Downward Spiral

It's true that a market downturn can have positive effects, weeding out the weak companies or those with bogus business plans.

Its true that a market downturn can have positive effects, weeding out the weak companies or those with bogus business plans. But its a shame when it pulls down solid start-ups that havent come far enough along to weather the storm.

The fixed broadband wireless market is a good example. Winstar Communications and Advanced Radio Telecom recently filed for bankruptcy protection, Teligent and XO Communications have watched their share prices plummet from the $40 range into single-digit territory.

Winstar, with strong leadership and ample backing from marquee names such as Lucent Technologies and Microsoft, was always considered a premier provider and a viable alternative to wireline broadband offerings.

Its the timing thats bad. Fixed broadband wireless is still a fledgling industry, and any underdeveloped segment struggles in a market downturn. Its also a segment that may not be very well understood among the investor crowd. So, when vendor financing becomes harder to get, other investors get nervous and shy away.

Winstar certainly isnt free of all blame. The operator likely built out too quickly, targeting small markets before concentrating on attracting customers in big markets, where networks were complete. One Winstar salesman called some of the companys small markets total failures. Customers there didnt seem to be ready for a cutting-edge technology, preferring instead to stick with incumbents or big-name providers.

Winstar fared better in the larger markets. So much better that a number of the salesmans co-workers were actually excited when Winstars stock began to dive. They bought more shares, figuring they would make out when the stock rebounded. They were so confident in the company that they didnt even consider the possibility that Winstar might slash the payroll by 43 percent, let alone that the company might go under.

Those who remain on staff spend their days looking for work. Confusion reigns, because the people that make up the companys sales force arent sure they can make new sales, because they dont know if cash is available to make the necessary equipment investments.

Meanwhile, I worry about an entire segment dying away. The fixed broadband industry — excluding the Multichannel Multipoint Distribution Service operators such as Sprint and WorldCom — consists of only a handful of operators. With two of them nearly gone and the remainder hanging by a thread, hope for competition from this sector diminishes.