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Ricochet Wireless and Metricom (MCOM, MCOMQ) of San Jose (Los Gatos)CA. - what happened?
I feel I owe it to Ricochet/Metricom investors and customers to tell them what happened with the Ricochet WebConnect! service and Ricochet in general, and how this all affected WWC and their customers. It will probably be of interest also to many others...can you say JUDGE?
Why am I telling you this now?
First of all, this briefing was delayed due to the fact that WWC was a public company until recently, and as such were subject to SEC rules and regulations, and firm advice from legal counsel and board members, which prevented us from making statements containing anything more than rather bland and limited information.
In February 2002 WWC completed undoing the merger we did in March 2001 with Intellicall. They became WWC Delaware (and have nothing to do with the Ricochet business) and WWC became WWC Florida (a private company as before, with all the parts of the business that were related to Ricochet services and customers, and other wireless services we provided).
Metricom’s demise:
As you probably know, Metricom filed for Chapter 11 Bankruptcy protection on July 2 nd 2001. Metricom was the owner of the Ricochet network, technology, patents, and the backbone carrier for that network. WWC (formerly known as Business Tel) had, by July 2001, worked directly with Metricom for about 6 years, and they had seen them go through several financial crunches...each time with the end result of them raising the money needed to carry on.
Contacts at Metricom expected that the funding again would become available at the last minute, as had happened several times before. Imagining the network would be allowed to actually be shut down seemed very unlikely. Nevertheless, Metricom was unable to raise additional funds, and on August 3rd 2001 informed WWC that they would be shutting off the network on August 8th. WWC attempted to obtain an injunction against this, to at least provide 30-day notice to our customers, but they were not able to obtain such, and consequently stopped billing our customers as of August 3rd.
It should be noted that two groups kept Metricom afloat during the 90's: WWC, and even more notably - Vulcan Ventures, Paul Allen's investment group.
Mr. Paul Allen saw the potential for Ricochet more clearly than anyone, and he, more than anyone else, kept it alive...that is until poor marketing, extravagant spending, and gross mismanagement from the executives at Metricom became more apparent.
WWC’s history with Ricochet:
WWC was at this point doing business almost exclusively with Ricochet - more than 99% of our business was directly tied to providing Ricochet service to our customers. WWC worked with Metricom since 1995. Metricom in 1995 needed someone to make Ricochet sales and thereby build up a subscriber base for its first-generation 28kbps service (R1). WWC took on that function, and first helped Metricom establish their internal sales call center.
After getting that established and operational, WWC continued selling R1 Ricochet service as an agent for Metricom up to 1999. In the final analysis, WWC was really the only successful sales channel Metricom had for its R1 service, and WWC ended up signing up about 60% of all Metricom’s customers on this service between 1995 and 1999. WWC was told several times by Metricom executives that without WWC, Metricom and Ricochet would simply not have survived to 1999.
When Metricom was ready to launch their second-generation 128kbps service (R2) in 2000, their plan was to sign up large ISPs, such as MCIWorldcom, Earthlink, Mindspring, AOL, Sprint and more, and to get a large subscriber base by having these ISPs market Ricochet to their own existing customer bases.
Metricom secured additional funding, in large part from MCIWorldcom, who reportedly would receive preferential pricing from Metricom and would have a large contract to provide Metricom with data circuits for the R2 Ricochet network. Also, Worldcom would reportedly have exclusive rights to market Ricochet to some of the major ISPs such as AOL, Microsoft and Earthlink.
Clearly, WWC (then known as Business Tel) was not at this time an ISP and Metricom had terminated their customer-acquisition contract with WWC. Metricom urged us to find a new partner whose product we could sell, or to establish a new customer-acquisition contract with one of the large ISPs they planned to sign up.
We talked to Worldcom and other ISPs and determined that the best bet would be to become an ISP ourselves, develop the skills needed to do billing, customer service and technical support, and to establish the needed technical facilities to deliver the service.
In the end, Metricom very reluctantly agreed to let us sign up as a reseller of their R2 service, but only after they had signed up MCI and other large national ISPs first (as this was necessary to show their board and investors that they were following the model of signing up these national ISPs).
WWC started selling the new R2 next-generation 128 kbps Ricochet service in July 2000 on the day Metricom launched the service in San Diego and Atlanta. From the very first day, WWC outsold Metricom’s other resellers COMBINED.
It soon became clear that WWC was able to understand the potential customers, to reach them and to sell and deliver the service in much larger numbers than all Metricom’s other sales channels combined.
When Metricom turned off the Ricochet network in August 2001 they had 10 resellers, of which 8 were actively selling and delivering the service, including WWC, MCIWorldCom, Juno, GoAmerica, Aplus.net, NuWave, UnPlugin and Direct Enterprise, with a total of 37,800 Ricochet customers. Of these, 24,000 (63%) were WWC customers, 20% were MCI/WorldCom staff or customers (MCI/WorldCom reported "selling" was equipping their own staff) and 12% were GoAmerica customers.
What went wrong?
It appears from several reports that Worldcom decided not to resell Ricochet in any significant way until the service had a nationwide footprint, while at the same time PREVENTING Metricom or any resellers from landing contracts with AOL, Sprint and Mindspring to sell Ricochet. It would thus seem that MCI/WorldCom’s losses in their Ricochet investment were largely self-inflicted.
If it wasn’t clear that MCI/WorldCom really NEEDED a wireless data solution, it would be tempting to speculate that MCI’s actions and inaction were designed to sabotage Ricochet and to ensure Ricochet would be removed from the wireless data industry market. MCI/WorldCom probably could not have damaged Ricochet any more even if they had tried.
Metricom meanwhile went to great lengths attempting to get the Ricochet 128kbps network deployed nationwide (in 46 cities) at fantastic and extravagant cost, rapidly burning up their 1.5 billion of cash in an effort to get nationwide coverage (in the hope that MCI would start selling) instead of building the network in a more economical and fiscally responsible manner and at a pace that would allow their revenues to make their cash-flow last.
Metricom also purchased (upfront and in advance of need) enough proprietary Ricochet equipment to deploy all these cities, and at the time of bankruptcy Metricom reportedly had well more than half of this inventory still sitting unused and undeployed in their warehouses.
Also, Metricom kept on hundreds of extra engineers on large salaries long beyond the time the needed them.
The initial marketing campaign for R2 consisted of expensive and unworkable tv ads. Metricom made some attempts to boost sales for MCI/WorldCom and GoAmerica by providing each of these companies with a $1.6 million advertising campaign in Atlanta and Dallas respectively. MCI/WorldCom reportedly received 15 sales from this - other than MCI employees (thus costing just over $100,000 per subscriber), which would seem a testament both to MCI’s lack of preparedness and to Metricom’s waste of funds on ineffective marketing.
In early 2001 Metricom began to realize that funds were being spent at an alarming rate, and a new CEO, Ralph Derrickson, (a Vulcan INSIDER--go figure) was brought in.
From the outset Ralph seemed determined to reduce WWC’s role in Ricochet sales (despite being the only successful reseller and having outsold all other resellers combined) and ensured that no advertising budget was allocated to WWC, and seemed to have doubts from day one that the Ricochet business model could be made profitable.
A change in contract terms was attempted but WWC never agreed to such and we continued signing up more customers every month, always outselling all other sales channels combined.
With the help of many good friends within Metricom and in accordance with WWC's contract, we became one of the 2 resellers to do the San Diego Ricochet campaign to sell Ricochet at $45/month as a DSL replacement localized service. We were extremely successful with this and signed up record numbers on this program, but Metricom nonetheless terminated the program early.
Ralph Derrickson was paid millions, and brought in a marketing guru friend for more millions. This---at a point in time when Metricom was hurting for funds---seemed very strange to me. They tried raising money for Metricom. When that failed they tried selling the company, and when that didn’t work out they reportedly decided that putting the company into bankruptcy would expedite getting an offer to buy.
Rescue attempts:
When Metricom went bankrupt and turned off the service, WWC was left with no revenue and large commitments to and bills from modem manufacturers and circuit providers, undelivered service liabilities (from customers having prepaid for annual service), and a host of other liabilities.
WWC immediately provided dial-up service for its customers and quickly started selling CDPD wireless internet access services as a partial (and much slower) replacement for the lost Ricochet service.
Determined to get Ricochet service restored, WWC staff went on a campaign to find a buyer for the Ricochet network, and over the course of several months worked directly and closely with a number of prospective buyers. During this process WWC had access to the data Metricom was providing to potential buyers, and found their data to be grossly distorted and inaccurate in such a way as to virtually guarantee that no one would ever buy it, much less try to make money with it.
Two examples of the false or omitted data in Metricom’s sales pitch information package are as follows:
1. WWC was mentioned only once in this package, and there was no information in the package that WWC was successful or had signed up 24,000 paying subscribers.
2. It was stated that Metricom’s successful campaign in San Diego to sign up consumer customers was done at an unviable cost of $1500 per subscriber. While this is correct if one factors in the $8 million advertising budget Metricom spent on this campaign, it completely fails to consider that Metricom spent half this advertising on directing customers to Aplus.net (who signed up 436 customers) and the other half on directing customers to WWC (who signed up 4500 customers). Metricom’s $8 million advertising campaign was ineffective and unfocused (as was their earlier $1.6 million campaign for MCI) and was not the cause of the subscriber increase. WWC got the subscribers by effective on-the-ground sales, demonstrations and effective telemarketing, at a price point that made sense for consumer sales. The real cost of customer acquisition for this project for WWC was below $150.
There was a host of other incorrect and/or highly misleading data in Metricom’s presentation, virtually guaranteeing that no one would invest in or buy the Ricochet network.
Eventually Aerie Networks was able to buy the Ricochet assets for under $8.5 million. This was a surprise even to Aerie Networks, who expected other bidders to outbid them. As it turned out, other potential bidders (including WWC) had been told by the interim Metricom CEO (provided by the restructuring/liquidation firm Nightingale & Associates during the bankruptcy process) that Metricom already had a firm bid in excess of $20 million, and that bids below that number would be a waste of time. As so much other data coming out of Metricom, this turned out to be false information, and contributed directly to Metricom having to accept Aerie’s bid, since all other bidders had been scared away by the interim CEO Ralph Derrickson.
While all this was happening, WWC worked directly with MCI/WorldCom, Metricom personnel and ex-Metricom volunteers, NYC officials and others to get Ricochet modems to NYC and the Ricochet network turned back on in lower Manhattan after Sept 11.
After considerable pressure the interim Metricom CEO eventually agreed to let this happen, provided the city guaranteed to cover all Metricom’s costs in doing so. We arranged for Ricochet modems to graciously be donated by Sierra Wireless and for laptops to be generously donated by Hewlett-Packard, and WWC provided key personnel to coordinate all this, do modem installations and training and all support functions, email etc. MCI/WorldCom donated time and data circuits, and Metricom provided the support needed at their end, while ex-Metricom volunteers in NYC worked long and hard on getting the network back up.
From the day before Aerie won its bid for the Ricochet assets, WWC has offered to assist Aerie in bringing the network back online, at least in the San Francisco Bay area. We demonstrated exactly how to relight the SF Bay Area profitably and quickly. WWC was in a hurry to relight Ricchet, for its customers, but apparently the investment group behind Aerie then advised Aerie to "slow it down, don't take the first deal that comes along". So far no viable agreement has been reached on this despite several high-level meetings, and due to an astounding lack of responsiveness at Aerie these negotiations have recently been abandoned. WWC found and brought to the table an investor with $5 million to invest in rapidly bringing Ricochet back in the San Francisco area. Despite several meetings between all concerned, unacceptable demands from Aerie Networks and their lack of effective action resulted in all this being dropped. To this day the only apparent sign of Ricochet coming back to the San Francisco bay area are promises and press releases. A deal with Sempra in southern California has been ‘imminent’ since November.
It appears that Aerie Networks, like Metricom before it, has chosen to---
1. Ignore that WWC was the only successful reseller of their product.
2. Delay a deal with WWC until they have signed up a big-name partner who fits into their model of utility-partner resellers, just like Metricom delayed a deal with WWC until they had signed their (in our opinion) ultimately disastrous deal with MCI/WorldCom.
3. Remain dedicated to an unsuccessful business model despite all evidence that it is not working.
It seems a sad irony that Aerie Networks, while strongly determined to avoid Metricom’s mistakes, appears to be making the same mistakes in a new way - destined to have the same results. All the while, they are in the "testing" phases, they say, ensuring the system is reliable in the metro Denver area. The existing Ricochet system was tried and true. Aerie is doing nothing except wasting time, money, and energy as they "test". Qualcomm is about to surpass(if they haven't already) the wireless data technology. Aerie needs to relight all the markets ASAP and begin a logical marketing campaign.
WWC has worked very hard since August on finding ways to bring Ricochet back in service. Our customer base has been incredibly loyal and supportive, and many customers have stated that they would be willing to pay far more to get the Ricochet service back. We have worked for some time without pay or compensation on this, continuing the cause despite having to find other means of income.
WWC has been contacted repeatedly by groups wanting to work with them to get Ricochet revived, some of them composed of ex-Metricom personnel, some composed of investors wanting to take Ricochet to specific cities or overseas. We have talked to most of the large US cities that Ricochet was deployed in, and all were interested in getting the service back. We have talked to the White House and the Office of Homeland Security about Ricochet as a possible backup data network, and in general have done everything we could think of to get the right people interested in reviving Ricochet.
One investor with close ties to Aerie Networks was briefed in detail by WWC personnel and after 3 weeks of intense due diligence investigation and WWC documenting the true data as a counterpoint to Metricom’s information package, this investor and Aerie were convinced of the viability of buying Ricochet. Another investor with the needed funds and the interest was unfortunately found after Aerie bought Ricochet - unfortunate as this investor proved far more capable than Aerie in getting things done rapidly and effectively.
However, at this point in time, after hearing reports of Aerie Networks advising others against working with WWC, we have decided to invest our energy and our time in new games. It seems unlikely that Aerie will present a viable opportunity for WWC or anyone else, but hopefully someday another owner of Ricochet will appear, one who will be effective in making this unique technology available to millions.
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