WTRS Executive Interview

Interview with Carl-Johan Torarp, Chairman/CEO and founder of LocaLoop, Inc., and co-inventor of its Mobile WiMAX enabling technology.

June 19, 2007

George:

Can you give us just a little bit about your background and how did you come to start LocaLoop, what insights led you to decide that was the thing to do?  

Carl-Johan:

As you can hear I have an accent, I am a native Swede, and I got my education in Sweden.  I am an electrical engineer with complementary training in computer science. I started out in the computer industry and then I worked for different computer companies. I've been involved with the mainframe era and we went to the mini computer and PCs and so on. I worked for companies like International Computers Limited (ICL), a UK based Mainframe Company. Then I switched to Digital Equipment I worked for them for sixteen years in all kind of capacities.When the goal was to grow 30 - 40% every year during the late seventies and eighties. I started out as an engineer and after a few years moved into management. I was branch manager moving up the ladder and ended up in Switzerland as a regional operations manager for 11 European countries and worked there for four years.

I went back to Sweden after that and worked for Digital for a little while and then I switched over to NCR. At that time NCR was actually the leader in Europe with their UNIX-based Tower mini computers. UNIX took off in Europe first as you probably know, because in Europe they wanted to drive towards a more open computer user environment. I was head hunted over to head up the engineering division that was headquartered in Stockholm. They had a difficulty there and I turned that around in two years to become the most profitable division in the region. After that I actually left and started my own management consulting company doing management training and organizational development for the telecom and computer industry in the Nordic region. I had a partner and I did that for a few years. I did visit the U.S. quite a bit - of course I came over many times when I worked for Digital - the H.Q. was in Maynard, Massachusetts and I also graduated from their Advanced Management Education Program (AMP) at Harvard, which took four yearly visits.

I always liked America. Anyway I was over here later; I was doing management consulting, met a woman here and fell in love. We got married in Wisconsin and she moved with me to Stockholm. After a couple of years we decided to move to the US and for fifteen years I have been in the US.

What I admired about America, being in the European high tech world, was the ability to invent new technology, start new ventures and successfully commercialize these technologies. Europeans tend to be not as good at this as the Americans. I did management consulting for high tech start-ups here, surrounded myself with a group of investors and eventually I ended up at Allison Williams Company, a boutique investment bank in Minneapolis. I worked with technology company transactions. During that time I also did some technology transfers between Sweden and the U.S. I was also involved in an exciting new technology which relates to broadband wireless.  

It was an antenna boosting technology using certified radios in a very different way. This was about the same time as Wi-Fi started to come out around 1995 or so. The technology was tried out on Wi-Fi and it is actually in use today in a different version. My thinking was that if it could be added in the field on the antennae side of existing GSM systems, it could boost bandwidth to true broadband levels. I was speaking with both Nokia and Ericsson to sell them on that technology, but the bottleneck for that speed turned out to be the electronics feeding the base station. So that's how I first got involved in wireless technology.  

At that time I was also chairman of the Swedish American Chamber of Commerce in Minnesota and during that period we had annual entrepreneurial days both in America and Sweden to encourage technology and business development between the countries. At one of these gatherings I met a fellow who had worked for Telia in research and development. He had developed one of the first working VoIP technologies, which was demonstrated in 1994. Eventually he managed to bring the IPR with him to start his own VoIP Company that he later sold.

Anyhow, he and I got to know each other and we had similar vision of what would happen in the wireless broadband access space going forward. I co-founded a broadband wireless access (BWA) technology company with him in 2002.  However, this was at the time the Internet bubble hit Europe and it was difficult to raise money, so we switched to a different revenue accelerating strategy developing a system for machine to machine communications over the GSM using GPS and with management and supervision over the Web selling both the product and managed services to refrigerated truck fleet customers. Over there GSM is everywhere and the company is doing pretty well.

When we decided to leave the broadband wireless access business, I was very intrigued and had learned a lot about the next generation BWA technologies, especially WiMAX. It was also clear to me that the next 25 years would be dominated by IP based communications and that there was going to be a paradigm shift away from mobile voice based technologies. I couldn't see anything else than WiMAX being a contender for that at that time, so I founded LocaLoop with the purpose of developing Mobile WiMAX infrastructure.

At first we wanted to do hardware, so what I wanted to find out was why had the first wave of broadband wireless access systems not succeeded in the past. Because we knew that they had been around for about ten years in different proprietary versions. We found out that it came down to three things. There were high upfront investment costs, because the systems were big expensive centralized systems designed for high density areas, where everybody wanted to go. On top of that you had typically to buy all the CPEs as well, and that costs a lot of money too. And then to get the network to work you had to add various software applications with all the integration work on site. So you had a big outlay early on. Few service providers succeeded to raise the money for all that, and even if they did they had to spend a lot more money on marketing and sales to fill up the network with subscribers. The investors got tired and pulled out.            

I felt that the reason for all this was that we didn't have adequate technology to enable a profitable business case for BWA service providers and it was not really thought through how to best deploy these systems from a business perspective. So I started to think about that, how to have a different mix between hardware and software to make the system smarter so they could be deployed in an incremental way more in line with service providers' subscriber revenue growth. I had a co-inventor and we worked together to come up with a new approach and the technology that could solve that. And we were lucky; we filed all our patents four years ago before the WiMAX hype started.

George:

What can you tell us about LocaLoop the company and how does this company fit within the WiMAX industry?

Carl-Johan:

We realized that the whole vendor community was too burden by legacy telecom thinking, we wanted to validate our new approach directly with service providers and end users. A customer advisory council was formed consisting of ISPs and telephone companies and so on. To really try and understand from the beginning what they felt about this. By that time I was pretty sure which way it was going to go. It was just a question of validating our approach and make sure it was what people really wanted while at the same time enabling a profitable business model for service providers deploying WiMAX in the last mile. Also in smaller markets, in tier two and three markets not only tier one.

You know the problem we were tackling is one of the main reason we only have 47% household broadband penetration in the US, which is quite low compared with other industrialized nations. I think we are ranked 16th.  We started as a hardware company although we realized that it would take a lot of effort and a lot of money to become a WiMAX hardware vendor.

At that time we also did research on which standard of WiMAX would be the sustainable standard. About three years ago we realized that the fixed standard IEEE 802.16d-2004 (16d) will not be very long lived because we found out that in the mobile IEEE 802.16e-2005 (16e) standard - there was nothing from a technology perspective that prevented the 16e standard to be used also in fixed applications.

George:

That echoes other information and comments we have heard from other companies in this market.

Carl-Johan:

We did not waste any time on 16d. We thought the industry was going the wrong direction with 16d.  Everybody was so eager to jump in on the WiMAX wagon trying to create applications, suddenly the first one that actually admitted that 16d was more of a transition standard was I think Motorola. And they had their proprietary BWA that they felt worked for fixed applications that they wanted to sell, the Canopy system. And they had some other backhaul solutions as well. They concluded Mobile WiMAX, 16e, was the way to go.

You know that the Holy Grail in telecom is coverage and mobility and when you have both you are in good shape. And when you have true broadband as well then you're in really good shape and then if you have IP based then you are in even better shape. Because now what you do, you are actually coming closer to the internet which is the biggest enabler for IP technology for the next - As long as we live probably.

We realized that everybody was so focused on hardware. We felt hardware per se is not the issue. Look at the computer industry you are using only 30% - 40% of your PC's built in hardware. It is not enabled with software enough and then the next version comes out and so on. Software is not keeping up with the hardware development speed. That's the way of course that the hardware companies make money and they need to do it that way. About three years ago, when Intel's Craig Barrett stood up in a user conference and withdrew a processor for the first time in history. And they said we can get faster and better, but we don't need it right now. In other words they had realized they were too quick to get more performance out, more than the market (or software) could handle. At the same time they felt that it was critical for them to be more and more involved in wireless and they saw that as a very interesting market.

Performance in BWA, even the proprietary broadband access radio was pretty good. Look at NextNet they still sell their Expedient system with non line of sight capability that is proprietary and pre-WiMAX, taken to market back in 2001. By the way the co-founder of NextNet is in my management team now. A woman named Beverly Tokarz, at that time her name was Waldorf, she got married. My CTO is Toby Velte, PHD in neuroscience and Web 2.0 software expert.  So we felt that solving the last mile problem is not really about hardware performance, if you need a bit longer range or a little better radio. The issue is really about how you enable a profitable business case for service providers, and you certainly don't do it with the incumbent BWA vendors' existing pre-WiMAX centralized systems and the way they've gone about it.  So our technology innovation is about how you can create a profitable business case and we came up with a technology that is more of an enabling technology with focus on Mobile WiMAX, 16e, but realized in a Web-based software platform. And it can be adapted to fixed WiMAX and proprietary BWA as well.       

George:

Where do the LocaLoop products fit in the stack?

Carl-Johan:

We work from Layer three and upwards. We want to do as much as we can with Web 2.0 technologies at IP, internet protocol level.

George:

It sounds like this product enables a lot of business cases. Can you go into more detail how this is done?

Carl-Johan:

What I need to explain is what the software is about. The platform is a management and operating software platform and it covers, if you compare it with the legacy telecom industry, first network management. Every WiMAX or proprietary BWA network vendor has a management system NMS/EMS system. The purpose of that system is to monitor and supervise the network to achieve high up-time and to achieve cost containment but that's about it.

There is another traditional industry software segment out there OSS and BSS. These are the operation systems and business systems for telecom, the billing applications, customer management and resource management and all these kind of things. And what we have is an integrated platform approach, we don't have the whole platform yet, we are still building it. We are developing an integrated turnkey platform for Mobile WiMAX networks with required key functionality from NMS, OSS, and BSS and then there is another one you might have heard of SDP, Service Delivery Platform, which they use predominantly in the mobile cellular industry. That is included in our platform as well. 

Turn key software as a service - You've heard about that concept? - That's our web-services platform for managing, to do the traditional network management for a WiMAX network and more. To take care of the operations management, the traditional NOC - Network Operations Center - management and then the user/customer management from a service provider's point of view. What do I need to do in order to service my subscribers, what tools do I need? That is all included in the platform. We will provide that basically as a salesforce.com type solution.

From the competitive point of view - we haven't found anything like it out there. The advantage for service providers of this is that it cuts down on the up front investment to zero because now you have a subscription model. You have the pay as you go and grow capability automatically built in. We also have a few other things here that help to reduce the upfront costs for service providers.

What we are talking about is reducing CAPEX.  For example, with the legacy technology approach, when deploying a wireless network you typically spend from a few $100,000 to millions depending on the size of the network. Now with our software platform, which we call LocaLoopNet™, we eliminate that cost.  Also, because automated NOC functionality is interdependently linked with our Web managed platform, we could then take care of NOC management so the service provider doesn't have to invest in that. Or if the service provider already has its own NOC, we can deliver the WiMAX NOC functionality as a Web - service for a lower subscription fee.  

So they don't have to buy any packaged software. In the old cellular world you need to buy six/seven or more applications and then integrate everything one site. You make one offs all the time. Of course the big consulting IT companies love that, they make their money on that. But every time you need to change something, for example if you want to reconfigure a service, it can take weeks and sometimes months to get that new service reconfigured on the traditional cellular platform. With LocaLoopNet™ such a change would be done in real time in one place either by the service provider or even user generated by the end user.  

George:

Rather than picking out best of breed applications and integrating them which puts both schedule and financial risk into the process LocaLoop reduces that deployment risk.

Carl-Johan:

Yes, we have an integrated enabling technology solution that accelerates Mobile WiMAX deployment and IP convergence, because it eliminates CAPEX (for the software and integration portion) and also reduces OPEX and enhances revenue for service providers.

George:

That's very cool and interesting.

Carl-Johan:

We've mostly talked about the CAPEX side so far. For smaller service providers CAPEX is always the issue. The big guys are not so concerned about CAPEX, they are more concerned about OPEX because they have easier access to capital. Like Sprint for example, they are raising over $3 Billion for their 4G Mobile WiMAX deployment over the next 2 to 3 years covering a population in the US of about 100,000,000. Sprint decided to go with the next generation true mobile broadband technology that was available. Instead of waiting for the cellular LTE technology, which is going to take another two to three years? So again it's a patchwork, you have that legacy patchwork underneath it. Sprint has done a very good job with revving up the Mobile WiMAX eco system. There are hundreds of companies now making Mobile WiMAX radio enabled devices and it is going to come faster than we think.

George:

How do you see this industry that is growing up around mobile WiMAX? How do you see this growing over the next few years?

Carl-Johan:

First, let me go back and give you another key point on our technology. There is CAPEX and there is OPEX, but you also have revenue in the profitability equation. We have an enabling technology for that side as well, which hasn't been available before. We are doing this in software. The biggest problem you have with all wireless systems is congestion; they are basically based on best effort. When there are too many users you lose bandwidth and connections. There are two reasons for that either congestion or you are not within the coverage area.

We have an enabling solution in software for managing congestion. We are automatically and dynamically managing bandwidth as part of the platform. One of the reasons we can do this is that LocaLoopNet™ has distributed intelligence all the way down to end users. This is contrary to the traditional Telecom industry that always felt that the terminals out there should be as cheap as possible, because that's where you will have a big outlay if you have a lot of subscribers.   

What is actually happening is that the technology development goes so fast and you can do so much more and for much cheaper faster than people have realized. What we have done is we have distributed intelligence in software. We have moved some of the functionality from the central system to the end user.  

We have smart agents or intelligent software modules running on end user levels. We have distributed intelligence to the true edge and that give us the advantage of being able to tackle congestion by automatically and dynamically managing bandwidth as well as quality of service at every moment down to end user level enabling the next generation of media rich services. Like for example photo upload, video phone conferencing, multiplayer graphically intense online games etc. When you have distributed the technology from the back end you can do so much more, and you can now start controlling content.  

A big problem for service providers today is that they basically give a free ride for content providers. Look at Google. They make all the money on advertising and the service providers have no hook in there to argue about that. With our technology you can actually keep track of what is going from one web site to an end user and you can track that and make sure you get the revenue you are entitled to per an revenue sharing agreement with a content or a web or advertising provider. 

George:

So this enables the network operator to get out of the business of providing simply bandwidth and connectivity and to operate at a higher level in the value chain?

Carl-Johan:

Yes, or rather enhancing that business model with revenue from next generation media-rich services and new content and targeted consumer advertising revenue sharing services, generating revenue not available to them before. For example a few weeks ago Cingular made an agreement with Myspace and they agreed that Myspace would provide their site on some mobile devices and Cingular would charge $2.90 a month and Cingular would keep .90 and Myspace would keep $2. This is on the traditional cellular network. You can do these kinds of things with LocaLoop's enabling technology platform on a Mobile or Fixed WiMAX network.

George:

If I'm a service provider business and I adopt your software platform I can turn a lot of knobs in how I build my business. Depending where I am in the growth cycle of my company I can either reduce capital expenditures or focus on reducing my operating expenses or maximizing revenue.

Carl-Johan:

Yes, you can even make the comparison with the ISP movement in the mid 90s, when lot of guys pulled together some PCs and dial-up modems in their garage to become ISPs. Now you can start a WISP by buying one WiMAX base station and buying 50 CPEs or something. And then we'd take care of the whole enabling piece for you. You wouldn't need a NOC and we'd give you the tools to take care of your core business, providing broadband Internet services and managing your subscribers all on a subscription basis.

George:

In some ways you've reset the industry back to the point where we had the emergence of land line based service providers, but now enabling true Broadband Internet with interoperable WiMAX standard gear?

Carl-Johan:

In a way, yes, as a service provider with licensed frequency in the 2.5 MHz band we don't see any reason not to get started with 16e Mobile WiMAX networks right away as it can be used in fixed applications as well. For permanent fixed applications in licensed or unlicensed spectrum 16d Fixed WiMAX could be a solution, but be aware that there is currently no migration path to 16e without forklift replacement of hardware. As our platform enables either camp of WiMAX vendors, 16d or16e or even proprietary BWA, our customers will sell more if powered with LocaLoopNet™. So we think we will be in very good shape enabling both vendors and service providers increasing revenue and profitability while taking the leap to the next level broadband wireless networks for delivery of the next generation flat IP- based media-rich premium Broadband Internet services to consumers and businesses.  

George:

My migration path might involve financial incentives and fork lifts. And not try to be too high tech about it. Through financial incentive to move people off 16d and on to 16e. Both Kirsten and I completely agree. It appears to us that 16d is an interim solution for the market place.

Carl-Johan:

Yes it is. There were so many political games, things going on and other interests and investors were pushed. A lot of investors tend to act in herds. They go the same direction as everybody goes and often they might not fully understand what's really going on underneath the surface.

George:

Back to where you touched on 16e fairly rapidly supplanting 16d in the market place and that you expected the growth rates of Mobile WiMAX adoption to be much faster than people are predicting. Do you have any other thoughts?

Carl-Johan:

I make the parallel with what happened 25 years ago with the mobile handset, mobile industry. That is Cellular. If you remember analysts every quarter during the early eighties and mid eighties said they were going to sell so and so many handsets. And they almost doubled every time; although now the cellular voice market is slowing down in the industrialized part of world. When people start to realize that they can have true broadband, this is what we are truly enabling, I think the momentum will rise. We are enabling broadband internet in your pocket. Our enabling technology makes mobile WiMAX, an extension of the Web 2.0 internet. In this paradigm shift, we probably will experience much higher growth rates with mobile WiMAX because of the impact of the Internet, which we did not have back in the early cellular days. 

However, the way the telecom industry is going about it makes it more complicated. You have compartmentalized everything. You have many different hardware technologies and software applications for voice, video, IPTV and so on. With flat IP, you have all these services and more in one pipe, you have an all IP network which is actually an extension of the internet. All broadband services are just data packets on the internet.

George:

This technology is disruptive in across many technologies and industries such as cable modem and DSL and many other industries. 

Carl-Johan:

Yes, it enables acceleration of both deployment and convergence to IP based networks. You know, if you have a fixed WiMAX or mobile WiMAX network and you decide to be enabled by the LocaLoopNet™ platform than you have a competitive advantage. For a hardware vendor, now you have a better solution than another vendor who doesn't use LocaLoopNet™ when you go to your customers the service providers.

George:

Your customers are not just the service providers but are they also the WiMAX hardware vendors?

Carl-Johan:

No. The customer is the service provider. We go to the service provider and we show him the business case. We do a little business opportunity study for him. And show him what money he can make by implementing a WiMAX system powered by LocaLoop system. Our intent is to certify hardware vendors and make them LocaLoop certified - We then have a list of certified vendors that our service provider customers can pick from. We are not pushing any particular vendor. We have a software solution. The advantage for us is that we can select to go with the winners in the WiMAX hardware vendor space. And we don't know where that is going to take us in terms of expansion. It might be that they want our stuff and we don't have to do much selling or it goes through the hardware vendors as a sales channel. The indirect sales channels could be the hardware vendors and/or the independent NOC operators and software providers.

George:

From the design of the business it's a beautiful thing. This enables a very highly leveraged business model. You can go to market with any of the market participants.

Carl-Johan:

 Yes. Let's go back to your question about WiMAX. I think that it is going to be a little faster than we thought. I think that today you are going to see a lot of failures.  We are going to see several 16d vendors either falling apart or being bought up or disappearing. And then we are going to see a little faster move towards 16e.

George:

In the past six months we've uncovered more adoption of WiMAX than we saw in the previous year and the rate is increasing. You are confirming what others are telling us about 16d and 16e networks.

Carl-Johan:

There is a lot more to say about it. To summarize; what we are developing is an  integrated turnkey  software as a service management and operating platform for fixed or mobile WiMAX, which handles additional network management, supervision, based on open networks, service delivery, these are new things. Service delivery management, service creation service activation and service provisioning, service delivery management. Because of the distributed intelligence we can have the user design and generate his own content. The wireline broadband Web 2.0 internet has shown the way here, and we believe that is going to be a big thing in the future on broadband wireless internet as well. In the long run people are not very satisfied that you push services on them like the traditional telecom providers are doing. You have to buy the bundled content to get a discount. A lot of that you might not even want. Our technology enables service providers to do bundled services if they want to and it also enables the end users to define and generate their own broadband internet service package in real time, delivered as a utility and get charged accordingly.

George:

So this allows much finer grained content offerings?

Carl-Johan:

Yes. The traditional telecom industry talks about service, application and content. We talk a little different. We don't talk applications in the same way that they do. What we talk about is IP based broadband services. Which are categorized in different classes of services, with the "content" that you as a service provider has defined, based on the way you want to sell it. With our technology this is in control of the service provider and this has also to do with speed, quality of service and how you allocate that to different service "content" offerings. Secondly you have the traditional content which is services that you provide a channel for from other content providers. And of course they are in IP format. Then you have the third one as we see it, which is Web applications, where the service provider makes an agreement with the Web content/application provider, a deal where you would share revenue for the Web content or Web services that you provide on your network to the end user.

George:

So for instance, SalesForce.com could make an agreement regarding service delivery through a Mobile WiMAX network and include revenue sharing as part of the agreement?

Carl-Johan:

Yes, that's right, or any other Web application service provider, but also from individual Web sites, which we have a tracking mechanism to handle down to individual end user. Salesforce.com already has something going on the VOIP side. They have cooperation with a VOIP provider where they provide the business application (CRM) side for the VOIP provider.

With LocaLoopNet™ the WiMAX service provider doesn't need to separate VoIP as in legacy VOIP businesses. It is just another IP package enabled as a separate class of service by our platform. For example, I spoke with Jeff Citron, the founder of Vonage sometime ago, and I asked him if he would be interested in having a revenue sharing agreement with us and our WiMAX service provider customer if we had the ability to provide the tools to empower the end user to choice Vonage VoIP service? Yes, he said he would be very interested in that.  As you understand, with our enabling technology there are plenty of opportunities for WiMAX service providers to grow revenue, not available to them before.

 George:

This is disruptive across a lot of industries.

Carl-Johan:

Have you read Clayton Christensen's book "The Inventors Solution"?  According to him there are two types of disruptions; new market disruption and low end disruption and there is the hybrid where you disrupt on both levels.

LocaLoop's technology invention is disruptive on both levels. First, the new market disruption; we enable a whole new market to open up (underserved broadband internet service markets) where incumbents have not been able to provide that service before, because now we enable the service to be simpler and more affordable to buy for consumers. And it induces the incumbent to ignore the attacker. Second, the low-end disruption: we enable WiMAX service providers to be profitable on an affordable price for consumers that drive mainstream broadband internet service adoption also in lower density areas not possible before. Taking root at low-end of the mainstream value chain, motivating incumbents to flee the attacker to higher margin customers.

We believe that our enabling technology has the potential to be a very positive force in closing the digital divide gap, bringing attractively priced mobile broadband internet to all, both consumer and business users.

George:

Is there anything else that you wanted to add?

Carl-Johan:

I would like to mention a little bit about our patents. We have six patents pending on the things I talked about on the distributed intelligence, the automated NOC with the MVNO concept, the web management and also some other features for user generated content. We can be very relevant here. We defined and filed all applications in early 2004 before the WiMAX hype started.

More information about Localoop here...

This interview ran in our June 19, 2007 newsletter issue.