Exit Strategy

How is U.S. venture capital playing a role as a key ITS technology development and marketplace development accelerator?

The best way to answer that question is to examine just one of the many transactions occurring each year. Whenever sources of financing say yes to a proposal that involves matching their capital with the creative and hopefully profitable use of ITS, there are certain factors present. One of them, inevitably, is the "exit strategy." This is a fancy way of answering the investor’s question: "How do I get my money out of this deal so I can see a return on my (or my client’s) investment in this company?"

When venture capital investors in Silicon Valley and Boston decided to help create a leading integrated provider of wireless location technology that, in turn, forms one of the ITS bedrock technologies, they were looking for applications that met a real need among customers willing to pay for its use.

That is why the venture capital investors behind San Ramon, Calif.-based U.S. Wireless focused on building a location information network to provide instant, accurate and reliable location data to wireless carriers and other service providers. An independent, shared network operating as a service bureau, the U.S. Wireless network will offer multiple carriers, Internet portals, call centers and other service providers the most reliable and cost-effective means for gathering location data.

U.S. Wireless’ technology can pinpoint the location of any mobile telephone subscriber anywhere, anytime, with close precision. Using proprietary Location Pattern Matching technology, the RadioCamera system determines a wireless subscriber location by measuring the distinct radio frequency patterns and multipath characteristics of radio signals arriving at a cell site from a single caller. The RadioCamera identifies the unique radio frequency pattern or "signature" of the call and matches it to a similar pattern stored in its central database.

In September 2000, one technology investor, Hewlett Packard, Palo Alto, Calif., joined forces with U.S. Wireless and announced a strategic business alliance to create network operating and data processing centers for U.S. Wireless’ planned wireless location network. The network will be capable of pinpointing the location of cellular users in 911 emergency situations and enable users to access traffic and driver information services as well as commercial applications such as navigation assistance.

"HP will provide $7 million (US) in financing and up to $45 million in additional financing, based on U.S. Wireless meeting certain requirements," said Craig White, president of HP Credit Corp. "HP will bring to bear its always-on Internet infrastructure and e-services expertise to help U.S. Wireless design and build its operating centers and will also provide ongoing marketing and development support for the initial phase of the company’s planned 100-market deployment."

"Wireless location services is a burgeoning marketplace, and HP e-services expertise and always-on Internet infrastructure are key in making it happen," said Dave Scantling, general manager for HP’s E-Services Solutions.

U.S. Wireless will draw on HP’s e-services infrastructure support to build its new network operating centers which will be located in Reston, Va., and San Ramon, Calif. By designing mission-critical data centers, HP will work with U.S. Wireless to ensure that necessary software, equipment and designing data centers deploy services at both network operating centers.

"This strategic alliance enables us to leverage HP’s expertise and reputation in building our mission-critical data centers, which are possibly the most important part of our location network services platform," said Oliver Hilsenrath, chairman and CEO of U.S. Wireless.

HP will apply its always-on Internet infrastructure and e-services knowledge to U.S. Wireless. The relationship will allow U.S. Wireless to assure its customers of the stability, reliability and flawless execution of its operating platform. Additionally, HP becomes one of U.S. Wireless’ integral technology associates by providing HP hardware products necessary to support the future growth in the company’s development of next generation instant wireless services.

Keeping customers safe, informed and on track, U.S. Wireless is powering the next generation of instant wireless information services. Through a national network of geographic location systems, U.S. Wireless will enable a host of value-added services including life-saving E-911 caller pinpointing, localized news and traffic updates, enhanced directory assistance, vehicle and asset tracking and carrier network management services.

U.S. Wireless provides mobile location and traffic related information to wireless carriers, Internet providers, public safety and transportation/telematics companies. U.S. Wireless is building a national location network and has announced plans to roll out traffic and transportation services in San Diego, Washington, D.C., Hampton Roads, Va., and the greater San Francisco Bay Area. The company’s network is based on its Radio-Camera pattern matching positioning technology that pinpoints the location of cellular callers to enable the delivery of mobile services that rely on location, including life saving emergency 911 caller location, live traffic and traveler information, navigation assistance, localized directory assistance and vehicle and asset tracking.

HP is no slouch in the technology marketplace: It is a global provider of computing and imaging solutions and services. HP has 86,000 employees worldwide and had total revenue from continuing operations of $42.4 billion in its 1999 fiscal year.

Increasingly, consumers seek mobile content services that are location-dependent like time-saving driving directions, roadside assistance and enhanced directory services, as well as business applications like vehicle and asset tracking.

In their infancy, U.S. Wireless targeted the wireless location market after identifying several important trends, including: the increasing determination of the FCC to require carrier implementation of a wireless-location capability by 2001; the substantial growth in customer base due to the deregulation of the cellular market; and the continuing reduction in cellular pricing.

In the past year, the FCC reaffirmed its 1996 mandate requiring wireless carriers to implement automatic caller location solutions for wireless Enhanced 911 ("E-911") programs by October 2001. The FCC further strengthened the E-911 mandate by tightening performance standards and requiring carriers to announce their individual E-911 strategies as early as October 2000. In addition, the recently signed Public Safety Act of 1999 designates 911 as the universal emergency number in the U.S. and provides wireless carriers with the same liability protection for E-911 as is afforded to telephone companies offering landline 911 calls. These events help create a predictable regulatory environment upon which U.S. Wireless can structure a successful business strategy.

This strategy has included continued investment in the company’s RadioCamera system, which determines a wireless subscriber’s location by measuring the distinct radio frequency patterns and multipath characteristics of radio signals arriving at a cell site. U.S. Wireless continues to test the RadioCamera system extensively with major carriers including Bell Atlantic Mobile, GTE Wireless, Western Wireless and Nextel Communications.

More than 100 million people own cellular handsets in the U.S. today and this number is expected to grow to 120 million by 2001. The ability to determine the location and track the movement of a wireless subscriber enables numerous valuable services such as live navigation assistance, enhanced 411 information services and roadside emergency assistance. The same technology also enables related services such as network management, fleet management, asset and vehicle tracking and protective monitoring of children and at-risk individuals.

Further propelling the location services marketplace is the FCC’s "E911 Mandate" (docket #94-102) requiring that by October 2001 wireless carriers have the ability to determine the locations of subscribers that use wireless phones to call for emergency assistance.

U.S. Wireless believes that its superior cost effective technology and its plan to establish nationwide location service bureaus positions it to be a prime beneficiary of this mandate.

According to the Cellular Telecommunications Industry Association (CTIA), over 35 million wireless calls were placed to 911 emergency call centers in 1998. Although many consumers buy wireless telephones for use in emergency situations, emergency dispatchers are currently unable to immediately identify the locations of wireless callers. This causes delays in emergency response time, which may prove critical in many situations.

Phase II of the FCC’s "E911 Mandate" requires that by October 1, 2001, wireless service providers have the ability to pinpoint and report to the PSAPs the locations of all 911 callers within an accuracy of 330 ft (100 m) in 67% of all cases.

The FCC’s mandate for locating the position of wireless 911 callers by the year 2001 is fueling a race for the deployment of automatic location identification technologies across wireless communications networks including cellular, PCS and specialized and enhanced specialized mobile radio carriers. Once the market matures, it could generate $4 billion a year in annual service revenue, according to "Wireless Location Services: 1999," a study released by the Strategis Group, a leading consulting and research firm in the telecommunications sector based in Washington, D.C.

During 1999, U.S. Wireless launched their first service bureau pilot, an end-to-end integrated E-911 caller location trial in Billings, Mont. The Montana pilot encompassed the local cellular and local exchange carriers, the public safety answering point and several other large telecommunications organizations.

The network underwent a rigorous three-month state-sponsored audit where U.S. Wireless successfully demonstrated the network’s capabilities as well as their own ability to manage and coordinate the diverse companies and organizations needed to establish a cellular caller location network.

With this important milestone behind them, U.S. Wireless made a strategic decision to own and operate their nationwide location network, rather than sell infrastructure alone. By operating as a service bureau, U.S. Wireless and its shareholders will have an opportunity to participate in growth through ongoing, recurring revenue from estimated $4 billion a year market for location-based services. U.S. Wireless’ carrier partners will benefit from their shared network platform that will offer them a lower risk, more cost-effective alternative for meeting the requirements of the FCC mandate. U.S. Wireless also will provide them an opportunity to sell higher margin services that are enhanced by location.

In November 1999, the company unveiled plans for the first segment of their national location network in the Washington, D.C., and Baltimore region. At the same time, U.S. Wireless received their first contract from the Maryland State Highway Association to provide location-enhanced traffic information. Their location information will be used as part of a pilot program to monitor traffic and congestion in the southern portion of the Washington Beltway.

Shortly thereafter, U.S. Wireless received their second contract, also for traffic information and management applications, to deploy the RadioCamera system in Hampton Roads, Va.

The RadioCamera system cost-effectively provides real-time traffic speed and congestion information, enabling a variety of intelligent transportation services including live traffic monitoring, location-enhanced traveler updates and alerts and statistical and real-time information.

U.S. Wireless’ activities in the traffic information and management domain have served to extend their public contribution beyond E-911, allowing wireless subscribers as well as the general public to benefit from their location technology. Location-enhanced traffic information can improve traffic planning and highway management, reduce congestion on local roads and arteries and significantly improve the driving experience.

While U.S. Wireless’ focus remains on the U.S. market, U.S. Wireless is carefully evaluating the growth and evolution of the international wireless markets. U.S. Wireless believes that in the future, there may be attractive opportunities for establishing location networks and services in other fast growing mature markets. In South Korea for instance, they have established a joint venture, Wireless Technologies Inc., to focus on hardware development. Through this joint venture, U.S. Wireless has built strong relationships with local South Korean partners such as Anam Industries and HanKang Restructuring Fund, a fund managed by Scudder Kemper Investments. These types of cooperative partnerships may form the basis of their future international activities.

U.S. Wireless has an enormous opportunity in front of them. They have an innovative technology that allows U.S. Wireless to provide location information to wireless carriers and others in large urban markets and rural areas that challenge traditional satellite and network based triangulation methods. U.S. Wireless has an efficient and elegant network platform and a well-founded business plan.

Dr. Oliver Hilsenrath, the president & CEO of U.S. Wireless, said, "Our objective for the next fiscal year is to successfully establish our Washington D.C./Baltimore network and to use this experience to deploy networks in additional cities, thereby creating critical mass and a national presence by year-end 2001. To enable this aggressive agenda, Lehman Brothers, our financial advisor and investment banker, will assist us in maximizing our financial opportunities as efficiently as possible."

ITS is a multifaceted market that includes a wide range of technologies and services that have the objective of making ground transportation faster, safer and more productive. The scope of ITS includes travel by car, public transportation, commercial transportation and emergency management systems.

The U.S. market for ITS products over the next 20 years is expected to reach more than $425 billion, split $350 billion in the private sector and $75 billion in the public sector. The consumer market in the U.S. will grow from $4.6 billion in 2005 to $29 billion by 2015.

In one sense, the ITS market has been around for some time; intelligent traffic signals that sense traffic flow via buried loops are one well-known example.

We are now seeing the full-scale acceptance of established services such as electronic toll collection on highways, electronic traffic monitoring systems on bridges, variable road signs over roadways and navigation systems that use GPS satellites.

In the future, the U.S. and other advanced industrial markets will see the introduction of more and better intelligent crash avoidance systems, the transmission of road sign information into the vehicle using visual and audio displays and advanced driver information systems.

In some countries, driver information services already exist. In the U.K., for example, drivers can buy a hand-held display device and pay for a service that provides a real-time display of the speed of traffic on the motorways and other major highways around the U.K. This information also is available on the web for free (www.vauxhall.co.uk/vectra-cgi/index).

The California Department of Transportation also provides similar information on the web (www. scubed.com/caltrans/la/la_big_map.shtml).

There are also various trials and services in the U.S. that provide real-time information to drivers. One of these, the SmarTraveler service marketed by SmartRoute Systems of Boston, provides up-to-the-minute traffic conditions and expected travel times and speeds on major highways in a growing number of U.S. regions. The service, which is accessible by phone or Internet, also includes information on regional special events and construction projects.