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Peter Allen, CEO of DragonWave in Ottawa (Blair Gable/Photo by Blair Gable)
Peter Allen, CEO of DragonWave in Ottawa (Blair Gable/Photo by Blair Gable)

Corporate Strategy

DragonWave: Profiting from a data-centric world Add to ...

The wireless airwaves are getting crowded.

Increased smart phone and mobile Internet use is quickly filling the ether with wireless data, threatening to clog telecom providers' networks if not handled properly.

In the United States, AT&T Inc. has been hit the hardest, partly due to its monopoly on the bandwidth-hogging iPhone: In dense urban areas, customers have even formed protest groups as the company grappled with a 5,000 per cent increase in data usage over the past three years, leading to dropped calls and wonky connections.

Ottawa-based DragonWave aims to capitalize on the problem. Its microwave radio technology helps carriers handle the deluge of data by transferring wireless data between cellular towers and carriers' core networks more efficiently.

"The challenge to the [telecom]service provider is pretty extreme," says Peter Allen, DragonWave's president and chief executive officer. Telecom carriers must upgrade their networks to handle the surge in data, he says.

His company has grown quickly over the past year, inking deals around the world. But challenges abound: On Friday, DragonWave reduced its revenue outlook and was vague about future order activity from its main customer, Clearwire Corp. The news sent its shares plunging 25 per cent.

Clearwire accounts for the vast majority of DragonWave's revenue. The contract is lucrative, but the reliance on one customer remains a major concern, even as DragonWave extends its presence and attempts to sign up other big carriers.

As mobile video becomes more popular, the amount of data flowing through carriers' networks is becoming problematic: An iPhone takes up as much space on a network as 30 regular cellphones, according to Cisco Systems Inc., and a laptop's mobile Internet stick consumes 1,300 times more. But no one wants to pay 30 or 1,300 times their current monthly bill.

This is where DragonWave comes in: Its technology lowers the cost of transporting data. In Canada, Quebecor Inc.'s Vidéotron Ltée is building its wireless network using DragonWave's equipment; Wind Mobile already employs it.

"It's pretty clear to me that the next generation of customer for the mobile operators is going to be the 'mobile appliance guy,' who wants good connectivity to his iPhone, his iPad, and whatever appliance comes next," Mr. Allen says, noting that he doubts any wireless carrier will be able to hold out on offering "unlimited" plans as competition increases.

"It's all about data now," concurs Anthony Lacavera, chairman of Wind Mobile, which offers unlimited data plans.

Between 200 and 500 carriers will shift over the next three to five years from current 3G technologies to the more data-centric, 4G long-term evolution (LTE) wireless networks, estimates Peter Misek, an analyst with Canaccord Adams Inc. This creates potential for DragonWave, he says, noting that Clearwire's 4G wireless network acts as a showcase for other potential deals.

Unfortunately, it also showcases DragonWave's main hurdle: wooing other big carriers. Analysts are worried about how long it will take to land more revenue-generating contracts, given the long sales cycle in the telecom equipment business. Kris Thompson of National Bank Financial Inc. estimates that other large U.S. carriers, such as Verizon Communications Inc., will continue to rely on larger equipment suppliers such as Alcatel-Lucent.

Regardless, the company is reaching overseas, winning contracts in countries such as Pakistan. In the developing world, DragonWave's systems are used to extend high-speed broadband Internet where land-line infrastructure is non-existent.

"We can now use a piece of [our]profitability and invest it to be more present in international markets," Mr. Allen says, noting that Internet connectivity is a key part of many country's development plans. "Mobile broadband is going to sweep the world."

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