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Not that long ago, being a small wireless startup was one of the best things you could be - next to being a dot-com startup, that is. Unfortunately, the environment for young tech companies has changed dramatically in the past year, and that has made life a grind for Calgary-based Wi-LAN.

The company hit the charts with a bang earlier this year, not long after it listed on the Toronto Stock Exchange, when its stock soared as high as $94 from the $10 range in October 1999. That gave the tiny wireless technology company a market value of close to $2-billion.

Unfortunately, that was long ago in a galaxy far, far away. Wi-LAN's shares are currently trading in the $12 range, giving it a market capitalization of less than $250-million. Investors who decided the company was the next wireless superstar and bought the stock at the $90 level have watched more than 85 per cent of their investment disappear.

So what happened? The harsh reality is that creating a wireless networking company from scratch isn't easy, even when your technology is leading edge. It's hard enough to do when venture capital dollars are flowing like water, as they were last year - when the easy money disappears, however, it becomes exponentially harder to pull off.

Not only does Wi-LAN have to prove that its wideband OFDM (orthogonal frequency-division multiplexing) technology is the best high-speed wireless standard for telecommunications and Internet networks, but its customers are also being squeezed by the very same industry pressures that have brought Wi-LAN's stock itself down to earth.

Wi-LAN's recent difficulties with 4G Network Technologies sum up the problem: the U.S. company is trying to create a national high-speed telecom and data network to compete with everyone from AT&T to Sprint, and hoped Wi-LAN's wireless products would enable it to build a network more quickly and cheaply than it could with standard equipment.

In theory, there's nothing wrong with that idea: One of Wi-LAN's existing customers, Swedish telecom company Telia AB, has been using the Calgary company's products to upgrade and expand its existing network for more than a year now. The problem for companies like 4G - and another would-be Wi-LAN client based in the U.S. called Wireless Matrix - is that they don't have an existing network like Telia does.

Even though products like Wi-LAN's can reduce the cost of building out a network, you still have to have a truckload of cash to do what 4G and Wireless Matrix want to do, and the sources of financing for risky telecom startups are few and far between. Wi-LAN's slide was accelerated recently when 4G said one of its backers had pulled out, leaving the company unable to buy as much of Wi-LAN's equipment as it had expected.

That in turn led to the Calgary company's announcement on Monday that its revenues next year will likely be about $50-million - about 350 per cent higher than they were in fiscal 2000, but almost 40 per cent lower than the $84-million Wi-LAN had led investors to expect for 2001. The company said that it still expects to break even on operations in 2001 and to be profitable the next year, but investors remain skeptical.

Some critics have said in the past that Wi-LAN's earlier revenue projections were overly optimistic, but CEO Bill Hews says the company's forecasts were a reflection of what its customers said their needs were. Some of Wi-LAN's customers may have scaled back those needs for the time being, but Mr. Hews says overall demand remains intact.

Wi-LAN faces another potential hurdle, however, which is defending its technology from competitors, including the giant networking company Cisco Systems, which has said it plans to introduce its own OFDM-style technology. The patent issue was worrisome for investors even before Wi-LAN's stock began its latest plunge, and it hasn't gone away. If anything, it has become even more of an issue with the news that Wi-LAN is suing an unnamed company it claims is infringing on Wi-LAN's patents.

Wi-LAN founder Hatim Zaghloul, who co-founded the company in 1982 with partner Michel Fattouche (CEO of Cell-Loc Systems), has said he is confident Wi-LAN's patents will be upheld, but defending intellectual property can be time-consuming and expensive - and even though Mr. Hews says the company is ready to do whatever it takes to protect its claims, a possible lawsuit is yet another question mark for nervous investors.

E-mail Mathew Ingram

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