KEITH DAMSELL

TECHNOLOGY REPORTER

Thursday, November 20 – Online Edition, Posted at 9:31 AM EST

Allstream Inc., Microcell Telecommunications Inc. and a private investment firm joined forces yesterday to launch a wireless high-speed Internet service, a $135-million joint venture that quickly received skeptical reviews from the industry.

Early next year, Toronto-based Allstream, formerly AT&T Canada, along with Microcell's Inukshuk Internet Inc. and NR Communications LLC plan to offer high-speed Internet access, telephone service and local networking services. Each company will own one-third of the yet-to-be-named venture.

The service will initially target consumers and small and medium-sized businesses in underserved markets across the country, including small towns and rural communities.

Customers will receive services via a small plug-in unit that communicates with a nearby wireless tower. The partners are also keen on wholesaling access to other Internet providers.

In the project's immediate first phase, Allstream will invest $5-million, NR Communications will contribute $5-million of network equipment and Inukshuk will contribute the use of part of its licensed radio spectrum.

In the second phase, planned for mid-2004, Allstream will make an additional investment of up to $10-million in cash and $30-million in network services, NR will provide $40-million worth of equipment and Inukshuk will contribute 60 megahertz of spectrum.

In addition, the three partners are seeking funds from federal and provincial governments that have made high-speed access for Canadians in remote communities a priority.

John McLennan, Allstream's vice-chairman and chief executive officer, said the venture is a cost-effective means to broaden the company's customer base beyond its core business market.

For Montreal-based Microcell, the partnership means the exploitation of Inukshuk's spectrum licences and the chance to bundle its Fido mobile phone brand with additional services.

The venture marks NR Communications' first major wireless deal. To date, the Delaware firm has provided services to about 10,000 customers in Mexico and parts of the United States.

The fixed wireless market has had a brief and troubled history. High capital costs and slow growth have done in a long list of U.S. and Canadian players, including WinStar Communications Inc., Teligent Inc., Maxlink Communications Inc. and AT&T Corp.'s own Project Angel.

"Both investors and customers have a pretty bad taste from fixed wireless," said Dvai Ghose, a Toronto analyst at CIBC World Markets.

Meanwhile, the new venture can expect intense competition from incumbent high-speed cable and telecommunications players, said Andrew Zimakas, general manager of emerging markets at AOL Canada Inc.

"You definitely have a market where cable and DSL opportunities exist for a lot of households at a very competitive price," he said.

Brahm Eiley, president of Toronto's Convergence Consulting Group Ltd., described the fixed wireless market as a "hard go." He added that success may lie in finding a potentially profitable niche market.

For example, TeraGo Networks Inc., a fixed wireless player in Toronto, serves the data needs of small and medium-sized companies located in office parks.

"My experience is you need to be focused," said Brian Boyd, TeraGo's president and CEO. "There's no question that the consumer and residential market is bigger; however, it is a much lower monthly revenue."

Allstream, Microcell and NR Communications argue that the economics of their new offering makes sense, including low capital costs and competitive pricing for consumers. Most important, the venture will offer Internet surfers mobility, an appealing feature that DSL and cable cannot match.

"The proof is in the taste of the pudding, and that's what we're counting on," said Nick Kauser, CEO of NR Communications.