Re: Why Helio Didn't Connect

[David Farber <dave () farber net>]

________________________________________
From: William A. Frezza [waf () acm com]
Sent: Monday, July 07, 2008 8:54 AM
To: Bob Frankston; David Farber; ip
Cc: Robert J. Berger; bill () BILLMELTON com
Subject: RE: [IP] Why Helio Didn't Connect

Bob,

My reflex answer to these challenges is “let the market sort it out – keep the regulators out of it.” But of course, 
you already knew that. ☺

Municipal Wi-Fi will NEVER work as an independent service because both operating costs and available bandwidth will 
always be dominated by backhaul. THE TRAFFIC MODELS DO NOT COMPUTE! Same for Wi-Max. The larger the cell size, the more 
users have to share the backhaul bandwidth, the fatter the backhaul pipe has to be, the more it will cost to lease from 
the wireline incumbent. The smaller the cell size, the denser the backhaul web required, the more it will cost to lease 
from the wireline incumbent. At the end of the day all profits, if there should be any, get sucked out by the wireline 
incumbents. Use regulation to force the incumbent cable and telco operators to provide subsidized service and the 
quality of this service will degrade to the point where it is not useable for any revenue producing applications. Use 
wireless backhaul and you choke on your own traffic.

The only architecture I have ever seen that passes the traffic model test is the old Amperion architecture – Wi-Fi 
access points hung on the intermediate voltage electric power distribution network, which is very dense and perfectly 
deployed in any city worth serving. (Rural markets are uninteresting.) Pity that Amperion failed. The reason is that 
the electric utilities are brain dead. Why are they brain dead? That’s what decades of regulation does to your brain.

On to other things. Wireless is done.

Best regards,

Bill
_____________________________
Bill Frezza, General Partner
Adams Capital Management, Inc.
40 Warren Street, 3rd Floor
Charlestown, MA 02129
Phone: 617-886-5159
Email: waf () acm com
Web: www.acm.com



NOTE NEW ADDRESS AND PHONE

________________________________
From: Bob Frankston [mailto:bob37-2 () bobf frankston com]
Sent: Thursday, July 03, 2008 11:41 AM
To: dave () farber net; 'ip'
Cc: William A. Frezza; 'Robert J. Berger'
Subject: RE: [IP] Why Helio Didn't Connect

The silo-effect—the flip side of the network effect.

I remember listening to Sky Dayton talking about his Layer 2 focus in Earthlink and the important of focusing on your 
layer. Of course once Earthlink got acquired by Sprint it became part of their silo. But silos are precisely what 
doomed Helio – it not realistic to expect people to buy a different device for each purpose. Helio was a bet that 
people would join their community as long as they could also make some phone calls. But tying the function not just to 
a device for a silo meant that forced people to up give something up in order to join.

We are indeed locked into problematic business models – the idea that the way to make money is to own a silo or 
service-business. This is why I’ve called most muni-Wi-Fi efforts to be muni-bells.

There are alternatives and investors/entrepreneurs who are willing and even proud of their ability to do good stuff 
cheap – that was the theme that Jim Crowe emphasized when we spoke about his, then future, Level 3 effort.

The problem is that as the government insists that telecom is about selling transport and then creates a regulatory 
system to will a nonviable model into existence. As long as we continence that foolishness we’ll continue to be 
frustrated by the lack of a common infrastructure and we’ll continue to see people like Jim Crowe forced to create 
scarcity in order to create value.

Of course being able to assume a common infrastructure means that Helio goes from being an expensive infrastructure 
play to another attempt to build a community and yet another provider of some services. In looking at 
http://www.helio.com/page?p=devices#services it’s not clear what is distinctive – the company’s seemed to have been 
betting that it could create its own silo. The iPhone has shown that it’s not impossible – but I’d rather not be 
limited to a choice of silos. Nor should I have to care whether bits are wired or not wired … the whole wired/wireless 
distinction is just another silo.



-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Thursday, July 03, 2008 06:20
To: ip
Subject: [IP] Why Helio Didn't Connect





________________________________________

From: Robert J. Berger [rberger () ibd com]

Sent: Thursday, July 03, 2008 1:40 AM

To: Dewayne Hendricks; David Farber

Subject: Why Helio Didn't Connect



The "money" quote:



"If you look at wireless as a whole, it's represented a net

destruction of capital for venture capitalists," grumbles William

Frezza, a general partner at the Boston venture capital firm Adams

Capital Management.



I suspect this is applicable to most wireless investments, even those

beyond non-monopoly Cellular like Helios. I've now seen it personally

at several in the Muni-WiFi realm and I think were going to eventually

see it with wImAx. Infrastructure plays do not generate ROIs that Wall

Street expects except for monopolies. - Rob

----------



Why Helio Didn't Connect



The flashy cell-phone company is in a very tough business.

By Michael Fitzgerald Thursday, July 03, 2008

http://www.technologyreview.com/Biztech/21036/?nlid=1187&a=f

Helio, which aimed to use souped-up mobile devices and spiffy services

to build a virtual mobile phone company, instead has been sold off for

a fraction of its backers' investment. Helio thus becomes the latest

reminder that the wireless industry remains a perilous place for

startups.



"If you look at wireless as a whole, it's represented a net

destruction of capital for venture capitalists," grumbles William

Frezza, a general partner at the Boston venture capital firm Adams

Capital Management.



Despite receiving some $710 million in capital, Helio was able to

attract only about 170,000 customers, racking up significant losses in

the process.



The trouble was not a lack of innovation. Helio's May 2006 launch saw

it put two twists on the market for virtual mobile phone companies: it

offered high-end cell phones with unique services, like integration

with MySpace and YouTube, and the ability to make micropayments via

the phone. And where other virtual mobile providers (also called

mobile virtual network operators, or MVNOs) went after underserved

niches, Helio rented space on Sprint's cellular network and then used

it to go after a mainstream cellular market: young people. Helio had

big backers in Earthlink, a successful Internet service provider, and

South Korea's SK Telecom, and it was headed by Sky Dayton, Earthlink's

wunderkind founder.



Helio entered a market filled with froth: less than a year earlier,

Sean "Diddy" Combs gave a keynote to the 2005 Cellular Telephony

Industry Association trade show and said, "I am an MVNO."



One virtual phone company that has had success is Virgin Mobile USA,

which bought Helio for perhaps $49 million--$39 million in stock and

the assumption of as much as $10 million in debt. Helio itself is not

dead: Virgin Mobile will continue to market its service. But observers

say that the deal strikes a death blow to the idea that U.S. consumers

will buy high-end mobile phones from someone other than a cellular

carrier.



"The chapter closes on this market, and it's turning the page," says

Chetan Sharma, president of Chetan Sharma Consulting, based in

Issaquah, WA. Sharma says that Helio would have needed a million

customers to get to a break-even point.



<snip>



––––––––––––––––––––––––––––––

Robert J. Berger - Internet Bandwidth Development, LLC.

15550 Wildcat Ridge, Saratoga, CA 95070

Voice: 408-838-8896 eFax: +1-408-490-2868

http://www.ibd.com









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