If physicist Luke Stewart can do what he says he can-send voice, video, and data thousands of miles over electric Unes at the speed of light-lie will produce perhaps the most significant development in communications since Alexander Graham Bell. That could take the company he cofounded in North Dallas, Media Fusion L.L.C., to heights greater than Microsoft in both earnings and market value.
Already the company has a $.1.5 billion licensing deal with a company representing rural electric cooperatives and their 30 million customers, about a dozen similar deals pending, and $100 million offers to buy equity in the company. That’s a lot of dollar confidence in a system not yet fully proven.
Stewart’s technology sounds like science fiction, complete with microwave lasers blasting through magnetic fields. Like all truly great ideas, however, it is elegant in its simplicity,
While scientists have been trying to figure out a way to send information through electric wires since the 1890s, Stewart instead found a way to hitch a ride on the magnetic field created around those wires when electricity passes through them. That avoids the distortion and signal loss that occur when you try to send information through copper carrying thousands of volts.
The implications are mindboggling. Nearly K5 percent of the world has access to electricity, compared to 12 to 15 percent with phone service, the Internet’s prevailing delivery system. If Stewart’s technology works, the Internet and all its resources would boldly go where they have never gone before. Like rural America, where fiber optic lines and cable wires remain a far-off vision because it’s too expensive to string highspeed data or cable wires to just a few homes per square mile. Or the Third World, where the Information Age has passed by most of the population.
But if you were able to use existing electric lines in those far-away places and give all those billions of people access to the content now being delivered over the Internet. imagine the economic and cultural impact on the planet.
More densely populated urban areas in the United States are already accustomed to getting on the Internet either through phone lines or. more recently, via cable lines, which still don’t reach anywhere near the number of households as phone or electric service, Take Dallas, where only half the households are wired for cable. Stewart’s technology would add a third option to the competition, and give Internet users iccess at astonishing speeds millions of times greater than a typical dial-up computer modem and thousands of times faster than cable. The only limitation is your computer’s processing speed. This could have tremendous implications on how we work and even how we think.
“If it works, it changes the world,” says Dr. John Fike, who heads Texas A&M’s Center for Telecommunications Technology Management and has written two books on electronics and data communications. “Peopie have been looking at all that copper out there for a long time. I hope he’s right.”
So do about 100 early investors in Media Fusion, the North Dallas company Stewart formed with investor Edwin Blair less than two years ago. Already, a growing corps of potential corporate partners is lining up to license Stewart’s technology. Entertainment compa-nies, telecommuni-cations companies. Internet service providers, software makers, computer and electronics manufac-turers, and electric utilities are trying to get a jump on their competition by being the first in their industries to license Stewart’s patented technology. A few electric utilities already have become strategic partners and provided funding.
Stewart and Blair have had to struggle to get to this point, however, because self-interested telecommunications companies quickly realized that the industry’s dynamics could change almost overnight. “The telecom companies took this aggressive posture with us two years ago when we first came to them,” Stewart explains. “But as we get further along, the telephone industry as a whole is really going to leverage the technology, also. Yeah, they own a lot of wire and fiber optic, but they’re still in the business of helping people communicate. What difference does it make whose wire it is?”
Still, it seems almost daily that we hear about another multibillion-dollar deal merging two phone companies. Or we’ll read about a phone company buying a cable company. They’re trying to find more ways to bring information to us, but they still haven’t solved the problem. Their pipelines are still on the verge of bursting.
Take video, for example, which requires a vast amount of capacity to work right. Images continue to arrive in herky-jerky fashion with audio that makes it seem like you’re watching an overdubbed Kung Fu fight film. Stewart claims his technology has such great capacity that streaming video will arrive even better than it does on the best cable systems available.
How does Stewart’s invention work? The math and physics are extremely complicated, but the concept is relatively simple: Substitute the nation’s far-reaching, highly maintained electric power grid for all those telephone wires, fiber optic networks, and cable lines that now form the backbone of the communications industry. Then, using specific microwave frequencies, hitch a ride on the magnetic field created when electricity passes through those lines. Whether you’re in the office or at home, just plug into a chip-laden, preprogrammed device that Stewart calls a “night-light” and start accessing data, entertainment, and communications. It’s as simple as turning a light switch on and off.
Stewart knows this will work because you can “hear” a lightning strike in Miami through the electric grid all the way to San Diego. Once he realized that, he figured he could find a way to send communications signals through the electric grid, too. It was just a matter of working out the details.
And if anyone could work that out, it would be Stewart, a math whiz since childhood whose resume includes Navy training in nuclear propulsion and weapons systems, and college studies in laser-optics, computer science, and computer architecture. For most of his career, he has been an independent defense contractor, working on classified laser-guided weapons systems and imaging systems used to detect submarines. He also worked on the Strategic Defense Initiative, or ’’Star Wars,” and he still consults regularly with top-secret agencies in Washington, D.C.
While he was leading classified imaging projects at a defense think tank in San Diego, he found time in the mid-’80s to work with a fledgling Microsoft Corp. to develop what’s called “dynamic link libraries,” a memory management program that’s at the heart of Microsoft’s software. In fact, Microsoft once described Stewart in a national ad as a “visionary,” though Stewart finds the label too confining. “’Visionary’ kind of gives you this idea that you don’t know enough about business because you’re too esoteric,” the 45-year-old native Texan says.
He also used his computer genius to design systems for tank and flight simulators, and to produce special effects for two Hollywood shops. He also played in a rock band.
Talk to people who know him and a picture begins to form of a compassionate scientific genius and an old-fashioned patriot in a time when that word has lost much of its meaning. He possesses a scientist’s optimism that technology can help solve many of the world’s problems and that what he is developing will bring opportunities to impoverished areas of the world and improve the lives of billions of people.
Just before Thanksgiving two years ago, Stewart was in town visiting his fiancee’s parents and trying to find financing to commercialize his power line discovery. He and his fiancee, Kate Scoggins (now Media Fusion’s head of corporate communications), had just left a meeting and stopped at Sevy’s Grill for a drink and to go over their notes, by now spread out haphazardly in a small space surrounded by drink glasses and cocktail napkins. As Stewart stepped back ever so slightly from the crowded bar, a guy elbowed his way into the vacated space to get the bartender’s attention.
“Is that the way you always go to happy hour, with all that paper scattered everywhere?” he asked.
“Excuse me? Who are you?” Stewart replied.
“I’m Ed Blair.”
“I’m Luke Stewart and no, not actually, but we just got through with a business meeting.”
That chance encounter started a conversation that lasted through three rounds of drinks. Blair, a regular at Sevy’s, had stopped by after meeting with a financier scheduled to speak at the Growth Capital Conference Blair would be chairing in a few months. The conversation made him late for a date with his fiancee, interior designer Debbie Fain, who has since forgiven his tardiness that night.
Blair’s credits include building Triton Fuel Group into a $220 million-a-year company and owning Main Street Ventures, which created the nation’s first food court and gasoline operation. In the 1980s he headed Million Air Inc., a national aviation franchise operation. He has a reputation for being a straight shooter who knows how to run successful companies. “There’s a saying in Texas,” explains Media Fusion’s first private investor, Lynn A. Barringer. “I’d shoot dice with him on the telephone,and if he said he got a seven, I’d send him a check.”
Blair recalls being fascinated by that first conversation with Stewart. “I thought I could introduce him to some people who might be interested in working with him.” Blair says. But it quickly became clear that this was not a typical venture capital project. “This is a project for visionary investors and visionary companies that say, ’OK. I might have missed the Microsoft early days, but there’s another super company that’s going to come along and here’s a chance to participate,’” Blair says with intended bombast. In fact,Microsoft comes up frequently when you talk to people involved in Media Fusion. “You look at that early picture of Bill Gates and his group, and you ask, ’How much money would you have put in with this group?’” says investor Barringer. who owns R.2 Print Technologies and a plastics business.
Stewart joins that chorus: “Even in Congress they’re talking about us blowing by Microsoft, which we will,” he flatly states. One reason is that Stewart is building his own operating system and computer users won’t need Microsoft Windows.
Blair and Stewart started talking to Blair’s network of doctors, lawyers, and country club buddies to raise the money needed to start the company, rent office space, hire a few people, work out the patents, and start talking to companies that could use the technology and participate as financial partners. At first it was just Stewart, colored markers, and an easel. After they got their first check, the presentation was upgraded to a slide projector.
Like a pebble creating ripples in a pond, Blair’s early investors spread out and brought in others who paid 14cents a share. Recently, Blair says, a Swiss group-he won’t identify it-offered to buy 5 million shares at $25 a share for a small chunk of equity. That’s nearly 180 times what the company’s early investors paid less than two years ago, yet none has sold his interest. “When AT&T buys TCI and they get 11 million customers for $58 billion, well, what’s it worth if we give all these companies 2 billion people?” asks Barringer. “What is our company worth at that point? 1 don’t have a calculator that big.”
That’s fine for Media Fusion’s investors, but for Stewart and Blair, this is about more than money, and that goes back to their childhoods. Stewart grew upon a farm near Waco; Blair on a ranch outside Tyler. When they weren’t in school, they worked the land. Getting access to something as simple as an encyclopedia for a classroom project was out of the question. And that background motivates them.
“Luke said, ’Can you imagine what we can do for the farmers in South Africa? Now, a little 5-year-old can learn how to use a computer system and be something besides a farmer.’ Both of us being from rural America, we really wanted to focus on impoverished areas,” says Blair.
Retired Rear Adm. James J. Carey, a Washington, D.C-based Media Fusion board member who also handles government relations, elaborates: “1 travel a lot on business, particularly in the Middle East, where people are herding goats and camels. They’ve never been educated to do anything else, and their offspring will be doing the same thing. If, in fact, you can bring all these educational opportunities to anybody who has an electric outlet, through a system where people aren’t going to steal the wires because they’ll get electrocuted, that has a lot of overtones for a lot of the Third World.”
Stewart’s technology is an offshoot of another top-secret project that sought a way to synchronize computers in the global financial community. What they needed was lightning-fast, secure communications. After four years of work, he delivered the system in 1994.
“One piece of the equation that wasn’t factored in at the time we were building this network was the lowest common device, the simplest device, that a person could use to interface with a global network,” Stewart says. “And the team I was working on at the time hadn’t looked at the commercial aspect of it.”
So it was back to the drawing board. He studied phone systems, cable systems, wireless, and satellite delivery systems- everything. “The only thing I could see that could stretch worldwide to the most people, that was the least intrusive to your lifestyle, is electricity,” Stewart explains.” 1 presented the idea, but I didn’t have a clue how it would work.”
At a power line seminar in Germany in 1997, scientists from around the world discussed how to solve problems inherent in sending signals over the electrical grid: the signal’s transience, the load imbalances that can disrupt transmissions, and transformers that scrub signals off electric lines. As Stewart listened, he realized he was ahead of everyone else, but he wasn’t ready to publish his findings just yet.
He had run extensive tests in Guatemala to see if his theories worked. They did. He then took U.S. Department of Energy data and started running computer models on whether his technology would work on the U.S. grid. He consulted with other physicists from such renowned institutions as MIT and Carnegie-Mellon. In fact, seven scientists at Carnegie-Mellon are on Media Fusion’s payroll, along with six others at Southern Mississippi, near NASA’s Stennis Space Center. “They’re working on the operating system,” Stewart says. “They were the ones that designed the first parallel operating system for supercomputers.”
Then he met Blair in late 1997.
“I started a few companies myself, and I didn’t really like the idea of starting another,” Stewart says. Through Adm. Carey he had been offered a chair in advanced magnetics at MIT that was looking pretty good. Blair was persuasive, however, and finally talked Stewart into forming the company with Blairas CEO. “I said, ’I’m not really up for this grind,’” Stewart recalls. “Ed just said, ’No, this is going to be fun. I promise.’ Well, I was very skeptical about it, but I am so glad 1 made that decision because, in the last two or three years, Ed and I have had so much fun.”
Stewart looks like he’s having fun. He stands in shirtsleeves and tie at one end of a cramped conference room in Media Fusion’s nondescript office suite in Providence Towers, writing furiously on a small white board, not quite succeeding in getting his hands-or his mouth-to keep up with his thoughts.
As he explains his technology with rapidly hand-written illustrations, he becomes that friendly, perhaps slightly quirky, bespectacled professor who tried to teach you physics in college, moving quickly through easily understandable metaphors to explain his theories. At first I can’t decide if he’s the most brilliant scientist on the face of the earth or one of the greatest snake oil salesman in history. His childlike enthusiasm is infectious, and if I’d had him for that dreaded 8 a.m. college physics class, I might have learned something. What’s even more frightening is that I think I’m beginning to understand what he’s saying.
Fortune magazine reported in August that sending voice, video, and data over electric wires is still a Nobel Prize away. Stewart has been nominated for a Nobel and will probably present a dissertation in December. “Being nominated is quite an honor,” Stewart says with sincere modesty. “But to actually have a chance to win, and they assure me I do, is pretty astounding because most of the people I’ve studied under who actually won the Nobel Prize are so smart. They’ve made such tremendous contributions.”
After three hours of listening to him. I’m convinced he’s not selling anything, except perhaps a world vision of increased opportunities, especially for the disenfranchised billions living in impoverished Third World countries and rural America. He seems sincere in his desire to somehow make the world a better place.
It’s hard not to overstate what Stewart’s work might mean. His technology could bring a revolution that would inalterably change how we get information and how fast, and finally bring the Information Age to most of the globe. To do that, Stewart and Blair want to build a company based not on monopolistic designs of world domination, but on a concept of being an enlightened world citizen. In fact, they plan to keep Media Fusion small, probably no more than 200 people when it reaches its zenith. The company will license Stewart’s patented technology to anyone who can find a way to use it. They don’t plan to actually manufacture or sell Stewart’s nightlights. They’ll leave that to others who license the technology from them for a fee.
Eventually, manufacturers might incorporate Media Fusion’s technology directly into their computers, televisions, telephones, and other communications devices. It would be like having a modem built into your PC, which, if you remember, wasn’t always the case. “The reason we’re doing the plug-in device is so you can use your current appliances and not have to modify them,” says Blair, who calculates it will cost about $75 to install the 20 plug-ins that a typical house will need, plus a controller that hooks everything together.
There’s a side benefit, too. Plugging in all those nightlights and controllers with their microchips-and connecting them across the electric grid-actually creates computing power of unimaginable magnitude. If a supercomputer is essentially a group of processors hooked up in a parallel network so they can share the workload, Stewart’s plug-ins can work the same way. Because the electric current moves two ways, Stewart says his signals can move both ways, allowing all those nightlights to communicate with each other and share the workload.
“If this system is fielded,” explains Carey, “and each home has 10,15,20 of these plugs, each with little chips in them, and they’re all connected by one big set of wires called the electric grid, you’d have a supercomputer that is, in my estimation, a magnitude 10,000 times more powerful than if you hooked up all the existing supercomputers in parallel and tried to use them.” Imagine what that could mean for space travel, medical research, and just about any other task requiring a powerful supercomputer.
Stewart’s and Blair’s strategy is full of risk, not the least of which is, will this work on a global scale? It will cost from $100 million to $250 million to find out. But if it does work-and there are a few doubters out there-this could become at least a$l trillion project.
The company has some formidable competition. Canadian telecommunications giant Nortel has been trying to send signals through electric lines, but with limited success so far. This could end up being a race to see who has the best technology and who can get it to market first. Both have shown their technologies can work in limited testing, though Nortel hasn’t completely solved the transformer problem. A British company abandoned its efforts in October, and two European consortiums have failed to achieve the speeds needed to compete with other technologies.
For Media Fusion and its investors, the big test comes in the next month or so. That’s when the company will put its technology on the line in a nationwide demonstration of an HDTV video conference across thousands of miles from a laboratory at NASA’s Stennis Space Center in Mississippi to Dallas, Denver, San Diego, New York, Washington, D.C., and a site in Oregon.
“It’s simply a broadband test,” explains Stewart. “We’ve got to prove that we can send HDTV duplex,full video conferencing,over the power line at any length, 2,000 miles or 50 miles, with no signal loss or distortion-to prove that they’re not affected by transformers and there’s no effect from line noise. We’ll be transmitting at 19.2 megabits per second, and since we know no one else can handle that, ADSL or otherwise, then we win.”
But that’s just North America. If the buzz phrase in business is “thinking out of the box,” Stewart’s thinking is out of this world, literally. In addition to connecting everyone through a continental electric grid, he thinks he’s found a way to leap oceans by harnessing the earth’s magnetic fields and the unique properties of electricity. So the test will include Europe and Asia as well. “We won’t be able to talk to them directly, but they’ll be able to pick up our signals,” Stewart says confidently. “So we can prove not only that we can cover the American grid, but we can also hit Europe and Asia.”
From there, he’ll organize his first alpha test, probably late in the first quarter of 2000, using a small sampling, probably 5,000 Internet subscribers in the U.S. and Europe. A larger test is scheduled a few months later, and a complete rollout could come as soon as the fourth quarter of next year. Consumers could start seeing Stewart’s nightlights early in 2001.
All this testing is capital-intensive, and that’s why it’s critical that Media Fusion lines up wealthy corporate partners to offset up-front costs. “When you throw money at it, everything accelerates” says Stewart. “When we do mis next test in December or January, when we blow the doors off everybody else, we know that everything is going to get pushed on top of us. So our time schedules could change overnight.”
If Stewart can prove that his technology can work, it would mean taking another favored business buzz phrase, the ubiquitous “paradigm shift,” and make it real for once, applying it to a phenomenon of immense proportions to send us into the 21st century.
“Once it is proven with outside, third party, highly credible observers, then it’s Katie bar the door,” says Adm. Carey. “You guys down in Texas ought to be lighting a candle in church for Media Fusion because 1 really mean it when I talk about the jobs that could be created there.”
So what’s Carey’s advice? “If I were you, I’d buy lots of real estate around their offices. You will be the Silicon Valley of the next century.”
CAN’T GET IN ON THE IPO? HERE’S WHERE TO PLAGE YOUR BETS.
If Media Fusion (www.mediafusionllc.com) goes public, and it’s inevitable that it will, getting in on the IPO will be a wild scramble with a lot of investors left watching from the sidelines as big-bucks institutional investors grab all the goodies. But other companies will be attractive options, especially those who are first in line to license Media Fusion’s technology.
If they’re not takeover targets, the utilities that were once the safest bets on Wall Street will be big winners, raking in substantial revenues by leasing all those wires.
For IBM, Compaq, Dell. Gateway, and all the rest, the boxes they make will certainly be less expensive, which will cut into unit profits. We won’t need all that hard-drive space to store all those gigabytes of expensive software. We’ll need just enough to manage personal data. But maybe computer makers will be able to make up lost profits by selling lots more of them.
Microsoft stands to be the big loser because its Windows operating system won’t be needed. Likewise Apple, though it’s probably better at adapting. New business models involving advertising or fees for downloading software will evolve, and the companies that can quickly write applications for this technology will be far ahead of the pack. Keep an eye out for enterprising start-ups that might be more imaginative and nimble than the large software companies. and which could eventually launch IPOs of their own.
If it’s fiber optic line or switches they’re making, they’d better find a new line of work. The phone companies that can redirect their resources to communications systems instead of wires will be clear winners. AT&T will have to abandon its strategy of acquiring cable companies and start looking at electric utilities, like TXU and its 4 million Texas customers. SBC must rethink its 56 billion commitment to upgrade its lines.
Someone has to make the “nightlights.” Early bets include IBM and Motorola. Overseas licensees will be worth looking al in international markets. Also keep an eye on Intel and other computer processor makers. The ones who are first to market with super fast processors will clearly be winners.
Texas Instrument might be one of the early licensees to manufacture Media Fusion’s chips. It’s also likely that a Korean or Japanese company will be an early licensee.
HDTV makers from Sony to RCA might finally get a break, especially if they can bring their costs down. And as the next generation of electronics, from communications to entertainment devices, begins to incorporate Media Fusion’s technology, the winners will be those who can do it first.
The stakes will increase in the race to deliver HDTV telecasts, and the ones who can deliver it first will have an advantage. Give the big-three television networks a chance to deliver enter-tainment and news to 85 percent of the world’s population, and what’s that worth to their advertisers?
For a company like Yahoo’s Dallas-based Broadcast Services (the old
INTERNET SERVICE PROVIDERS
They’re dead. Companies like AOL and Yahoo!, which have already figured out that organizing the Internet is more important than merely connecting to it, will thrive.
Wall Street Update
By D Magazine