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Success at hand, but only in rush

THE BALTIMORE SUN

George M. Davis was gathering with family for Fourth of July festivities last year when his long-time friend and co-worker David S. Oros called to key him in on a plan he'd been mulling for weeks.

He wanted to take the young wireless communications company he'd started, Aether Systems Inc., public. And, Oros wanted it done with due haste - before Christmas.

A few weeks later, Wall Street financiers assembled by the hard-charging Oros were aghast. "They all shook their heads and said it just couldn't be done," recalls Davis, now president of Aether. "But Dave said, 'It has to or we will miss a huge opportunity.'"

Less than four months later, the then little-known Owings Mills start-up went public, raising $70 million. It was no king's ransom but a healthy enough bankroll for Oros to quickly begin building the company's data network center and other infrastructures.

He wanted desperately to gain an early advantage in a business he perceived would soon prove red hot: linking big corporate, or "enterprise," computer networks to legions of workers toting handheld computers, cell phones and digital organizers. The model he looked to was another explosive, new industry: Internet service providers that strike outsourcing deals with big corporations to manage and link their networks with far-flung workers and customers' computers.

Today, less than two years later, the company Oros launched has emerged as one of the most closely watched in the booming wireless industry. Its fortunes have skyrocketed, testimony to Wall Street's soaring expectations for an industry barely out of the crib.

Its shares, though volatile, have enriched early investors. Shares, which hit the street at $16 in the IPO, zoomed to an all-time high of $345 this past March just before the company conducted a secondary offering that raised $1.4 billion - a staggering sum for a company virtually unheard of 12 months earlier. "Air of the gods" indeed, as Aether's Greek name translates.

Shares since have tumbled back, trading below $200 in recent weeks. Still, the fledging company, which isn't projected by analysts to post a profit for several more years, has a $7 billion market capitalization and has grabbed big-name customers and partners including Charles Schwab & Co., Visa and Microsoft Corp.

At the heart of Aether's success is its proprietary Aether Instant Messaging (AIM) software that overcomes the fragmentation that has beset the wireless industry. AIM makes it possible for normally incompatible handheld devices - pagers, cell phones, digital organizers - that use different digital languages and transmit their signals over different wireless networks to communicate.

The software in effect translates the various digital signals into a common tongue that can be transmitted over any wireless network and received and understood by any "smart" handheld electronic gizmo.

"This kind of technology will make wireless communications much more useful to the end user," said Seth Kirkham, co-manager of the Investec Guiness Flight World Wireless Fund, a London-based mutual fund with a stake in Aether.

Timing mixed with talent

Even industry analysts used to seeing technology start-ups' valuations soar on market hype say Aether is a standout.

"It has been a dramatic story," said Riyad Said, a wireless industry analyst with Friedman, Billings, Ramsey in Arlington, Va.

The venture's success also can be attributed in part, noted Said, to Oros' and his financial officers' timing. Soon after the company's $1.4 billion offering in March, the public financing window for young technology companies slammed shut.

"They now have a war chest of more than $1 billion. That's funding that can carry them for a long time," he said. "It's given them the ability to pursue acquisitions and partnerships that have really put them in a leadership position in an industry, which by almost any count figures to be very significant over the next decade."

Oros said the urgency for a quick secondary offering came from a close study of the stock market by himself and David Reymann, Aether's chief financial officer.

"We noticed that the Nasdaq had really hit a pretty high level in about January and we were in a pure momentum market that wouldn't last much longer," he recalled. "We had to act fast. It was a chance to get a big valuation, and in doing so create a barrier for others entering the space."

High risk? You bet. Oros and the company's management team thrive on it. "I guess you could say this is a company built on calculated risk," he said.

A ruddy-faced bear of a man who laughs often at his own statements, Oros says one of the key risks he took was when he decided in 1996 that Aether would stop accepting wireless communication consulting contracts - its initial business focus and only source of cash flow at the time.

Oros, 40, said he first began to see the opportunities for bridging this digital divide years ago while heading up a wireless communications unit for his then-employer, Westinghouse Electric Corp.

Davis, who left Westinghouse to join Oros' fledgling operation, had known that Aether would at some point dedicate resources to developing the software. Oros had sketched out his plans for Aether for him on large flats of presentation paper late at night in the Oros family kitchen.

18 months and $2.5 million

With that roll of the dice, Oros got $2.5 million backing from Telcom Ventures, an investment group started by Teligent Inc. co-founder Rajendra Singh. Oros then directed a group of eight Aether software engineers and wireless gurus to focus solely on developing a software program that would make possible seamless communication between dissimilar wireless devices.

"The goal was to shield the end user from the intricacies and nuances of wireless network characteristics," said Dale Shelton, a former engineer for UPS' wireless logistics unit, RoadNet, and one of the engineers involved. He is now Aether's chief technology officer.

It took 18 months - an Ice Age in software development time.

Now, some wireless industry experts believe that the AIM software has a good shot at becoming the standard, or "protocol," for moving information between disparate wireless devices.

Other companies, notably the Microsoft-Qualcomm-backed Wireless Knowledge, and 724 Solutions Inc., have developed software that competes for portions of the wireless networking niche, namely in the banking and finance industries. There's also a slew of start-ups on the horizon. Meanwhile, industry analysts believe that computer industry giants IBM and Electronic Data Systems are likely to enter the game.

The reason: more and more big companies are embracing the idea of zapping all kinds of data from corporate databases to and from armies of workers toting handheld wireless gizmos to save money on paperwork and gain a competitive edge. Also, online and other retailers want it to be easy for people to make purchases using handheld devices with "electronic wallet" capabilities.

The market for such services is projected to be substantial. Forrester Research analyst Mark Zohar predicts that the number of people using a mobile phone, or other "smart device," in the United States will grow to a 61 percent market penetration rate - 177 million by 2005, up from about 103 million today. And almost 100 percent of the devices will access the Internet, he said.

Oros wants to assume the undisputed leadership spot before well-heeled warriors such as IBM jump in. That has Oros urging the Aether troops to warp speed. The mantra at Aether these days: "If we're not moving fast, we die."

No time to waste

Move fast the company has. Aside from the IPO in October and the secondary offering in March, the company has snapped up other promising outfits in the wireless software and integration niches in the United States and Europe, and lined up several household name clients in the financial services sector, including online investment pioneer Schwab.

Meanwhile, Oros and company also have used Internet start-up investor CMGI Inc.'s model of building up money to invest or partner with other promising companies and then spinning new companies.

Aether's done that with Sila Communications, a European stock and financial news service started with news service Reuters PLC. In the United States, Aether has partnered with 3Com Inc. to launch OminiSky, a consumer wireless data services venture that recently filed to go public.In recent months a week hasn't gone by that the company hasn't announced a partnership, affiliation or business arrangement, ranging from agreements with Visa to Microsoft. Now, Oros has the company's growing sales force hawking the company's services to a number of industries, from transportation and direct sales to health care.

While the company will license use of its software program to corporations, Oros is betting that overburdened information technology departments will opt for Aether to manage, or "host" their specific data needs, or "applications" from the data network center it has built in Owings Mills.

In those arrangements, Aether will sell companies subscriptions to its wireless networking service, take care of providing workers with modem-enhanced Palm organizers and eventually other handheld devices, and handle customer service support.

It's a tall order. So perhaps it's no wonder Oros anticipates the company workforce will mushroom fivefold during the next 12 months to more than 2,000.

Like most technology start-ups, Aether isn't profitable and won't be for several years. For its most recent quarter, which ended March 31, Aether posted a $33.3 million net loss on $5.4 million in subscriber and other revenue. Analysts estimate losses will build until 2003, when it moves into break-even territory, and then to profitability.

A University of Maryland, Baltimore County graduate who grew up in Catonsville, Oros went to work almost right out of college for defense contractor Westinghouse at its sprawling facility near Baltimore-Washington International Airport.

There, working for Westinghouse's wireless unit, he became fascinated with the potential applications even before the Internet became a fixture.

In 1995, Oros and other Westinghouse executives made the rounds of venture capital firms to get backing for the wireless unit as a spinoff. Financiers either weren't interested or demanded huge stakes, he recalled. Westinghouse shuttered the unit.

Oros found himself sizing up the proverbial two paths diverging in a wood. He could go back to designing radar systems or start his own wireless company based on what he believed would be an explosive market. The convenience and immediacy of wireless data communications, he reasoned, offered huge advantages to corporations.

An avid golfer who once sported an enviable 8 handicap, Oros took the long shot.

He dug into his own bankroll, figuring he could initially make ends meet by offering wireless consulting services to corporations trying to mesh their computer systems with wireless communications technologies. In Oros' mind, NexGen, as the 15-person venture was called at the time, would carry the company along until it could develop the software.

Today, Oros often seems as surprised as anyone at how well Aether's software technology and its potential applications have been received.

On paper at least, Oros has catapulted into the financial stratosphere. When he bolted Westinghouse, he was pulling down a respectable salary under $100,000 a year. Today, according to securities filings, his net worth from Aether stock and other holdings - he holds 17 percent of the company's shares - is more than $100 million, though the number fluctuates with the stock price.

But Oros professes to be not so much dazzled at the success as in awe of it. And he's convinced that the biggest risk Aether faces now is hesitation.

Said Oros: "This is going to be a big company game. It will be all-out war. We can't be making baby steps. We have to think big. Everybody will be positioning their guns in this direction very, very soon."

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