WiMAX -Towerstream-The Economy

Posted by: Russell G.

Slowing economy or not, Towerstream Corp. CEO Jeff Thompson says he couldn’t be more pleased with his company’s performance over the last year.

Sure, the stock price for the Middletown-based fixed-wireless Internet provider sank by about 80 percent in the previous 12 months, hovering around 85 cents a share last week. Yes, the eight-year-old company has yet to turn a profit, eating through $3.22 million in the third quarter 2008 alone.

But Thompson has another number to highlight: $2.87 million in revenue in the third quarter, up 15 percent from the previous quarter, and up 63 percent from the year-ago period.

Although Towerstream hasn’t reported fourth quarter 2008 results, Thompson has already given guidance that sales should be up 10 percent over the previous quarter’s levels.

“If we continue to perform like we’ve been performing, everything else will take care of itself,” Thompson said last week.

To be sure, 2008 had its ups and downs for Towerstream, a business-to-business Internet provider that uses the WiMax technology, which can beam broadband wireless data over wider distances than WiFi and at faster rates.

The most obvious downer was the stock price, which went from a high of $3.23 a share in mid-January 2008 to a low of 68 cents in late December as investors cashed out of stocks in general. Normally, such a dismal price would lead to delisting from the Nasdaq stock exchange, but those rules have been suspended because many companies have experienced similar declines.

“To be at about 80 cents is not fun,” Thompson said. “But when you look at some of the best companies in the world trading below their book values, you can’t complain too much.”

At the same time, quarterly losses grew in early 2008 as the company added to its sales staff, inflating expenses and leading two analysts to downgrade Towerstream’s stock from “buy” to “hold.”

While one of two investment firms no longer covers Towerstream, the other, Canaccord Adams, reinstated the “buy” rating in November. A third firm, Think Equity-Panmure, also has a “buy” rating.

In spring 2008 the company failed in bidding for a piece of the 700-megahertz spectrum of frequencies being vacated by analog TV stations as they move to digital signals next month.

With telecommunications giants such as AT&T and Verizon vying for pieces of the spectrum because of the signal’s ability to travel long distances and to pass through thick walls, Towerstream was priced out of the auction held by the Federal Communications Commission.

“It got very expensive very quick, after everyone said it was going to be cheap,” Thompson said. “The opportunities were too few and far between.”

Still, the company continues to grow, both in the number of small- and medium-sized business customers and in the revenue it generates. Towerstream said last week that it has about 1,300 customers in nine urban markets – Newport, Providence, Boston, Chicago, Los Angeles, Miami, New York, San Francisco/Oakland and Seattle – up from about 900 customers a year ago.

Thompson is most excited about the revenue growth, which stood at $2.87 million in the third quarter, up from $1.77 million in same period a year earlier.

A lot of that growth can be attributed to Towerstream’s most popular product, an eight-megabits-per-second connection for $999 a month. It accounted for 40 percent of the revenue generated from new installations in 2008.

Thompson said the speed and price fill a gap that Towerstream’s main competitors – AT&T and Verizon – can’t fill because they only provide only 1.5-megabit service or a more costly 45-megabits speed.

Also, the company announced last month that in terms of EBITDA – earnings before interest, taxes, depreciation and amortization – its Chicago market has reached “profitability.”

Providence, Newport, Boston and New York – places where Towerstream’s service has been available the longest – have already reached that milestone under the EBITDA metric.

Towerstream won’t forecast publicly when the company will be in the black, but Thompson notes that it has a lot of cash – $28.09 million – to help it weather the effects of the economic downturn and the credit crunch.

“We’re very fortunate to have that cash, because anyone who needs capital is having a very difficult time right now,” Thompson said.

At this point, that cash cushion has come in handy. As Towerstream has ramped up its sales force from about 60 to nearly 100 in the last year, rising labor costs and other infrastructure expenses have widened losses.

The third-quarter loss of $3.22 million was up from $1.75 million a year before. But Thompson said the rate of “cash burn” that peaked in mid-2008 has declined.

“You have to build-out new markets,” he said. “You have to build a sales force and do the things you have to pay for upfront before the revenue’s there.”

Towerstream’s sales force performs the majority of its work in Middletown, where the company operates a sales center.

The thinking is that it is less expensive to have salespeople at the one location rather than in each of the market areas. And because of the nature of the business, that configuration has worked well, Thompson said.

Since the new salespeople started making calls, the quarterly growth has been in the double digits, according to the company’s financial statements.

“For most of the people who buy Internet access, phone or e-mail is the preferred way of communicating,” Thompson explained. “Having an analog sales force going around knocking on doors doesn’t seem to make sense for this type of technology.”

In some ways, the global economic woes have assisted Towerstream, keeping upstart competitors at bay because of the lack of financing available. Also, because Towerstream’s WiMax wireless technology is a cheaper alternative to cable and DSL Internet connections, Thompson said, the company often has either picked up new customers or retained a higher ratio of existing ones.

While WiMax is in wide use in countries such as India, Pakistan and South Korea, it is not common in the United States. Thompson said there have been recent developments that he believes will change that.

Two major players in WiMax – Sprint Nextel Corp. and Clearwire Corp. – have recently created a spin off company that is set to build a new mobile WiMax Internet network nationwide. At the same time, other companies including Intel, Google, Comcast and Time Warner Cable have agreed to invest in the technology.

Intel has said it plans to work with computer manufacturers to embed certain models of laptops with WiMax chips.

Towerstream is unconcerned about the merged WiMax company competing in the same markets, Thompson said, because Sprint Nextel and Clearwire have focused on providing the service to consumers rather than the business sector.

“We think it’s going to bring a lot more awareness to the WiMax technology,” Thompson said. “It’s going to go from being this new technology to it being embedded in devices you buy regardless if you asked for it or not. Kind of like WiFi now.” •

Last updated: 03.06.2009 04:33 PM