Bungee: Jumping with a safety net

In a word association game, saying bungee brings to most people’s minds adventure, fear, spontaneity, wild tribes, ambulances (or more accurately, the lack of them), trips to Australia, New Zealand and so on. Bungee president and CEO Shlomo Yariv had different associations in mind when he named his company.

Bungee is in the last-mile broadband wireless Internet access market. Yariv says that to him, bungee means a sort of last-mile dialogue without any bottlenecks. Does he have any other associations? He says that it sees the image of a dynamic and daring company that is ultimately cable-tied to the ground, even though many people believe cable-tied bungee can only be done in a planet without gravity.

Despite the daring name, there is a huge difference between Muchileros adventures and the start-up’s business moves. It has been saved considerable headache in finding financing and capital-raising solutions. A few months ago, Netro president and CEO Gideon Ben-Efraim approached Yariv with an offer to set up a start-up to develop LMDS products for Netro. Yariv received several tempting job offers from venture capital funds to managing existing companies. One last offer – setting up something new – appealed to him more. “Starting something new is entirely different from managing an existing company,” he says.

”Netro felt it had to expand and is currently setting up a number of companies. We are the first.” The idea was to set up strategic cooperation for the development of LMDS products that would not compete with Netro’s. In October, Bungee received $7.5 million to start the activity and a two-year business plan was built. The time frame is expected to produce a final product. Netro will then inject further life into Bungee as necessary, according to certain milestones. “Timing is a critical element. Netro has a complete investment plan for Bungee right to the end of the road,” Yariv says.

One thing is certain at this point – Netro will have the cash to pour into Bungee, after two successful issues within a year, held with perfect timing, in which it managed to raise $535 million. “We were saved the headache of looking for investments and money,” he adds. “We’re relying on a company with tens of millions of dollars in sales, which was wise enough to issue in time.”

Did Netro set a condition calling for a final product within two years?

Yariv: ”No, there is no such condition. We have a two-year business plan. Obviously the sooner we reach the stage of a final product the better for everyone. I’d be pleased to find some way of shortening the process by six months, but it’s not easy. It’s a complex product and it needs to be a leader, yet cheap.”

Won’t having 200 employees shorten the time frame?

”In this case, it’s like nine months’ pregnancy. You can’t have nine women giving birth to a single baby after one month.”

Is Bungee tied down to Netro?

”The business structure is of a completely independent company. We have business ties with Netro, but if we want to issue, we’d be a regular company standing on its own two feet. The transfer of information between Netro and Bungee is based on two separate companies. We are going to sell products directly to customers. Netro is the major shareholder and we have agreements for the exchange of knowhow.”

So are there chances of OEMs with Lucent or some other giant?

”If the deal has economic business logic to it, we can do it. We’re not competing with Netro.”

Is Bungee in effect Netro Israel?

”No. Bungee will not automatically transfer knowhow to Netro. In our OEM agreement with Netro, we receive RF knowhow from them. The digital knowhow we develop we’ll transfer to Netro under a counter OEM agreement. Netro will be able to sell the product with our input and we’ll be able to sell a product with their input.”

Waiting for wireless

Bungee deals in LMDS frequencies in the 20-40 gigahertz range, which require a license, making operation costs higher. At the same time, better quality performance can be achieved, since the wide frequency range facilitates working with less surrounding disturbance and wider bandwidth can be supplied. The high frequency range, typified by shorter distances, is most suitable for static applications, like wireless Internet access. On the other hand, in the lower frequency MMDS, with narrower bandwidth and wider deployment range, mobile applications, like cellular, are more suitable.

Yariv is not optimistic about developing high frequencies like these in Israel. He became most familiar with the RF development market during stints in senior positions in the IDF Communications Corp, Tadiran Communications (1991) and more recently (1996) headed ECI subsidiary InnoWave. “It’s harder to reach radio frequencies of the type we work with and Israel does not have much experience in it. No-one developed it earlier on. I’m not sure anyone knows how to do it – except for maybe the defense industries.”

Yariv divides the wireless access market into three:

• SME (small medium Ethernet) for companies looking for broad bandwidth;

• SOHO (small office home office);

• High-end residential for private homes and executives interested in working from home as well.

Netro addresses the SME market and Bungee was set up to address the other two, which could be called low-end, although Yariv thinks the choice of words is wrong.

Even though the word low-end is not very appropriate, are there any special demands from the product for the market not made up of large enterprises requiring broadband?

”The main requirement of our product is still bandwidth. High-end residential customers sometimes want more bandwidth than small businesses. The most trivial application is video. Whoever wants to watch a film does it at home. From the operator’s viewpoint as well, the broader the bandwidth, the more customers he can provide. Demand for the product is therefore high.”

Is there a chance of competing with cables and ADSL in city centers, once they reached the market well before wireless companies and already have massive deployment?

”They certainly are well deployed. But there is room for competition. The fact is that competition exists and ADSL technology is very dependent on the quality of the line and the distance from the exchanges. In other words many variables are involved beyond the technological capability in finding solutions. From my experience in the wireless world, how the customer is approached and the product sold is no less important. It’s not a question of technology alone. There will be three competing technologies, each with advantages and disadvantages. Customers will turn to whoever provides the best service package. What were Partner’s chances once Cellcom and Pele-Phone had taken over the market? Customers want service, they don’t look for technology. The day operating licenses are given for wireless in city centers, franchisees will take customers from cables and ADSL in addition to those with no solution, if he knows how to operate properly.”

What is your evaluation of the market?

”Where we are concerned, the market is infinite. The various surveys talk of $4-15 billion.”

Published by Israel's Business Arena on 1 January, 2001