Reports about the delay in the deployment of third generation cellular do not perturb Wiseband Communications President CEO Danny Arison. Arison believes the delay will give him an edge over his rivals, who focused solely on the third generation, while neglecting 2.5 generation technology.
Arison, an Israel Navy man, joined Elisra Electronic Systems as a systems project manager after his discharge. He later went to Zoran (Nasdaq: ZRAN), and then to Nexus Engineering, where he met Yuval Shalom, then a young engineer who had served in the Israel Air Force’s development branch. The two men have been comrades in arms ever since.
In 1995, Arison decided to leave Nexus Engineering after concluding, as he put it, that the company's products were no longer in demand. "Even before the arrival of SMS services, it was possible to realize that the transmission of alpha-numeric messages wouldn’t survive for long," said Arison. He was then appointed VP Business Development at ELAR Electronics, a joint venture of the Arison Group and Elta Electronics Industries. The former was supposed to provide the financing and the latter, the technology. Arison quit after two years, after claiming that the company's applications were not being effectively implemented. He later went to Eurocom Cellular Communications to help the Tapuz group prepare for the third cellular operator tender. The group lost the tender, and Arison realized his dream and founded a start-up – WiseBand Communications.
Seed stage financing was completed in April 1998, as the company raised $2 million from Star Ventures Enterprises, and set up shop in Herzliya. The first financing round, held in 1999, raised $2.5 million from Star Ventures Enterprises and Tamar Technology Investors (Israel) LP, and in September 2000, on the eve of the Intifada and the US market collapse, WiseBand raised $12 million at a company value of $70 million, after money. In addition to the previous investors, Israel's Magnum Communications Fund and Weiss, Peck & Greer Venture Partners of the US also invested in the second round.
Arison says, "My life's ambition has been to minimize systems, so that room-size systems would fit into a cupboard, and cupboard-sized systems would fit into a box, and so forth. We didn't arrive on the scene with a new concept, nor with a need to educate the market. There were already many companies active in the cellular field, but the products weren’t designed for the mass-market, but as infrastructure products with sales in the tens of thousands, not millions. We knew we wanted to focus on infrastructure, and spoke with cellular communications groups to learn about the problems that needed solving."
Cellular networks are built using base stations("antennae" to the man in the street) which include transmitter and receiver frequencies from end units (the actual telephones). The standard product has a transmitter/receiver for each frequency, and it is possible to find base stations with up to 32 amplifiers designed to serve large populations. Large quantities of floor space, electricity supply. and appropriate air-conditioning are needed for the amplifiers. WiseBand's solution allows simultaneous amplification of all frequencies. The company also helps cellular operators to efficiently exploit the range of frequencies.
"The amplifier's activity – as the name implies – increases the transmitter's effect," explains Arison. "This is precisely the problem. If there are distortions in the transmission itself, the amplifiers amplify them, increasing the disturbance. Thus, it’s necessary to reduce the reception distortions by a factor of 10,000 to achieve "clear" broadcasting as much as possible. In addition, amplifiers impose limitations on frequencies, preventing free "play" between frequencies, which in practice restricts the number of users on the frequency range the amplifier serves."
Instead of concentrating on hardware, which would have forced the company to adapt its product to each customer, Wiseband developed a kind of generic, DSP-based "engine" that automatically calibrates to the different tunings on demand. The products integrate hardware and software. The software processes the signal on DSP and the fast, digitized hardware runs high-speed packet signal processing functions that cannot be carried out by the software-based signal processors.
It’s hard to fight the infrastructure providers
WiseBand's customers are infrastructure equipment providers such as Nortel (Nasdaq: NT), Nokia (NYSE: NOK), Siemens (NYSE: SI; XETRA: SIE) and their ilk. The company also sells directly to the cellular operators. In the third generation cellular market, the company concentrates on equipment suppliers, who sometimes finance the infrastructure projects. The suppliers have had to cut the costs of base stations, and in the market for current cellular products, in which existing networks are being upgraded, the company concentrates on operators. "We decided to be the leader in our field in the 3G market," says Arison, "after realizing that there’s no point in fighting the operators' existing infrastructure. Operators don’t simply replace suppliers after investing years in developing relationships, and we saw no point in confronting them head-on."
As for the competition, Arison says Eyal Microwave is the sole competitor in the Israeli market, but adds that WiseBand's solution is fundamentally different.
Wiseband's Israeli customers include Cellcom and Pele-Phone, and the company will shortly begin providing initial systems for third generation cellular to as yet undisclosed customers. Arison says, "We have joint development agreements with operators for astonishing quantities of tens of thousands of units for next year. This is a change in magnitude, and we’ll need a lot of brains and luck to absorb it."
As for manufacturing facilities, after taking demand into consideration, WiseBand decided to open negotiations with leading multinational manufactures Flextronics International (Nasdaq: FLEX), Solectron (NYSE: SLR), and SCI.
As mentioned above, the delay in third generation cellular helps WiseBand, which also provides equipment to companies upgrading second and 2.5 generation cellular systems. "The sales plans of all our competitors, who focused solely on third generation, have been pushed back by at least a year, and they have no alternatives," says Arison. "We planned in advance to supply equipment to other systems besides third generation, so not only does the delay not affect us, we benefit from it. If someone approaches us tomorrow to supply a large number of units, while I will admit that I’m not yet able to meet the needs of third generation, the present situation has given us breathing space. We also have sufficient financing to meet demand."
For now, the company plans to sell its products itself, although in the future, it might change to a licensing model, if customers request the change. There are three to six amplifiers in base stations, and forecasts predict cumulative sales of 300,000 units, worth hundreds of millions of dollars, by all suppliers in the course of the year. WiseBand plans a more modest beginning for this year, while planning significant revenue for 2002, when it intends to break even. The company is not planning another financing round at least until it meets its targets; or, perhaps, before they meet their goals, they will receive an offer to buy the company that will satisfy them.
Although Arison admits the company is a target for acquisition, he emphasizes that WiseBand is in no hurry to make such a decision. "At the moment, we’re recruiting," he says, "We currently have a staff of 40, and we plan to have 60 employees by the end of the year."
Name: WiseBand Communications
Founders: Danny Arison and Yuval Shalom
Product: Amplifiers for 2.5 and third generation cellular networks
Financing rounds total: $17 million
Telephone: + 972 9 960-5111
Customers: Siemens, Nokia, Nortel, Cellcom, Pele-Phone
Ownership: Star Ventures Enterprises, Tamar Technology Investors (Israel) LP, Magnum Communications Fund and Weiss, Peck & Greer Venture Partners
Published by Israel's Business Arena on 30 May 2001