Billions Riding On Thin Air / Seattle Has Become The Center Of An Exponentially Expanding Universe Of Wireless Communication Research And Services

October 5, 1997 - The News Tribune Tacoma, WA

Former McCaw Cellular manager Ken Arneson recalls the day 10 years ago when Craig McCaw stood on a stage with a $2,000 "clunker of a phone" and proclaimed "this is the future." Today, the cellular phones McCaw helped popularize through his successful l company are sold for pennies, and for some customers are so useful they have virtually replaced their wired predecessors. More than 50 million people use cellular, or wireless, phones in the United States. Glenn Powers, telecommunications analyst with Cruttenden Roth in Seattle, predicts that within three years, 50 percent of the population will use a wireless voice device. And the Seattle area, more than any other in the country, is at the center of all this wireless activity. "As the Silicon Valley is to the computer age, Washington has been to wireless," said Doug Johnson, vice president and general manager of AT&T Wireless Services. AT&T bought McCaw Cellular Communications for $12.6 billion in 1994. "For its population, it has been an industry leader largely because of McCaw Cellular and now AT&T (Wireless) is headquartered here and a lot of R and D (research and development) is here," he said. AT&T Wireless is the nation's largest cellular telephone company, with more than 7.3 million cellular subscribers nationwide and 3,700 employees here.

But it is not alone in the Seattle area. Issaquah's Western Wireless is buying cellular licenses around the country, Craig McCaw relaunched Nextel with a $1 billion investment, and US West's AirTouch Cellular has a strong presence here. Teledesic is another potentially big player. The company, which is funded by Craig McCaw, Microsoft's Bill Gates, AT&T and The Boeing Co., plans to invest $9 billion in a global satellite network that would bring high-speed Internet connections to the entire planet. Although still in its infancy and facing countless hurdles, Teledesic has about 100 people in Kirkland and several hundred Boeing employees around the Seattle area working on designing those satellites and figuring out the best way to deploy them into orbit.

Statewide, there are 125 cellular companies. Last year they generated $1.11 billion in revenue, according to the state Department of Revenue. Analyst Powers notes that not all those companies are headquartered in the area, but this is "where all the intelligence resides. "This is quietly the wireless capital of the world," said Powers, who tracks wireless companies nationwide. "A lot of people just aren't aware that the world of wireless has links to Seattle." Many small companies at work Most cellular phone users will recognize AT&T Wireless and AirTouch as carriers that provide phone service. But around here, there's much more. When the McCaw family first entered the cellular telephone industry in 1981, they probably never realized that the seeds they planted would eventually grow dozens of offshoots that would take root in the Seattle area.

"A lot of people who grew up in McCaw's organization have left AT&T, but they haven't left the wireless industry," said Bob Ratcliffe, vice president of Eagle River, the Kirkland-based holding company for several of Craig McCaw's telecommunications interests. Take, for example, former McCaw manager Arneson. Nine years after he began working for McCaw Cellular, he quit to try his entrepreneurial hand at a start-up called Xypoint. The Seattle company has created a service that allows dispatchers and police to find cellular phone callers who have dialed 911. Xypoint, which started in 1993 and sells its services to cellular carriers, also plans to provide enhanced directory assistance to give callers such information as directions to the nearest cash machine, Arneson said.
Arneson is one of dozens of former McCaw managers who are now trying to provide added services for the wireless industry.

Bellevue-based Wireless Services Corp. began as another company funded by McCaw in 1993. The company now has a product that sends e-mail and financial news to cellular phones. "There's a lot of technology out there right now in terms of wireless networks ... and lots of devices that can receive information," said former McCaw executive Steve Wood, who now heads Wireless Services. "The thing that's missing is the applications and the glue that holds it together." He said the large wireless carriers are so focused on building their networks and signing up customers that they aren't committed to providing new services and applications for their phones. That's where companies like his come in.

The Cellular Telecommunications Industry Association recognizes the Seattle area's focus on applications and will hold a national conference here Oct. 27-29. "We had it for a couple years in Las Vegas, but for the kind of show it is and the kind of meeting we want, to have it in Seattle makes a lot more sense," said association spokesman Tim Ayers. "You have the critical mass, the brainpower. You have people out there who are involved in applications and in operations and in stretching the limits. That's exactly what this particular show is about, and about what's going to happen in the future." Some examples include various McCaw spin-offs that use wireless technology for products other than telephones.

Data Critical of Redmond has created tools to connect doctors, patients and hospitals with wireless technology. Cardio-Pager instantly sends information on a patient's vital signs to a nurse elsewhere in the hospital. Palmvue allows a doctor to remotely view a patient's heart functions through a hand-held, wireless computer. Data Critical chief executive Jeff Brown said his company is doing trials on a mapping system for Seattle City Light, and is working on sending suspect mug shots to law enforcement agencies. In both cases, the information would travel over the airwaves.

Executives from companies other than McCaw Cellular have started wireless spin-offs in the Puget Sound area. Redmond's Metawave is developing a smart antenna system that will improve the quality of individual cellular towers and increase their range and capacity. Its founder, Douglas Reudink, helped develop cellular technology at AT&T's Bell Laboratories before moving to US West's wireless company. Metapath of Bellevue writes billing software for the cellular industry and has signed contracts with Sprint PCS and several other national carriers. Toll-Free Cellular in Redmond created the 800 and 888 toll-free numbers for cellular phones. And several former McCaw executives have started their own telecommunications consulting firms, including The Walter Group and Jesco Technical Services.

Not all has gone smoothly for these companies, most of which are funded by venture capital or other private funds. Real Time Data of Renton is shifting directions from a failed effort to create a wireless network to collect supply information from vending machines, said chief financial officer Mike Hahn. "It didn't work out," he said.

Cellular Technical Services, a Seattle-based company that writes software to stop cellular phone fraud, went public in 1995. But its stock price has teeter-tottered from a high of $22.13 on Nov. 6, 1996, to a low of $3.56 on Aug. 4. Although the company was listed No. 30 among the state's 50 fastest-growing companies of 1996, with 338 percent revenue growth, it is facing a shareholder lawsuit over its declining stock price.

The wireless companies also face challenges from local jurisdictions which are trying to limit where the companies can put their cellular towers. Several communities in Pierce County have put restrictions on where cellular transmission towers can be built, and some have imposed temporary moratoriums. Pierce County and University Place have adopted tough restrictions, and temporary bans are in place in Lakewood, Gig Harbor, Fife, Edgewood and Tacoma. The cities complain that they haven't had enough control over where the companies have located the 100-foot towers, which officials say are ugly, too big for neighborhoods, and could lower property values. AT&T Wireless' Johnson acknowledges the communities' concerns, but said it's a choice consumers must make. If they want to use their wireless phones, they must accept the towers needed to transmit the telephone signal. "The truth is the consumers want the product. The system requires that antennas be placed in the community," he said. He added, however, that AT&T is working with Tacoma and other cities to reach a compromise.

"We have to be very sensitive to the environment we're building in," he said. "The days of building a big huge tower in the middle of town are gone." Despite the tower controversies, Johnson and others in the wireless world say the industry is strong and will only continue to grow. The industry will be strong especially for the companies that are developing the infrastructure to expand wireless communication, said analyst Powers.

He also predicts that national brands will develop and the large carriers like AT&T Wireless and Sprint PCS will get bigger. George Clute, general manager of Olympic Venture Partners in Seattle, a venture capital firm that has funded several wireless startups, said the successful carriers must differentiate themselves. They'll do that by buying the various services and applications made by the smaller companies, he said. AT&T's Johnson sees his company bundling services, so it can eventually offer one-stop shopping for all of one's telephone and communication needs. The company is conducting trials on what it calls "fixed-wireless" technology. That would allow customers to connect their home telephones to the outside world using a pizza-box size antenna mounted on the house, instead of going through traditional copper wires. If successful, the technology begun by McCaw Cellular threatens to cut into the local telephone companies' business. "Wireless is the cornerstone," Johnson said. "AT&T wants to simplify".