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Airspan Networks’s
WiMAX technology will give phone companies and ISPs the opportunity to provide their
mobile customers with the ability to connect and enjoy the full broadband experience over
the internet
Technology
Wireless Communications
(AIRN-NASDAQ)
Airspan Networks Inc.
777 Yamato Road – Suite 310
Boca Raton, FL 33431
Phone: 561-893-8670
Peter Aronstam
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
October 12, 2006
BIO:
Peter Aronstam joined Airspan in March 2001 as Senior Vice President and Chief Financial
Officer. From 1983 to 2001, Mr. Aronstam served in a variety of positions at Nortel
Networks Limited, the last as Vice President, Customer Financing of Nortel’s
Caribbean and Latin America region. From 1978 to 1980, he worked at Bank of Montreal in
its international banking division, and from 1981 to 1983 at Bank of America in its
Canadian corporate banking group. He received B.Com., LLB and PhD. degrees in 1971, 1973
and 1978, respectively, from the University of the Witwatersrand in Johannesburg, South
Africa.
Company Profile:
Airspan Networks provides fixed and wireless voice and data systems and solutions,
including Voice Over IP (VoIP). Its wireless products serve operators around the world in
both licensed and unlicensed frequency bands between 700 MHz and 6 GHz, including both PCS
and 3.5GHz international bands. Airspan has a strong wireless product roadmap that
includes offerings compliant with the 802.11 a/b/g and the WiMAX 802.16-2004 standard,
including software upgradeability to Mobile WiMAX (the 802.16e-2005 standard). Airspan is
on the Board and is a founding member of the WiMAX Forum and a member of the Wi-Fi
Alliance. The Company has deployments with more than 350 operators in more than 100
countries. Airspan's wireless systems are based on radio technology that delivers
excellent area coverage, high security and resistance to fading. These systems can be
deployed rapidly and cost effectively, providing an attractive alternative to traditional
wired communications networks. Airspan's new AS.TONE VoIP system is a carrier class,
turnkey solution that provides carriers with Class 4, Class 5 and IP-Centrex solutions and
has a Softswitch and Gateways supporting SIP/H323 and SIP. AS.TONE's design provides
customers, carriers, next-generation telcos, cellular providers and ITSP with a wide range
of solutions with the best price/performance system for IP telephony. Airspan also offers
radio planning, network installation, integration, training and support services to
facilitate the deployment and operation of its systems. Airspan is headquartered in Boca
Raton, Florida with its main operations center in Uxbridge, United Kingdom.
CEOCFO: Mr. Aronstam, what attracted you to the company and
how has it changed since you have been there?
Mr. Aronstam: “The attraction was to be in a company
which I would describe as a pioneer in a sector that was going to take advantage of the
explosion of broadband. At the highest level, the attraction was that broadband connection
to homes and businesses were growing rapidly when I joined five years ago and we expected
that growth to continue, which it has done. We had a product, which was ideally suited to
take advantage of that growth in broadband, particularly in parts of the world in both
developing and developed countries where there was no access to broadband, where the
existing copper, fiber or cable infrastructure either couldn’t reach homes and
businesses, or was incapable of reaching them. Airspan’s product looked to me to be a
perfect solution for this growth in broadband. What has happened over the past 5 years is
that Airspan has gone through two or two and a half evolutions or revolutions in its
product cycle. When I joined, the company only has one product, which was a basic DSL type
wireless product. DSL would enable all phone company subscribers to connect to the
internet via a DSL speed connection; usually 512 kilobits a second. It would also give our
subscribers one or two voice lines. The company has now grown from that product alone to
products that often run on what is called the internet protocol. Today, a substantial
amount of our business is through sales of internet protocol IP based product, which we
make a coding to this new standard called the WiMAX standard. Therefore, we have gone from
one product only, which was made according to proprietary standard, which means a product
designed by Airspan for Airspan products only, to today where we sell multiple products
that work primarily according to the internet standard and our WiMAX product, which works
to an open standard and also the internet.”
CEOCFO: You are in more
than 100 companies; what do you actually provide to your customers?
Mr. Aronstam: “We sell a combination of both hardware
and software. Our customers are generally phone companies. They are the incumbent phone
companies or competitive phone companies. From time to time we will also sell to ISPs
(Internet Service Providers) and occasionally corporate users as well, who are looking to
build phone networks. We sell the access portion of the network. The access portion is the
connection from the end subscriber to the core of the telephone company network. It is
sometimes called the last mile, although it may extend more than a mile. It is that
connection between the phone company infrastructure of core and the subscriber premises.
We sell the hardware and it allows subscribers to connect wirelessly to the core of the
networks. We also sell the management system to allow the phone companies to configure and
manage these networks and then we sell related services. We do everything from the early
planning for our customers such as radio planning, so they know how to design and deploy
these networks. We sell them training services, and installation services if they require
it. We also sell them the post-installation, warranty and maintenance services.”
CEOCFO: What is the
competitive landscape like, and why are people choosing Airspan?
Mr. Aronstam: “It is fierce competition. There are
companies who compete directly with us that make wireless products for the last mile
access. We compete with the traditional manufacturers of wired technology; any company
that provides a hookup between a subscriber and a communications company. It could be
manufacturers of copper or fiber cable, or even HFC cable for the television industry.
However, we believe we win more projects than we loose. There is a cost advantage with our
products verses some of those more traditional wired solutions. There is also efficiency
with the products we sell; wireless products have to be very efficient in how they use the
spectrum and how they deliver the information. We believe we have the best spectral
efficiency of all of the products we compete against. We were the first company to
introduce in 2005, an end-to-end certified WiMAX broadband solution. Most companies were
looking for certified WiMAX product, could come to only one company to get end-to-end,
meaning everything from the equipment that goes to the subscriber premises all the way to
the equipment that is located at the edge of the core phone company network. Those are the
most important factors.”
CEOCFO: Will you tell us
about WiMAX in general?
Mr. Aronstam: “WiMAX was and idea by Intel Corporation
(INTC); an idea to compete against the incumbent technology called 3-G wireless who’s
main sponsor is QUALCOM Inc. (NASDAQ: QCOM). What Intel was looking for was an alternative
to the QUALCOM technologies to give mobile broadband users the ability to access the
internet using wireless. Before the coming of WiMAX, the only way that mobile subscribers
could hook onto the internet was to use 3-G technology for which QUALCOM is the main
proponent and main patent holder. Intel was looking for some sort of alternative that
would be open to all users and a technology that would piggyback off the internet. Intel
came to us and a couple of our competitors 4 years ago, and said that it would help us
develop this WiMAX standard for broadband wireless connections and help us by developing
silicon at an attractive price for us to put into that technology if the wireless
manufacturers came up with a 4th generation of radio technology that could
carry the signal. Intel was looking for a technology that was better than the 3-G
technologies, better in the sense that it could carry more traffic more reliably over
greater distances.
There were about 5 of us with Intel that formed the WiMAX forum in 2002, and we came up
with a couple of standards for the development and deployment of WiMAX space networks.
They all go by the number 802.16, so we came up with a first standard in 2004, which is
sometimes called the 802.16 D standard, which is fixed WiMAX network; fixed means
subscribers are stationary; they are fixed in offices or homes and have no mobility. In
2005, the WiMAX forum introduced the 802.16 E mobile standard, and that is the standard
that will give WiMAX users the ability to be mobile with their devices. Where WiMAX will
take users in a couple of years, when our device is ready, is give them the ability of
using mobile devices with your laptop, PDA, and ultimately their cell phones, the ability
to connect anywhere in the WiMAX network, to the internet and to enjoy the full broadband
experience of the internet over the WiMAX radio wave. It is a technology that will compete
with the existing 3-G wireless technologies. We believe its attributes are so much
more superior. It will give the end subscribers a much more enjoyable and useful
experience. The customer for WiMAX will be the same as our existing customer and we
currently sell the WiMAX technology to phone companies and Internet Service Providers
(ISPs) around the world.”
CEOCFO: How much focus
is there for the company on R&D?
Mr. Aronstam: “It is an all consuming focus; it is our
biggest single expenditure in our profit and loss statement. We have invested very heavily
over the last two years in creating this WiMAX standard and developing product for the
WiMAX standard. That two-year investment is just starting to bear fruit, and 2006 will be
the first meaningful year of sales of WiMAX technologies and we certainly expect our WiMAX
revenues this year to be more than half of the company’s total revenues, whereas in
2005 it was less than 5%. Without the R&D and the spending on the engineering and the
development in WiMAX, I really do not think this company would have a future because the
phone companies are now insisting on a WiMAX type technology for deployment of wireless
broadband; they do not want to use the older technology.”
CEOCFO: Would this be
replacing what they have with WiMAX or would this be an addition?
Mr. Aronstam: “It is typically an addition. WiMAX tends
to do one of two things, it either extends the reach of an existing wired network; copper
and fiber are economical to deploy in a network only to a certain physical point and to go
an extra mile is just economically unviable to use copper or fiber. Where the wired
infrastructure ends, WiMAX wireless becomes a cost effective enabler to extend the reach
of the network with broadband, so that is one solution that we use. In places like the
U.S., that tends to be rural deployment, so most of our revenues and deployments that we
do in the US are into rural communities where it is just economically unattractive for the
phone companies to run fiber long distances to reach isolated towns or isolated suburbs. A
radio link becomes a much more cost-effective solution. The other situation where we
deployed broadband wireless is where there is an existing network; it is usually a copper
network buried in the ground in a telephone network. The copper is typically so old that
it is just incapable of carrying broadband effectively. What our customers very often do
in that situation is they leave the copper network in the ground to carry voice traffic
because copper tends to handle voice traffic reliably even if it’s very old. They
then overlay the existing copper network with the wireless broadband network so that they
can give their subscribers broadband connection as well. The subscribers would be doing
their voice calls over the copper network and their internet connectivity wirelessly. At
the end of the day, they get the full service package from the phone companies.”
CEOCFO: What is the
financial picture?
Mr. Aronstam: “I would describe it as solid. We are on
the verge to getting to profitability. We said on our most recent earnings conference call
that we expect to break even sometime in the first half of 2007. To do that, 3 things will
have to happen; first, revenues will have to increase. We have said publicly that our
breakeven level for revenues have to be in the $35 to $37 million per quarter range. We
need gross margins of around 36% to get to breakeven and then we have to reduce our
operating expenses somewhere between $ 13 and $14 million a quarter to achieve the
breakeven level. We mentioned on the earnings call that the company is undergoing a
restructuring program; we are reducing the headcount and operating expenses by around 25%.
We are probably three quarters of the way through that program. The rest of it will happen
by the end of the year. The profitability and revenue picture doesn’t look too bad.
We have virtually no debt in the company. We are in the process of doing a new round of
equity; we hope and expect our shareholders will approve a vote to allow us to raise an
additional $29 million of equity by the end of September. Therefore, the combination of
achievement of profitability next year and the raise of additional equity in the 3rd
Quarter this year, we believe will put us on a very sound economic footing to go forward
and continue the WiMAX rollout and start to return some money to our shareholders.”
CEOCFO: In closing, why
should potential investors be interested and what is overlooked about Airspan that people
should focus on?
Mr. Aronstam: “What excited me was we are a company that
has technology today which is poised to take advantage of the continuing explosion in
broadband around the world. It is a company with a portfolio that exists today that will
be deployed in a number of markets, cities, towns, countries that currently don’t
have broadband. The top line growth looks pretty rosy. That should take the company from
where it is today to something profitable. That EPS should translate into an increased
share price. I think there is potential for growth in the share price of the company.
Maybe what is overlooked today, is that the share price in the last few months has taken a
bit of a beating from some of the problems we have had with a major customer in Japan.
Publicly we have said in a recent conference that we have honored our side of the bargain
in doing everything we can do to fix the problems with that customer’s network, so we
believe those problems are behind us as well. We believe that general expectation that the
company will grow and will become profitable, should translate into a growing share price.
We also believe that any of the problems that we had in 2006 with customers, should be
behind us.”
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