Globes, April 8, 2003
Foxcom Wireless reinvents itself
| In its second incarnation, Foxcom Wireless now provides support for cellular and wireless networks and their integration.
|Wireless networks providers are expanding their business by focusing placing signal enhancement and distribution systems in key locations to enable opportunistic users to surf from public places. Meanwhile, the large market for office wireless networks stood shamefacedly on the sidelines. Long before we knew that someday we would surf the wireless web from a caf?, company IT managers were searching for a way to give employees wireless mobility within buildings. The search began in factories, but later spread to offices, university campuses, hospitals, and elsewhere.
Ostensibly, placing wireless base stations in strategic locations ought to give them the necessary range, but it turned out that the installation costs for multi-storey buildings was immense, because the base stations could not transmit between floors.
The solution was derived from longstanding cellular operations: an office distribution system for cellular signals received from an external antenna. Companies offered this service to enable cellular calls within buildings, and it turns out that the concept can also be applied to wireless networks.
Foxcom Wireless was spun off from Jerusalem start-up Foxcom (now a division of OnePath Networks) in 1998. Foxcom develops and markets fiber optic solutions for the professional satellite, broadcast, and MDU (multi-dwelling unit) markets.
A fiber optic system sends signals received from a nearby cellular antenna to end units around a building, usually one to a floor. The system is usually hooked up to four antennae for known cellular frequencies and a wireless frequency. Employees are thus able to converse by cellular telephone and receive wireless access for their mobile computers at any point in the building.
Several companies have already announced plans to develop cellular telephones that will support both cellular and wireless networks, which will probably increase demand for building distribution systems. However, the telephones are due to be launched only toward the end of the year, and their upgrades will be ready only in 2004.
Foxcom Wireless is recovering from near liquidation, after two financing rounds from various investors that were begun in 2001 did not close until mid-2002. In a precedent-setting decision, Tel Aviv District Court Judge Varda Alshech allowed the company to inject additional capital for the recovery. The company's board of directors was drastically reduced. Momentum Management general partners Asaf Mohr and Zohar Heiblum have been appointed to active positions in the company; Mohr is now Foxcom Wireless chairman and acting CEO. Momentum Management led Foxcom Wireless's latest financing round. The company's headquarters was moved to the US, its most important market, while retaining its development center in Lod. The company has 55 employees.
Foxcom Wireless's products, which generated $4 million in revenue by 1999, were phased out. Foxcom Wireless VP R&D Yair Shapira says, "The products were point-to-point products that transmitted cellular signals in tunnels and other outdoor sites where reception was poor. It was a very courageous decision to phase out these products, and they have generated only a small part of our revenue recently."
Boeing makes direct contact
Foxcom Wireless's remaining business, distributing wireless and cellular signals within buildings, are handled simultaneously vis-?-vis the enterprises and the communications providers. The latter want revenue from locations that cellular communications cannot otherwise reach, due to the poor reception inside buildings like hospitals. For the enterprises, it is both a matter of convenience and a cost-saving measure. When all the cellular providers can cover an enterprise's building, the enterprise has a better bargaining position vis-?-vis the cellular providers.
Foxcom Wireless's sales are expected to grow from $7 million in 2002 to $12 million in 2003. Half of the sales are directly to enterprises, such as offices, campuses, and airports. This segment is expected to reach 70%, at the expense of sales to carriers.
"We networked Texas Instruments' (NYSE:TXN) campus last year," relates Foxcom Wireless CFO Shmulik Kollender. "Nextel Communications (Nasdaq; XETRA:NXTL) paid about $1.2 million to finance the system. Texas Instruments recently asked us for a quote to add wireless support to the system, while Nextel simultaneously asked for a quote to install a wireless network on their behalf. For Texas Instruments, the chance to supplement an existing network instead of building a new one would save costs. They want to know how much they'll save.
"Other companies, such as Boeing (NYSE:BA) and a number of US insurance companies, contacted us directly, rather than through the cellular providers. Each enterprise decides whether it prefers a package deal with a communications provider, or setting up its own system, and seeking a communications provider afterwards."
Foxcom Wireless's current solution supports the b802.11 wireless protocol, the most widespread protocol. The company is apparently conceding the 1802.11 protocol, and planning to leapfrog directly to supporting the g802.11 protocol, which effectively supports both the a802.11 and b802.11 protocols.
Kollender emphasizes that Foxcom Wireless does not share revenue with the communications providers, unlike companies that buy the equipment for cellular and wireless signal distribution for buildings, and lease user rights to the cellular providers. "The model of the companies the provide these services only does not work. At least two leading US companies filed for Chapter 11 bankruptcy protection, virtually proving that this business model doesn't work. We considered this model, before rejecting it."
Foxcom Wireless is already planning to join in the next big thing after wireless networks: Enhanced 911 (E911) emergency services. The US Federal Communications Commission (FCC) is implementing E911to improve the effectiveness and reliability of wireless 911 service, by providing 911 dispatchers with additional information on wireless 911 calls. "Imagine someone in Tel Aviv's Azrieli Towers takes ill and calls Magen David Adom from his cellular phone. The emergency services have no way of knowing whether the person is in parking lot, an office, or in the Round or Triangle Building," says Shapira. "If you install systems that transmit the cellular signal inside the buildings, you'll know exactly which floor the call came from, thereby solving a major problem."
Eurofund VP Moshe Price, a Foxcom Wireless investor, says the company plans to reach break even point by the third quarter of 2003, and therefore invested heavily in the US. "Europe has better cellular cell deployment than the US, because population density is greater, there is only one network (GSM), and the continent's flat topography make signal enhancement and distribution technology less crucial."
In Asia, Foxcom Wireless's main competition is a mixture of coaxial cable use, cheap labor, and improvised solutions. The result make penetrating the market more difficult. The company is studying the market, but says it is focusing on the US.
"A competitor has vanished"
Someone apparently decided to test the nerves of Foxcom Wireless's managers and employees. The company had a healthy market share for years, fending off competition from Andrew Corporation (Nasdaq:ANDRW) Mikom (a subsidiary of Allen Telecom (NYSE:ALN)), ADC Telecommunications (Nasdaq:ADCT), LGC Wireless, and others. Some of these companies distribute wireless signals by fiber optic and others by coaxial cables. There are also start-ups, such as Kaval Wireless, Inner Wireless, and a dozen more. Not all these companies develop technologies specifically designed to distribute cellular and wireless signals inside buildings, but they all deal with some aspect of recycling and enhancing these signals.
As mentioned earlier, Foxcom Wireless was almost liquidated at one point, but was able to report a substantial increase in sales and cash flow early this year. Allen Telecom acquired Andrew Corporation on February 17, 2003, for $500 million in shares, which could have an impact on Foxcom Wireless.
"The merger will have a minimal effect, if any, on us," says Kollender. "Andrew Corporation did not separately report of its revenue from this sector, which implies they were small, amounting to a few million dollars. The situation is different at Allen Telecom, because they have a separate division, which is more relevant as far as we're concerned. However, we don't see an immediate threat from the merger. In the end, a competitor was eliminated."
Andrew Corporation and Allen Telecom had separate booths at the latest CTIA Wireless convention in New Orleans in March. It is unclear when the merger will be completed, and like the Hewlett-Packard (NYSE:HPQ) - Compaq merger, it might the competition, while the companies deal with the bureaucracy. There have also been rumors that the two companies might give up on the sector altogether, although that would mean that Allen Telecom would have to close a revenue-making division, suggesting that the measure is unlikely.
Kollender admits that although Foxcom Wireless has a strong position against Andrew Corporation and Allen Telecom in the US market, Allen Telecom is strong in Europe. Foxcom Wireless is relying on the companies' different target audiences; Allen Telecom focuses on communications providers, while Foxcom Wireless focuses on enterprises.