Wireless backhaul startup gets backing for big expansion plan UPDATED 7/26 3:30PM

July 25, 2005

3 Min Read
FiberTower Gets $150M Haul

A new $150 million funding round for wireless backhauler FiberTower Corp. reflects strong buy-in for the Stanford University-grown business plan, but also suggests the company's "critical mass" may yet be a ways off.

The new round, FiberTower’s fourth for a total of $225 million, was led by Crown Castle International Corp. (NYSE: CCI), and backed up by Oak Investment Partners, Tudor Investment Corp., Goldman Sachs & Co., and Meritech Capital Partners. Existing investors American Tower Corp., inOvate Communications Group, and Spectrasite Communications Inc. sat out this round.

San Francisco-based FiberTower will use the capital to reach more cell sites in its nine existing markets, and for expansion into new markets, says marketing VP and co-founder Harpinder Madan (see Study: US Backhaul Grows).

The company compares itself to Vonage Holdings Corp. in its PR stuff (“largest funding round since Vonage!”), and it may have more in common with the VOIP startup than it lets on. FiberTower has not reached profitability yet, and, like Vonage, looks to have a business model that must scale up significantly in order to generate a meaningful payoff. And if the size of the current funding round is any indicator, FiberTower still has a ways to go (see Pioneer Eyes Wireless Backhaul).

FiberTower's customers "were saying, ‘Guys, you need to do more of this if you are going to be meaningful here,’ ” Madan says. “I mean, these guys have thousands and thousands of cell sites; our challenge is to be relevant here, and we have to go and cover more of these sites.”

So what’s the upside potential attracting all those VC dollars? Cellular services are growing rapidly and getting more complex all the time, delivering 3G multimedia as well as voice, while a 20-year-old means of backhauling wireless traffic -- using expensive T1s leased from LECs -- is still the norm (see StarHub Deploys Ciena).

Enter FiberTower with a backhaul scheme just for wireless, which the company says decreases service outages by 50 to 60 percent while costing the provider less. FiberTower uses point-to-point microwave radio links to move cellular traffic from the tower to a central aggregation point; multiplexes and grooms it; then sends it on its way to the provider’s main switch via fiber leased from carriers like Time Warner Telecom Inc. (Nasdaq: TWTC)and MCI Inc. (Nasdaq: MCIP).

"We typically have our vendors do some enhancements for network management purposes, and our radios are upgraded beyond what you will see out there," Madan says. "We use DS3 [45 Mbit/s] and OC3 [155 Mbit/s] radios for the most part."

Madan declines to name the companies that supply the digital radio, aggregation, muxing, and grooming gear (see Infonetics Reports on PON Hardware). But he does say that the firm has also looked at WiMax radios for backhaul purposes.

Three of FiberTower’s main backers -- American Tower, Crown Castle, and Spectrasite -- are cell tower landlords that lease thousands of towers to wireless carriers in hundreds of markets across the U.S. Madan says these landlords have been under increasing pressure from their wireless carrier “tenants” to improve the backhaul solutions running away from their towers. A mature FiberTower could eventually be acquired by one of its tower-leasing backers if the business model scales well.

FiberTower started out in 2000 as the brainchild of four Stanford Business School students -- sales VP David Leeds, engineering VP Eric Botto, CEO Scott Brady, and Madan. Their research paid off well: The young FiberTower got funded in 2001 and eventually turned on service in its first service area, Dallas, in 2003.

Other metro service areas soon followed, including Austin, San Antonio, and Waco, Texas; Boston; Cleveland; and New York. The company has 125 employees scattered among those cities.

— Mark Sullivan, Reporter, Light Reading; Dan Jones, Site Editor, Unstrung, contributed to this article.

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