Winstar Communications

» see winstar.com as it lived, on the wayback machine

~ the last words ~

in 2000 my internet came down a phone line at 56k and the interesting question of any given evening was whether the modem would hold the connection long enough to finish what it had started. Winstar was selling T1 capacity to the tenants of american office towers. There was no consumer version of that product, and there was no Turkish version of it either, because the business depended entirely on an american spectrum regime and on american commercial real estate.

So this is a grave for a company i could not have been a customer of, written mostly out of the filings it left behind. William J. Rouhana founded it in New York in 1993 as a reseller of long distance minutes, which was a dull and reasonable thing to be in 1993. It did not stay that. Winstar went out and acquired licenses in the 38 GHz and 28 GHz millimeter wave bands, frequencies that almost nobody wanted at the time because they will not travel far and rain interferes with them.

That was the bet. The last mile of the american telephone network belonged to the incumbents, and digging up a street to lay your own fiber into a building costs money and takes years. Radio does not need a trench. Winstar's pitch was that it could light up a tower in weeks instead of quarters, at a fraction of the capital, and sell the tenants inside it voice and data at a discount. Revenue went from $2.7 million in 1995 to $445.6 million in 1999, which suggests the pitch was landing.

~ the record ~

~ wireless fiber ~

The marketing name was wireless fiber and it was not entirely dishonest. At 38 GHz you can carry a serious amount of capacity, comparable to a fiber pair, provided the two ends can see each other. That proviso is the whole problem. Millimeter wave needs clear line of sight, so both roofs have to be in view of each other and stay that way, and heavy rain will take the link down until it stops raining.

The deeper trouble was commercial rather than physical. Every customer was a construction project. You needed the building owner's permission to mount hardware on the roof, and riser rights to get the cable down to the tenants. By 1999 Winstar was in 60 major american markets including all of the top thirty, with ten more abroad. It employed 3,900 people. Each of those markets was a fixed cost that had to be paid before the first tenant signed. The network was mostly empty and getting bigger.

~ the money that built it ~

Lucent Technologies is the other half of this story. In 1998 it agreed to a $2 billion equipment and financing arrangement with Winstar, supplying the gear and lending the money to buy it, on what both companies described at the time as the first global end to end broadband network. Vendor financing of that shape was everywhere in the late nineties. The equipment maker books a sale and the carrier books a network, and neither of them has to find a customer for it.

Equity came too. A $900 million private placement closed in february 2000 with Microsoft among the investors, and another $270 million followed in november of the same year. The stock rose more than 600 percent between 1996 and 2000 and the market value passed $4.4 billion. Two things were true at once: Winstar was building something real, and it had no path to paying for it out of what the network earned.

~ the day it filed ~

On 16 april 2001 Winstar missed a $75 million payment to Lucent. On 18 april it filed for chapter 11 protection in Delaware, and on the same day sued Lucent for $10 billion, arguing the vendor had broken the supply contract by withholding financing it had promised. The debt on the books was reported at about $4 billion in some accounts and above $5 billion in others depending on which filing you read. Nearly half the staff went that month.

The estate was picked apart over the following year. On 19 december 2001 IDT Corporation bought substantially all of the core domestic assets out of the bankruptcy for $42.5 million, of which $30 million was cash and the rest IDT stock. That price bought 931 licenses at 38 GHz and sixteen LMDS licenses covering an average of 1,000 MHz across the top twenty five american markets. A company that had raised billions was sold for the price of a mid-sized office building. The case converted from reorganization to chapter 7 liquidation on 24 january 2002.

IDT ran the remains as a wireless carrier under the Winstar name and then sold those businesses on in january 2006. The last of it moved in january 2011, when Oak Point Partners bought whatever residual claims were still lying in the estate. The spectrum outlived the company by a decade and is worth more now than it ever was then, because millimeter wave turned out to be exactly right for something. It just was not for putting a T1 in an office tower in 1999.

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