Small start-up muscles in on big ISPs

GRAHAM BARNES turned a couple of discarded microwave antennas into
cheap high-speed Internet access for Bay Area small businesses, challenging
entrenched service providers such as AT&T and Pacific Bell.

By Tom Anderson Business Writer The Denver Post

Barnes got the idea for his telecom revolt in 1999 while working as a
consultant for the state’s largest health maintenance organization Kaiser
Permanente.

Kaiser was upgrading its network and decided to rid itself of microwave antennas in favor of expensive T3
lines. Barnes and his partners seized on the opportunity, forming NextWeb Inc.

The Fremont-based company offers fixed wireless Internet access through a series of microwave antennas,
many of which are situated on the roofs of Kaiser buildings throughout the Bay Area.

"You could drive by our stations and not even notice they are there," Barnes said.

NextWeb’s antennas are not bulky iron trusses. They resemble sleek toasters with wings that are about the size
of a laptop.

These flying toasters offer customers Internet access up to 30 percent faster than T1 lines at less than half the
cost, Barnes claims.

A small business would pay about $500 a month for NextWeb service compared with more than $1,000 for a
T1 line for most telecom companies.

NextWeb runs a lean operation from its modest hub in a low-key Warm Springs office park. The company has
16 employees and serves businesses only in the Bay Area.

Barnes said the privately held company has raised enough venture capital from Kaiser Permanente, Tenet
Healthcare and Monet Capital to reach profitability.

"We have no debt and expect to be profitable by the end of the year," he added.

Tom McCafferty, a wireless analyst with Walnut Creek-based ISP-Market LLC, said he sees companies such as
NextWeb popping up across the na tion as prices for fixed wireless equipment decline. McCafferty just
completed a national survey of Internet service providers (ISPs) earlier this month.

"What’s really exciting is that the costs of providing fixed wireless have dropped dramatically over the last
year," he said. "I estimate 30 percent of all ISPs will be offering fixed wireless service by the end of the year."

Meanwhile, major carriers such as Sprint, WorldCom and AT&T are pulling back on their fixed wireless
networks because of fears that the services will hurt their other Internet offerings.

"These guys just spent a lot of money on (Digital Subscriber Line) networks," McCafferty said. "They don’t want
to cannibalize that business."

McCafferty projects Internet providers will spend more than $90 million on wireless equipment this year to offer
services similar to NextWeb’s.

However, fixed wireless companies did not fare well last year. Three of the industry’s largest companies —
Advanced Radio Telecom, Teligent and Winstar Communications — filed for bankruptcy.

Barnes said NextWeb took a different route, not wanting to expand into new markets until the company had
prepared. Its network covers 200 square miles in Bay Area with most of its presence in the East and South Bay.

Companies with 20 to 200 employees are the target market for NextWeb’s service, said David Williams, vice
president of business development. Several city governments, including Dublin, Palo Alto, San Carlos and
Menlo Park, also use the NextWeb service.

"City governments, just like any other business, are looking for ways to save money," Barnes said.

Scott Arnold, a network administrator for Menlo Park, stumbled upon NextWeb when he was looking for a
back-up Internet service for the city.

"We have a T1 line, but when that goes out, all the city employees were without Internet access," he said.

Arnold acknowledged that some of his co-workers were a little suspicious of the small company because the
city’s last Internet provider was Ricochet, offered by Merticom, which went bankrupt last summer.

"The higher-ups at the city were nervous, but we met with NextWeb in Fremont to check out the network,"
Arnold said. "The service works well and is now the main one we use to access the Internet."

Tom Anderson can be reached at (510) 353-7006, or [email protected].

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