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From the November 1, 1999, issue of Wireless Week

STARTING FROM SCRATCH
Milwaukee Carrier Scraps Network, $45 Million

By Ed Lopez

Back in March when Kailas Rao's Industar was about to initiate service in Milwaukee after arduous work securing financing and credibility, he was in a jocular mood. He even offered advice on starting a new wireless company.

"Don't ever get into the telephone business," the former computer salesman and Milwaukee's C-Block PCS licensee told Wireless Week.

Last week, however, after the operational collapse of Industar Digital PCS, he wasn't laughing. And the carrier's chairman and president was not doing much talking, either, beyond a brief interview with the local newspaper.

"This is kind of a traumatic time," says Vicki Livingston, Industar's director of marketing.

In a stunning and highly unusual move by a wireless carrier, Industar essentially conceded that its service quality was so poor that it is scrapping the entire network and beginning over again at the proverbial square one. The company is replacing Hughes Network Systems with Lucent as its infrastructure supplier and negotiating with two undisclosed telecom investors to finance the new network.

Terry O'Reilly, Industar's COO, estimates that Industar spent about $45 million to build its current seven-county network with 63 cell sites. In its new network, which is expected to cost more than $40 million, Industar plans to build more than 160 cell sites.

O'Reilly says the carrier isn't currently contemplating a lawsuit against Hughes--but is keeping its options open.

Judy Blake, a spokeswoman for Hughes, says the company isn't commenting on the Industar situation.

"It was always our intention to be the best wireless service provider for the Milwaukee business community," Rao said in a press statement. "Since our launch in April 1 of this year, our network quality has been less than satisfactory. In view of this continuing problem, we must undertake the necessary steps to implement construction of a new quality system to be operational in midyear 2000."

The network problems hit Rao where it hurts. Industar's service was so poor that the CEO's wife couldn't call him from her car outside the couple's home. Friends and customers called Rao at home at night to complain that their phones didn't work.

Industar plans to turn off its TDMA network Nov. 27 and transition its 1,400 customers to other carriers. Roughly half of the carrier's 54 employees will be laid off due to the service shutdown.

Industar's service launch came only after a long and tortuous path by the upstart carrier. Not only did it struggle to carve out credibility against the backdrop of C-Block bankruptcies, but it was difficult to persuade financiers to provide capital.

Hughes financed the infrastructure and brought in Alcatel to provide the switches. Hughes also had a $5 million equity stake in Industar.

Industar is close-lipped about its new telecom investors, but they are expected to take major stakes in the carrier that could leave Rao a minority owner. The FCC has no pending applications to transfer Industar's license. "We're assuming that payments to the FCC will continue," an agency spokeswoman says.

Elliot Hamilton, an analyst with The Strategis Group, says there's often a lot of finger-pointing about the operations of PCS systems--even when they generally operate properly. "That's why carriers prefer to go to a single system integrator so there is no question as to who is responsible when something doesn't work," he says.

Reflecting on Industar's experience, O'Reilly said that in this new era of wireless service, a carrier must have a large number of cell sites for the type of coverage that consumers have come to expect. "Most subscribers are starting to use wireless phones as their basic phones, and you have to have much more coverage than initially anticipated."

[Back To Engineering] 


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