Wi-Fi has changed the way people navigate the Internet, and in record time.
The technology, which is used to create wireless networks in small areas
such as homes, offices, and parks, allows millions to move about freely
while they surf the Web with laptops and PDAs.

Demand is soaring, thanks to faster, cheaper, and more reliable technology,
and to open standards that let tech giants like Intel (INTC ) bundle Wi-Fi
radios into mass-market computers. The number of Wi-Fi users is expected to
soar 57% this year, to 118 million worldwide, according to Pyramid
Research. Not bad for a technology that's only a few years old.

NEW TECH, NEW PLAYERS. Encouraged by Wi-Fi's success, tech companies are
poised to launch a new wireless technology called WiMax, which will allow
even faster Internet access across larger areas. WiMax creates "hotspots"
that stretch dozens of miles and allow users to surf the Web wirelessly at
speeds that are much faster than connections via a digital subscriber line
(DSL) or cable modem. A single WiMax radio is 20 or 30 times faster than a
household broadband connection.

And WiMax is more than just a faster version of WiFi. Proponents believe
that the technology will be a cheaper, faster alternative to all manner of
communication, from DSL and cable modems to regular phones and wireless
devices. It will allow newcomers to enter the communications market,
creating a challenge to existing service providers and equipment makers
alike.

"A WiMax platform's ability to deliver lots of capacity at lower prices
could be very disruptive to existing broadband business models. When you
put voice over WiMax, it could also disrupt the wireline and wireless voice
businesses," says Andrew Decker, chairman of the global telecom group at
Bear Stearns Investment Banking.

EARLIER TRIES. All that could happen quickly. Decker notes that the time
frame required for a new technology to reach widespread acceptance is
getting shorter. It took a decade for cell phones and CD players to really
take off, but new technology such as Wi-Fi, digital cameras, and Apple's (
AAPL ) iPods have achieved mass adoption in much less time. "Could WiMax
become disruptive in three to five years?" Decker says. "Sure."

Seasoned telecom hands have heard this sort of talk before. During the
telecom boom of the late '90s, companies from AT&T (T ) and MCI (MCIP ) to
Winstar, Teligent, and Cellularvision invested billions of dollars in the
idea. The thought was to beam wireless data to pizza-boxed-size antennas on
customers' roofs, bypassing the local lines owned by the Bells and the
cable TV companies. None of the efforts paid off, largely because the
so-called fixed wireless technology was too expensive and prone to
interference.

There are still plenty of skeptics who say that WiMax will run into a
different set of obstacles. Available licensed spectrum -- the valuable
swaths of the radio band where access is controlled by the government to
minimize interference -- is in the hands of a few big providers. Telecom
companies such as Verizon (VZ ) and Sprint Nextel (S ) already have begun
to roll out 3G wireless networks that will have a head start in the
wireless Internet market.

PLATFORM ANXIETY. Verizon CEO Ivan Seidenberg says wireless phone networks
are evolving quickly and that they have advantages over WiMax, including
ubiquity of coverage. Verizon and Sprint use a wireless data technology
called EV-DO. Future generations of the technology will boast speeds as
fast as 15 to 20 megabits per second, from about half a megabit a second.
EV-DO and other varieties of 3G technology used by Cingular, a venture of
SBC (SBC ) and BellSouth (BLS ), also can make use of nearly complete
cell-phone networks built up over the last two decades.

And cell-phone companies can support their products with sophisticated
customer service and billing platforms. "WiMax is a good niche technology,
but it needs to be part of a broader platform," Seidenberg says. "You can't
just throw up a tower and give people free access."

WiMax may not be the only disruptive force in the wireless market, but it's
bound to be one of them. It's already giving new life to the aspirations of
a few upstart telecom companies, which all but vanished after the stock
market crash of 2000.

WAITING AND WATCHING. Remember Covad (DVW )? It's been through bankruptcy,
but now it's back, under the management of CEO Charles Hoffman, an SBC
veteran. The provider managed to assemble its own nationwide DSL network
aimed at business customers in 44 states, but it still leases the
phone-company-owned copper lines that link its customers to nearby offices
in the field. Starting next year, it's going to bypass the phone companies
by selling wireless WiMax connections. "We think WiMax is going to be big,"
Hoffman says.

Other upstart broadband companies will also rely on WiMax. There's NextWeb,
a regional player that sells wireless Internet access in California.
TowerStream plans to use WiMax technology, too. What's more, it has teamed
up with Internet-phone upstart Vonage, which will use the network to
deliver its voice services.

Some of these new providers will use WiMax technology to provide high-speed
Net access in rural markets where it's too expensive to lay fiber-optic
cables all the way to customers' homes and offices (see BW Online, 9/2/05,
"After Chaos, Changes in Calling"). Even some established players, such as
BellSouth (BLS ) and AT&T (T ), are testing WiMax technology, a sign that
big companies could try and grab the market for themselves should the
technology take off.

'HOARDING SPECTRUM.' The future of the very smallest companies is
uncertain, though. The telecom bust reinforced one of the age-old truths of
the communications business: scale and scope matter. While the market may
support a few upstarts like Covad, the regional players like NextWeb are
going to have a tougher time on their own. Some are likely to be acquired
-- following the example of NextWeb, which Covad announced Oct. 5 it would
buy for $25 million. "Big companies are hoarding spectrum," NextWeb CEO and
founder Graham Barnes says. "The government needs to do a better job of
getting it into the hands of companies that need it." At first, people
hoped that WiMax would operate on unlicensed radio spectrum, just the way
Wi-Fi does. Wi-Fi could proliferate because operators didn't have to pay
for costly licenses. That made it affordable for small businesses to buy
equipment for as little as $50. While Wi-Fi is prone to interference from
microwave ovens and other small devices, WiMax signals that travel over
miles are subject to countless sources of interference.

Unlicensed spectrum in the 5.8 gigahertz range can be used in relatively
unpopulated rural areas. Most populous zones require licensed spectrum,
which is available at 2.5 gigahertz and 3.5 gigahertz. But the 3.5 gig
spectrum is mostly in the hands of the government, and Sprint Nextel owns
about 85% of the licenses in the 2.5 gig range. Sprint has just started to
roll out its 3G phone service, but it's already testing WiMax technology
from Alvarion (ALVR ) and Aperto that could be used for even faster 4G
service toward the end of the decade, according to Sprint Nextel spokesman
James Fisher (see BW Online, 8/26/05, "WiMax Keeps Gathering Momentum").

SETTING STANDARDS. Prices for WiMax gear are falling fast. During the late
'90s, companies like AT&T struggled to get the cost of fixed wireless down
to $500 a customer. Now the price is $200 and dropping, says analyst Emmy
Johnson of Skylight Research. That will help drive sales into the
mainstream. She expects sales of global WiMax equipment to jump from $23
million this year to $200 million or more in 2006 and $1 billion or more by
2008.

The number of WiMax connections is expected to hit 8 million in 2009,
compared with less than 100,000 forecast for 2005, according to Johnson.
The key to driving sales is the establishment of global standards. The
worldwide WiMax Forum, which includes players such as Intel and Dell (DELL
), has agreed upon standards for fixed and portable WiMax devices, like
computers and laptops.

Standards for mobile devices like phones and PDAs will be established by
late 2006 or early 2007. And a laboratory called Cenecom has been
established in Malaga, Spain, to certify that products comply. By next
year, Dell laptops loaded with Intel WiMax chips (called Rosedale) will hit
the market and benefit from the sort of marketing blitz that made Wi-Fi a
global success.

DOUBLE BYPASS. WiMax has the power to disrupt the telecom market by
throwing control of the customer up for grabs. Wi-Fi isn't that threatening
to telecom and cable companies because customers need a fixed broadband
connection such as a DSL or cable modem to make it work. Wi-Fi is simply a
wireless version of a broadband extension cord with a reach of a few dozen
yards. But WiMax eliminates the need for a fixed broadband connection in
the home. It allows outfits like Covad to completely bypass the telecom
companies. And as WiMax goes mobile, it will allow upstarts to bypass the
wireless phone companies, too.

Timing is everything in life. Companies such as AT&T searched desperately
for such a local phone bypass in the late '90s. AT&T experimented with
fixed wireless before it moved on to cable. Both failed, and now SBC is
buying AT&T for $16 billion. WiMax came along a few years too late to save
AT&T. But it may offer a new generation of companies a shot.