche Telekom's (DT) T-Mobile—place their own bets on one of the three up-and-coming mobile TV players in the coming months, "Hiwire is a more attractive choice than Modeo,"Hyers says.
Like Modeo, Hiwire plans to implement so-called DVB-H technology, which is already being tested by various operators worldwide. By contrast, Qualcomm's MediaFLO is a proprietary technology. Both let mobile phone users watch broadcast TV on their handsets. Today, users can only download short video clips over networks. It's still hard to say which mobile-TV technology will prevail. It takes longer to switch channels over DVB-H, though using MediaFLO may necessitate more expensive handsets.
A LOCK ON SPECTRUM.
Analysts still expect MediaFLO to grab the largest chunk of the U.S. market (see BusinessWeek.com, 10/11/05, "The Coming Mobile-Video Deluge"). Still, Hiwire could become a formidable No. 2.
What's got Hyers bullish on Hiwire? Townsend has poured more than $100 million in personal and investor funds into buying licenses to send signals over airwaves. His original idea was to build a wireless broadband network, but he changed tack after seeing mobile TV take off in other parts of the world. Now Aloha Partners owns the largest chunk of 700-Mhz wireless spectrum, used to transmit video and data, in the U.S. It holds more spectrum, in fact, than Qualcomm and Modeo combined.
That gives Hiwire some serious advantages. Hiwire can potentially transmit twice as many video channels as Qualcomm or Modeo, according to its own estimates. "They just have a wider pipe than anybody else," says John Barrett, an analyst with consultancy Parks Associates. MediaFLO folks say they aren't worried. "People watch three to five different channels," says Gina Lombardi, president of MediaFLO USA. "We think we can create the right service offering." Modeo declined to comment.
MANY BONA FIDES.
Hiwire's spectrum advantage could last for at least several years. While the Federal Communications Commission could eventually free up more 700-Mhz spectrum, chances are it won't do so until at least 2008, says Vikrant Gandhi, an analyst with Frost & Sullivan. "700 Mhz is beach-front property, they don't make it anymore," says Tom Wheeler, former president of CTIA, the wireless industry trade association. Wheeler also has invested in Townsend's ventures.
Also in Hiwire's favor, the company is in "final stages of finalizing contracts" with a number of programmers, says Scott Wills, responsible for partnership development at Aloha. Townsend's marketing background doesn't hurt either. As senior manager for new product marketing at Pepsi (PEP), he helped develop the caffeine-free soda Pepsi Free and lemon-flavored Slice. Later, while at United Cable Television, a cable-TV provider now owned by Comcast (CMCSA), he pioneered the use of TV ads in promoting cable service. Until then, bill stuffers and direct mail were more common. Townsend is past president of the Cable Television Marketing Assn. and a recipient of one of its past Marketing Man of the Year awards.
Townsend, a CTIA board member, has bona fides in wireless circles as well. He has founded and sold two cellular carriers, including Atlantic Cellular, which was sold to Rural Cellular in 1998. In the 1990s, Townsend bought taxi cab frequencies in Hawaii and started using them for cellular phone service in a venture called Hawaiian Wireless. That company was sold to Nextel Partners in 2001. "I'd watched Charlie for 20 years as a proven performer," says Wheeler.
He'll get a chance to prove himself again. Aloha's spectrum, currently commonly used by television broadcasters, should allow Hiwire to build out a network for less money than Modeo. Hiwire can cover a large metro area with only a few towers. Modeo, which uses different airwaves, will need more towers to cover the same area. As a result, Hiwire estimates it can build out a nationwide network for $450 million, compared with $2.2 billion for Modeo. It can also finish the build-out faster—two and a half years vs. five to seven years for Modeo. Pending regulatory approval that's expected to be mere formality, Hiwire should be able to operate in 90 of the top 100 markets within months, says Townsend.
Granted, both Hiwire and Modeo have yet to announce customers. Besides Verizon Wireless, Qualcomm is running a market trial with Sprint Nextel this summer. Hiwire says it has plenty of interest. "We are in advanced talks with wireless carriers," says Wills. He says one notable customer will sign on for a trial scheduled for later this year in Las Vegas. Many analysts speculate that Cingular could be the trial's participant. Cingular, owned by AT&T (T) and BellSouth (BLS), would not comment on this possibility. Hiwire doesn't plan to commence building its network before securing a carrier partner first.
Hiwire is also in advanced discussions with PC companies and media player makers, Wills says. Media player makers like Sony (SNE) or Kenwood could put DVB-H chips, used to connect devices to a Hiwire or Modeo network, into their players to enable them to receive mobile TV broadcasts. Aloha could also provide the service to rural telcos and cable companies. After all, many of its investors have personal connections in that industry. One investor is Bob Hughes, founder of Communication Properties, at one time the seventh largest cable company in the country. Another is Amos Hostetter, founder of Continental Cablevision, once the nation's fifth largest cable company.
"I know Hiwire's phone is ringing constantly," says Burt Stanier, a Hiwire investor and former CEO of Group W Cable, with roots in legendary Westinghouse Electric. "I am more bullish on Hiwire now than [when investing into the company] several years ago."
Market research indicates that original estimates for mobile TV were overly conservative. Instead of watching mobile TV for three minutes at a time, consumers appear increasingly willing to watch longer programs. In fact, by 2008, consumers may well be watching more than 30 minutes of video on their mobiles in a sitting, according to consultancy In-Stat. Video clip offerings from wireless carriers such as Sprint Nextel have taken off like gangbusters. And ABI Research forecasts that, by 2011, more than 27 million wireless customers will be subscribing to mobile TV service.
Modeo's Web site showcases a consumer DVB-H smartphone, manufactured by HTC and running Microsoft (MSFT) software (see BusinessWeek.com, 4/13/06, "The Hottest Tech Outfit You Never Heard Of"). Modeo pilot-tested its network in Pittsburgh in 2005 and said it plans to launch in select markets, including New York City, in 2006. In April, Modeo also said it will deploy in top 30 markets in 2007. The company hasn't provided any news updates on its business since April, however.
Nonetheless, Modeo has some powerful allies: It's part of the Mobile DTV Alliance, which includes representatives from Intel (INTC), Microsoft, Motorola (MOT), Nokia (NOK), Texas Instruments (TXN), and Sony Ericsson. In August, Alcatel (ALA) and Samsung Telecommunications America joined the alliance. Hiwire is in the midst of discussions to join the alliance as well, though, says Wills.
Should all else fail, Hiwire has a back-up. It's preparing a trial of a wireless broadband network in Phoenix. Until then, Townsend is betting big on bolder Plan A.