IRVINE — A few months ago, the obstacles that stood between American Wireless Systems Inc. and thousands of potential pay-TV customers were hills and trees, which sometimes block microwave radio broadcasts to home antennas.
Now, the company's hurdles include probes by federal investigators and state securities regulators, and a national controversy about con artists operating in the wireless cable industry.
"Our attorney said it's like a bad cold," Jeffrey Howes, president and chief financial officer of American Wireless, said of the scrutiny. "It's not going to kill you but you just have to let it run its duration."
In its endeavor to acquire funding for this cable-TV alternative, American Wireless has run afoul of securities regulators in four states. The controversy is making the company's fund-raising efforts less than convenient.
But rather than retreating, American Wireless has faced the problems head-on.
Since April, when regulators began a campaign against industry fraud, the company has found itself explaining its marketing practices, reassuring its investors and defending the personal backgrounds of the company's founders.
The company has not been sued by any of its partners and regulators have not accused it or its founder of fraud or misrepresentation, according to Howes.
He said American Wireless raised more money through its six different general partnerships in June than in any previous month. Partners in Fort Worth voted to go along with a plan to raise an additional $3.5 million to launch and develop a wireless cable system in that market. To date, the company has raised a total of more than $23 million from 1,500 investors.
Still, negative publicity and regulatory crackdowns have had an effect. American Wireless decided to settle a dispute with regulators in Hawaii and stop soliciting funds there as a result, Howes said.
Several months ago, one skittish partner asked to withdraw a $75,000 investment, and the company agreed. This was consistent with a company policy that requires investors to understand potential investment risks: financing for a full system is not guaranteed, licenses must be obtained, and it could take years for a payoff if subscription rates are low, Howes said.
"That's a painful check to write," said Mark Wapnick, an attorney who represents American Wireless. "But the company believes in its compliance program so strongly that there is no question and they cut the check."
The Irvine-based company has ambitions to build so-called wireless cable-TV systems in six cities. Such systems, using microwave radio technology, could bring as many as 33 pay-TV channels to homes without wires, to compete with cable-TV operators.
Separate from television signals, microwave radio waves are part of the airwave spectrum that only recently has been authorized for TV broadcasts.
Wireless systems, bringing competition to cable-TV monopolies and their rates, are operating in scores of cities. Cross Country Wireless Cable, based in New Jersey, has signed up 30,000 subscribers during the past year in the Riverside-San Bernardino market.
American Wireless launched its first test system in Fort Worth in June, said Richard Wilson, an investor and member of the management committee in Fort Worth.
Sandy Pierce, a Fort Worth resident and one of the system's first customers, called the service "great." Living in an area skirted by a lake, Pierce had been told for years that it would be too expensive to string cable to her house.
"We've never been able to get it until now," she said.
The company is charging $16.95 a month for 23 basic pay-TV channels and plans to add more later. Howes is aiming for 1,500 subscribers by the end of September.
But American Wireless and its sister company, Applied Cable Technologies Inc., have raised concerns among regulators because they sell general partnership interests to the public for $6,250 a share. The sister company, while still intact, is a dormant holding company that owns licenses to build wireless systems.
Howes defends his firm's financing approach.
In contrast to limited partnerships, true general partnerships require that each partner shares legal liability and has management rights. Such partnerships need not be registered as securities, as long as investors exert management control.
The registration process is expensive, takes up to six months for approval in some states and requires full disclosure of potential business risks, said Joseph C. Long, a law professor at the University of Oklahoma in Norman.
A company that operates as a general partnership, where each partner has a say in the management of the business, can avoid registration. Regulators question, however, whether American Wireless' hundreds of partners have a significant say in day-to-day management.