Here’s some good news for aspiring wireless ISPs: outside America’s cities, the Digital Divide continues to yawn. Many rural and suburban markets are still begging for broadband.
The bad news for entrepreneurs: in more and more places, established independent telephone companies are stepping in to snap up these opportunities. And they’re using the same low-cost fixed wireless technologies that have more often enabled WISP start-ups in the past.
Two cases in point: Cross Telephone Co. in Warner, Oklahoma and Prime Companies Inc. of Yuba City, California. Earlier this year, both started offering broadband services in small town/rural communities using 900 MHz non-line-of-sight (NLOS) LMS4000 equipment from WaveRider Communications Inc.
They’re facing little or no competition from other wireless providers.
Both are also better financed than most WISP start-ups and are leveraging existing assets and customer bases in ways that start-ups cannot. Although service bundling is not yet a key competitive advantage for either, both say they will bundle services in future.
Even without bundling, they claim to be on track to break even in well under two years.
Cross, which has been in existence since the early 1900s, offers wireline telephone services in 11 small town/rural exchange areas in central eastern Oklahoma. It offers rural GSM/GPRS cellular service in a much larger area outside but adjacent to this traditional territory.
Cross is now providing residential and business fixed wireless broadband services using WaveRider equipment in its larger cellular coverage area, which has a thinly-spread population of about 100,000.
“We have a lot of [fiber] transport capacity out there that’s under utilizedand a significant investment in cellular infrastructure,” explains Cross director of technical operations David Wright. “We see wireless broadband as a mechanism by which we can recoup the cost of building out the cellular network.”
Cross puts the WaveRider gear on the same towers as its cellular POPs. It currently has 22 tower sites beaming fixed wireless signals to nine markets. The coverage it’s getting from the fixed wireless equipment allows it to reach about 45,000 of the area’s total population. Cross plans to add another four to five markets by the end of 2004.
The company has developed a wholesale-retail model for building the fixed wireless broadband business. It works similarly to the wholesale-retail model in the de-regulated power industry.
Cross built and owns all the wireless infrastructure and backhaul. It sells to end customers through six “agents,” who pay connection fees for every end customer they bring on, and also buy wireless customer premises equipment (CPE) from Cross.
The business model was developed in part to help offset the economic impact of the relatively high cost of wireless CPE.
Cross competes with DSL and cablemostly Southwestern Bell and Coxbut it’s tough to compete with cablecos and telcos offering free or very low-cost modems, Wright points out.
For a single entity to bear the capital costs of wireless network infrastructure and CPE would be prohibitive. With the wholesale-retail model, those costs are spread around a number of entities.
“Our retailers didn’t have to go through a costly initial start-up phase,” Wright notes. “And they don’t have to pay recurring fixed costs for transport because we built that into our wholesale rates. So their time to market is much faster and start-up costs are much less than for others.”
For its part, Cross invested about $15,000 per tower site for the WaveRider equipment and other shared infrastructure needed to enable the broadband fixed wireless service.
The retailers are charging residential customers anywhere from $30 to $50 a month for a “best-effort” service with throughput burstable to 1 Mbps. They can also offer more expensive guaranteed-bandwidth services to businesses or high-end consumers384 to 768 Kbps, or 512 Kbps to 1 Mbps.
Cross will eventually let retailers offer discounted bundles with both cellular and fixed wireless services.
Wright will only say that the company has brought on “hundreds” of fixed wireless customers since July when the retailers began selling in earnest. They’re currently adding new customers at a rate of one or two a day.
Cross calculates that it can break even in a market with no more than 100 subscriberswhich it had expected to achieve within about 18 months. “To our surprise, we’re actually about 30 to 40 percent further toward recovering our investment at this point than we expected,” Wright says.
Prime, a CLEC founded in 1970, has two widely separated market areas and two markedly different business strategies.
The company’s traditional base is Pennsylvania’s rural steel belt, around New Castle and Oil City, where it offers local and long distance wireline telephony services in competition with ILECs. It is also active in northern California near its Yuba City headquarters.
Prime’s first foray into fixed wireless came in 2000 when it began offering broadband business services in Pennsylvania using 28 GHz LMDS (Local Multipoint Distribution Services).
The market for LMDS failed to materialize, however, and equipment prices stayed high. “As a result, especially in small communities, LMDS does not offer a workable business case today,” explains the company’s president and CEO Norbert Lima.
So Prime turned to license-free wireless technology. It started deploying WaveRider infrastructure in April of 2003. After LMDS, the economics of WaveRider, which gives the company access to both residential and business markets, was “obviously a godsend,” Lima says.
Prime has deployed in both its market areas, but is now focusing mainly on California because the economic downturn hit its Pennsylvania markets harder and the take-rate in the east has been significantly slower.
It is also pursuing a different, apparently more effective, strategy in California, offering broadband services in gated communities on a quasi-exclusive basis.
“We do not try to go into a community to compete with the DSL and cable modem providers of the world,” says Lima. “Our model is to provide services where none exist … where broadband is a very welcome commodity.”
In one of the California markets Prime is targeting, he says, he competes as a CLEC. There, the ILEC, SBC (PacBell), revealed recently that it had no intention of expanding DSL coverage in the area within the next five years. Prime’s monopoly appears safe.
The first of the gated communities is Lake Wildwood in Penn Valley, with about 4,500 homes. It’s an affluent area where people can afford broadband service and want it, Lima says. Prime’s network coverage also takes in commercial areas outside the development.
The company negotiated an exclusive on placing tower sites on the property. That didn’t stop another wireless carrier establishing tower sites outside and offering a competitive service. But when its network interfered with both Prime’s existing network and wireless communications at nearby Beale Air Force Base, the FCC shut it down.
When we spoke to Prime, the company was about to light up service in Lake of Pines, a very similar gated community in the same area. The company expects to add two more California communities in 2004.
It offers business customers service from 256 Kbps to 1.2 Mbps, priced from $79 up to $399. Residential service starts at 112 Kbps for $30 and goes up to 384 Kbps for $80.
Prime believed originally that it could break even in the WaveRider markets within 13 months. “With some exceptions, it’s exceeding our expectations,” Lima says. He says the number of subscribers so far is in the “mid hundreds,” with about one in six being business customers.
In future, Prime will offer discounted bundles, including primary and secondary line local telephone and long distance service, “to increase retention and generally give us better traction in these markets.”
NLOS to the future
Both companies chose WaveRider technology first because the terrain where they operate is hilly and/or wooded and they needed the NLOS capabilities to get the level of penetration and coverage required.
Cross uses only WaveRider for broadband wireless. Prime has used 2.4 GHz equipment in areas where it didn’t need NLOS. Both also say they save on customer installation costs because at least some can self-install the LMS4000 CPE.
Lima figures the savings on installation and maintenance costs versus other unlicensed wireless technologies the company has used or considered is “30 to 40 percent.”
WaveRider, meanwhile, increasingly sees independent telcos as an important market. It has sold LMS4000 gear to two others recentlyAdams NetWorks Inc., which operates in Illinois and Missouri and the St. Maarten Telephone Company on St. Maarten, the Dutch and French island in the Caribbean.
That means WISPs should be viewing these companies as a competitive threat. They’re already there, and they have resources, assets and customer bases at their disposal that it will take most entrepreneurial years to build.
Can they be beaten? Of course. Smarter, leaner, hungrier start-ups have always been able to compete with incumbents.
Another possibility for WISP entrepreneurs, though, is to look for an independent telco that has those resources and try to partner with them.
Reprinted from ISP-Planet.