The SkyWeb Alliance

If you’re a wireless ISP, says Scott Redman, “Coverage is king.”

That’s why Redman, vice president of sales for San Diego-based SkyRiver
Communications, Inc.
, initiated talks earlier this year with two other
California WISPs, resulting in the formation of SkyWeb Alliance, possibly the first
coalition of its kind in the wireless access industry.

The other two WISPs are Fremont-based NextWeb, Inc. in the San Francisco
Bay/Silicon Valley area and SkyPipeline, Inc. of Camarillo which
boasts 220 miles of coverage in the central part of the state between San Luis
Obispo and Los Angeles.

Let’s agree to agree

Under the agreement, the
partners will wholesale capacity to each other, harmonize at least some of their
offerings, co-market the SkyWeb brand, and collaborate on developing best
practices guidelines for all to follow.

“I think it’s a really, really good thing for the industry,” says broadband
access analyst Lindsay Schroth of the Boston-based Yankee Group.

The main benefits, Schroth says, are that the alliance will have increased
buying power, it will be able to attract larger resellers, including big-league
partners such as cable and telephone companies, and it should raise the profile
of wireless access among prospective customers.

The members see the same benefits but the big one as far as they’re concerned
is summed up by Redman: coverage is king. The more wireless coverage you have,
the bigger your market universe and the bigger the business opportunity.

And being big is important for a number of reasons as pioneering start-ups
like these three hit their stride and look to take a serious crack at
traditional wireline competitors.

Each SkyWeb Alliance member now has a much, much bigger coverage area. Each
can sell to clients in the others’ territories. The network, with 90 wireless
POPs, stretches from just north of San Francisco to just south of San Diego.

“The areas we cover are home to 66 percent of the businesses in California,
which is the fifth largest economy in the country,” notes David Williams, vice
president of marketing and business development at NextWeb.

“There’s a lot of opportunity there. In the past, when opportunities would
come to NextWeb, we would often have to say, ‘Well, we don’t have service in
those areas.’ We don’t have to pass on those opportunities now.”

Wholesale vs. retail

The members sell each
other capacity on their networks at wholesale rates. It’s unlikely any would
ever poach on another’s customer list. Even so, the notion of letting other
companies sell in your territory may sound a little like inviting the thief into
your house. It’s not the way the alliance partners see it, however.

“I think I speak for all three of us when I say I hope they sell the living
heck out of my area,” says Redman. “My margins are going to be the same anyway.
We’re hoping it’s a huge win-win for them.”

Redman may not quite be speaking for all three, though. SkyRiver, unlike
NextWeb and SkyPipeline, is a wholesale operation. It sells only through
resellers. The others sell direct to small and medium-size businesses (SMBs).
But under the alliance, that will change.

“It’s serendipitous that one of us was wholesale and the other two retail,”
says Eric Warren, director of marketing and business development at SkyPipeline.
“It means we can teach each other, because we’ll all be doing both now. When you
combine the genetic material from the three companies, what you get is greater
than the sum of the parts.”

“I have primarily a direct model,” Williams notes. “But it costs me a lot. If
SkyRiver or SkyPipleline sell a circuit — however I get the revenue or the circuit
online, I don’t care.”

Welcome to Wi-Fi California

The other big
advantage the members see is that by combining their marketing efforts and being
able to present a state-wide brand, they’ll be able to get the message out about
wireless access more quickly and more effectively. None of the three on its own
had the resources to open up the whole state or make a really big splash in the
target SMB market.

“If we had the ability to come up with a huge marketing campaign and do all
the marketing ourselves, that would be one thing,” Williams says. “But it’s just
not realistic. By working together, we can pool our collective resources and
apply them to going after a much bigger untapped opportunity.”

Reprinted from ISP-Planet.

As it turns out, harmonizing core offerings was not that difficult to do. The
three companies’ prices — basically set by the market, they say — were already quite
close. Products may be slightly different — one may sell 1, 2 and 3 Mbps service,
another 1.5 and 2.5 Mbps — but it will be possible to offer clients with multiple
sites in different parts of California a consistent service, a single point of
contact and single bill.

“Each of us will continue to have unique things in our own markets,” Williams
says. “But we wanted to make sure we had a core set of high-demand services
harmonized throughout the state.”

The fact that the companies are remarkably similar in a number of ways must
have made it easier for them to come together. All have the same principal
target market — SMBs. And all are at roughly the same stage in their development.

They have between 500 and 650 customers each and are growing rapidly.
SkyRiver, for example, had 75 customers 12 months ago, just under 600 today.
SkyPipeline has doubled its customer base in the last 12 months. They all claim
to be gross-margin-positive within individual cell sites, and all say they
expect to hit profitability this year.

The technological differences are relatively minor and disappearing fast.
NextWeb uses 5.8 GHz technology for local access and 18 GHz licensed technology
for regional backbones. The other two use a combination of 2.4 and 5.8 GHz
unlicensed technology.

Yankee Group’s Schroth believes this similarity in technology will translate
into significantly increased buying power. The reduction in cost of customer
premises equipment (CPE) from about $1,200 to $600 or $700 is partly what has
fueled the growth of these companies. Now they’ll be able to bring those costs
down even further. “And that is very important for their ROI positions,” she

The size and efficiency of the combined companies also makes SkyWeb a more
interesting supplier for prospective resellers, Schroth says. She notes that
SkyRiver had already signed a deal with Time-Warner. Other telephone and cable
companies are looking to expand their reach into the SMB market, but would
rather deal with a bigger company, Schroth says. SkyWeb should be a better fit
for them.

The benefits of the larger market area cut both ways when it comes to
resellers, Redman notes. “We’re now able to deploy our sales force [and
resellers] for the benefit of all members and now we’ll also be able to reach
resellers that we’ve not been able to bring on board in the past.”

Let’s be friends before we merge

All the
supposed benefits of the alliance beg one question: why didn’t the three
companies just merge?

“It could happen,” Redman says. “But one miracle at a time. There’s a lot of
good will here, we all get along well. This new buying power is benefiting all
the companies. As we move along, we’ll see how things snow ball. Nobody is
ruling out a merger.”

On the other hand, a merger would be a much more complex agreement to hammer
out, the members say, with more risks. And they saw that they could avoid risk
and complexity and still realize significant short-term benefits by forming the

The alliance will likely grow. All are agreed that adding more partners makes
sense. The implied ultimate objective is to create an alliance or a company with
a national presence.

“There are a lot of ways for us to grow,” comments Redman. “My least
attractive method is deployment, the most attractive is acquisition. The middle
road is partnering up.”

The alliance may be looking for new partners sooner rather than later. “We’d
welcome other partners,” says Warren. “We’ll look at what kind of value the
company brings to the equation of course. But generally, the more the merrier.”

Not that the SkyWeb will be indiscriminate. Williams estimates there are
about 1,300 WISPs in the country. “Many of those would not really fit,” he says.
SkyWeb would be looking for other companies with similar or complementary
strategies that are at a similar stages of development.

“We’re certainly not interested in bringing in [partners] and training them,”
Redman says.

The SkyWeb Alliance is the first of its kind. Given the claimed benefits, it
seems only a matter of time before other regional WISPs start to stick
themselves together in similar ways.

“I really hope so,” says Schroth. “I think it’s a valuable strategy. There
are a ton of WISPs out there. I see no reason, if they can pull together their
services and marketing, why others shouldn’t benefit in the same way. But this
being the first of its kind, others will probably watch pretty closely what
happens [with SkyWeb].”

They certainly should. Saying you’re excited about partnering and hyping the
supposed benefits is one thing. Actually proving the value of the alliance with
increased growth and market share for all is another.

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