Out of the Midwest

A Wi-Fi hotspot map of the U.S. would show a black hole in the middle of the
country. Most of the activity is coastal. However, EthoStream LLC, a Wi-Fi services company
from that quintessential Midwest town, Milwaukee, WI, aims to change all that.

EthoStream is mounting a multi-pronged attack on various venues — café
hotspots, hotels, multi-dwelling units (MDUs), commercial sites — using a
variety of business models. The common denominators are the company’s custom
integrated hardware-software products, including the network edge devices it
uses, in one form or another, in all of its installations.

The hardware-software products are a key to EthoStream’s modest success so
far, says company president Jason Tienor. "But we don’t define ourselves
as just a product company. We evaluate the needs of our customers, design a
solution for them, and then go in and implement it."

Like other successful small regional players, EthoStream is building out from
a solid home base. All its installations to date are in the Milwaukee area,
but it is working with hotel and restaurant chains that have a national presence,
and it is nothing if not ambitious.

On the hotspot front alone, it expects to explode from the eight Milwaukee
E-Zones it has up and running now to 300 by mid-year and 600 across the country
by the end of 2003. "Oh yes, it’s a lot of work," Tienor admits, adding
that other markets — notably hospitality and MDUs — are developing faster
than originally anticipated, diverting some attention from hotspots.

EthoStream’s main focus in the hotspot market is café sites. It’s
working with three property owners today: Alterra
, a small regional chain; Bella Café, a local one-off and,
most important; St. Louis, MO-based Panera
Bread Company
, a national chain. Panera has just under 500 corporate-owned
and franchise bakery-cafés in 30 states.

EthoStream in all cases owns the Wi-Fi infrastructure and shares revenues with
the property owner. The revenue-sharing deals vary depending on size of property
and anticipated usage, but the café typically gets about 15 percent,
Tienor says.

"We’re the last-mile provider — or the last-ten-feet provider,"
Tienor explains. The property owner supplies the high-speed connection to an
ISP. "Rather than us sticking with one [Internet service] provider, it’s
easier for the owner to pick one. There was no provider with a footprint large
enough to reach all our [planned] sites anyway."

The company has an undetermined number of casual E-Zone users, plus about 40
to 50 "account" customers who pay monthly and have unlimited use at
any E-Zone location. The company is also planning to introduce pre-paid cards
that would be sold at hotspot sites.

Tienor says EthoStream is in discussions with potential roaming partners. Given
that there are few peers in the region, the talks are necessarily focused on
national roaming aggregators such as Boingo
and iPass.

"We are looking, as we grow our network, to become part of their aggregate,
allowing our customers to use their access nationwide," he says. "In
turn, we think we can fill the void for them in the Midwest."

We’re guessing EthoStream will have to demonstrate that it can grow the network
as scheduled before Boingo or iPass will look at them seriously.

The most recent and most significant distraction from EthoStream’s hotspot
strategy is on the hospitality front, where the company recently announced an
agreement with Milwaukee-based Marcus
Hotels & Resorts
. The agreement officially only makes EthoStream the
resort company’s "preferred High-Speed Internet Access (HSIA) vendor
for its full-service hotel and resort properties." It’s not exclusive.

However, Tienor says his firm will definitely be installing systems in all
13 of the Marcus properties covered by the agreement. "Currently we have
four up and running with another two scheduled to be up in the next month or
so," he says.

Meanwhile, EthoStream is hoping to land a larger deal with Marcus that could
eventually see it installing wireless access systems in an additional 209 budget
and suites properties. While the full-service hotels and resorts are, with a
few exceptions, in the Midwest, Marcus’s business division properties are across
the country in 32 states.

Some of the current group of Marcus hotels were built with Cat-5 cabling to
every room. It has never been used until now. In those properties, high-speed
access in the rooms will be wired Ethernet, while in public areas, it will be
Wi-Fi wireless. The remaining properties will be wireless throughout.

EthoStream sells the hotel the network infrastructure — its custom-integrated
server, gateway and access point products — as well as installation services.
The hotel then also pays a monthly fee for EthoStream to manage the local access
service and provide reporting. It’s not clear yet whether the Marcus hotels
will charge guests for the service, Tienor says.

Marcus is not EthoStream’s only iron in the hospitality market fire. "We’re
currently in negotiations with other national chains — national owners as well
as property management companies," Tienor says.

EthoStream does have solutions for commercial sites and some customers, but
its other significant market focus right now is multi-dwelling units (MDUs).
This is the market where the company is deploying its most innovative technology.
It currently has three properties up and running in Milwaukee with a total of
about 75 units served.

EthoStream sells the property owner, at minimum, the same infrastructure —
server, gateway, access points — used in the hospitality sites. It manages
the backbone connection and provides retail ISP services such as hosting and
e-mail. One MDU site has also deployed a Wi-Fi-connected lobby kiosk that provides
a "peep-hole" to the property owner’s Web site — the kiosk only allows
the user to surf to that one site.

In most cases, the backbone links are wired, although one property had an existing
fixed wireless link which it continues to use. Tienor is intrigued by the notion
of owning and managing a WISP operation to provide low-cost links to its sites
in various markets, but he says the company needs to keep its focus — at least
for now.

MDU property owners pay EthoStream a monthly management fee and take the revenue
from tenants, who typically pay about 25 percent below market rates for DSL.
"It allows [owners] to tap into a revenue stream they never had access
to before," Tienor says.

There are few other such opportunities available to them, he notes, although
EthoStream is now exploring the possibility of giving property owners the ability
to use their Wi-Fi infrastructure to provide on-property mobile voice services.
At one MDU site, EthoStream implemented an innovative door entry system that
uses audio and video over the Wi-Fi net to let tenants see and talk to visitors
at the front door and buzz them in.

To succeed as a small company with so many different businesses, EthoStream
will have to be good at juggling. Can it keep all its balls in the air?

Capital, at least, appears not to be a major problem. The aggressive hotspot
roll-out plan is covered by existing "funding agreements" with private
investors, Tienor says. He admits, though, that the company would always be
open to additional funding that might speed its evolution.

News Around the Web