TeraBeam Corp. says it is laying off 90 employees, or 20 percent of its 450-person staff, due to a cutback in expansion plans.

The company last year raised $527 million in private equity, including $400 million from Lucent Technologies Inc. (NYSE: LU), in order to further deployment of its wireless optical alternative to cable-based networks. Lucent also contributed some intellectual property, which Terabeam values at $50 million.

Company spokeswoman Pam El says, the company still has more than half of the invested cash. With the cutbacks, she adds, that money will be sufficient to sustain the company "indefinitely" without resorting to more fund raising. Earlier this year, the company stated it had enough money to carry it through the end of 2002.

Terabeam grew to a peak of 540 workers before the telecommunications slowdown. It had planned to be in six cities by the end of the year but has now cut that number to four. Following a March product launch in Seattle, where company headquarters are situated, Terabeam is now providing service in Denver and Dallas and will soon announce the fourth city, says El.

Terabeam’s use of so-called free space optical technology, pioneered by the military during the Cold War, promises high-bandwidth wireless data connections without the inconvenience of licensing radio frequencies from the government and installing rooftop transmission equipment for corporate customers. Instead, a transceiver the size of a small satellite dish plugs into a standard power outlet. The technology also prevents eavesdropping and is touted for being able to circumvent the hassles of installing fiber cable, which include digging up streets and routing wire through walls.

Downsides, however, include the need to locate the transceiver in a window within a line-of-sight of a Terabeam base station, installed on a service provider building. Critics also note that the distance between the transceiver and hub can only be about 500 yards, and certain weather conditions, like fog, can weaken the signal. For these reasons, some industry observers believe the technology will never achieve much more than a niche status.

Other companies providing high-speed laser data transmissions using free space optical technology include AirFiber Inc., Canon, fSona Communications Corp., LightPointe Communications Inc. and Optical Access Inc..

Terabeam differs from many of these companies in that it also plans to be the wireless data provider in the cities in which it launches, in addition to selling the technology itself.

--Tom Davey, special to Light Reading, http://www.lightreading.com