xG Technology secures financing with U.S. infrastructure partner deal
Florida-based communications vendor xG Technology this week announced that private company Treco International—backed by Swedish billionaire Johan Bohman—has signed an agreement to act as xG’s exclusive infrastructure partner for U.S. deployments of its xMAX systems.
Described in a press release as a “preliminary, binding agreement,” the deal calls for Treco to purchase base stations from xG Technology—two weeks ago, Treco placed a $75 million order for 1000 base stations with an option for another 4000 base stations at the same per-unit price—and rent the equipment to xG Technology’s territorial partners providing wireless xMAX service.
Rick Mooers, xG’s chairman and CEO, said the arrangement is designed to remove the need for territorial partners, such as regional Internet service providers and local telecom companies, from having to secure financing for the upfront capital costs necessary to deploy an xMAX network. In the current tight financial markets, this kind of financial arrangement is critical to xG’s ability to roll out xMAX systems across the country, he said.
“It made our business model so simple,” Mooers said. “We don’t have to go to our customers and tell them they have to buy our base stations now. They can get in for no money down.”
While the infrastructure deal removes the need for territorial partners to secure upfront capital, timely payments need to be made and various benchmarks—for example, coverage area and market penetration—must be met for an operator to maintain its xMAX market exclusivity, Mooers said.
Given the fact that an xMAX service provider will not need upfront capital, will benefit from xMAX’s coverage efficiencies and will not have to buy spectrum—the xMAX system is designed to operate in the unlicensed 900 MHz band—the service provider should realize a return on investment quicker than they would under a traditional cellular model, Mooers said.
Meanwhile, the infrastructure deal also is a significant milestone for xG, Mooers said.
“What it does is that it makes sure that we never have a cash or finance issue,” he said. “It’s a $375 million contract [assuming Treco International exercises the option to buy 5000 base stations] at 80% margins, all of which we expect to deliver at the end of this year and next year.
“In this type of market, you better lock down where you’re getting cash from and where you’re getting finance from—if you need cash, you’re going to give your company away.”
Meanwhile, Mooers acknowledged Bohman as the primary backer of Treco International and Casper Holdings, which owns a 4.4% share in xG Technology after a European media outlet identified the secretive billionaire. Bohman made his fortune primarily in European real estate markets and is a shareholder in one of Switzerland’s private banks.
“[Bohman] said, ‘I can back your company without any debt. I have no debt right now. This is the kind of market where you build companies while you watch everybody else get scared and fall all around us,’ Mooers said. “He … knew that, in this type of market, he who has the cash rules. He cut himself a great deal, but we have a good technology, and we cut a great deal for us.”
In a prepared statement, the Treco Group—the parent company of Treco International– noted that it has “many years of experience backing successful entrepreneurial ventures” and is “thrilled to be a part of something which will have such wide ranging global impact.”
Mooers said xG expects to roll out its xMAX service first in the Miami-Fort Lauderdale area, near xG Technology’s headquarters. That system is expected to be deployed and demonstrated before the end of the year.
Rollouts in other regions of the U.S. are expected to begin early next year, coinciding with mass production of xG Technology’s handsets, which are designed to provide VoIP and data applications over both xMAX and Wi-Fi networks.
Although xG Technology officials are focused currently on the more lucrative commercial market, Mooers has said he believes xMAX’s coverage and power-efficient characteristics are ideally suited to first-responder communications. If the company was more mature, he believes it would consider a bid on the 700 MHz D Block, but such a move would not be practical at this early stage.
“I would love to grab a piece of that once we figure out what public safety’s need s would be, but the problem is just timing,” he said. “We do have the solution; it’s just that the market doesn’t know it yet.”