Bringing Wireless to Rural Areas

Stelera Wireless is hoping to use wireless network technology to extend broadband Internet access to under-served rural and small town markets. Can its founder’s plan to go with HSPA instead of WiMAX or Wi-Fi succeed?

The motivating idea behind Ed Evans’ new venture, Stelera Wireless, may not sound particularly original: use wireless network technology to extend broadband Internet access to under-served rural and small town markets.

But Evans, a 20-year veteran of the wireless wars, with stints as CEO of Dobson Wireless (acquired by AT&T) and TSI Telecommunications Services, says he has been watching the market for several years and it’s an idea whose time has definitely come.

The ISP industry is analogous to the cellular business a few years ago when big players were unwilling to invest in infrastructure to reach rural markets and sometimes argued there was no demand anyway. Dobson, under Evans, proved them wrong, he says.

Now he intends to do the same for broadband Internet with Stelera. New technology is the key this time.

“Technology in the wireless space has gotten to the point now where I can deliver a very high-quality, high-speed Internet service at a very reasonable price,” he says. “And do it at a cost structure that I don’t think anybody else can touch, quite frankly. I don’t have to put fiber or copper in the ground.”

He’s not talking about Wi-Fi mesh, or 700 MHz, or point-to-point microwave. All have been tried in rural markets, none terribly successfully, he notes.

Stelera is using HSPA (High-Speed Packet Access), technology that extends the capabilities and improves performance of W-CDMA, the GSM-based 3G mobile phone standard now evolving into a 4G standard.

And the company is deploying HSPA in the AWS (Advanced Wireless Services) band (1710 to 1755 MHz and 2110 to 2155 MHz) using spectrum it won at auction two years ago.

Start local

Evans, the company’s principal shareholder, spent just under $8 million to purchase 42 licenses in nine states, covering a total population of about six million. In an auction dominated by high-rollers, he was “very much a bottom feeder,” he says.

The big names snapped up most of the spectrum. They likely have little intention of using it in rural areas, which is a shame, Evans says. T-Mobile, the big spender—over $8 billion—will offer service using its AWS spectrum, but it appears to be planning mostly mobile service.

Stelera, with its fixed broadband service launched in Floresville and Poth, Texas in March, was first out of the AWS gate.

Floresville is a city of about 8,000 people 30 miles south of San Antonio. Poth, a much smaller community of 2,000, where Stelera is also covering surrounding rural areas, is five miles down the road.

The attraction of these particular markets? Verizon, the regional LEC—and another of the big winners in the AWS auction—has refused to extend DSL service to these areas. There is no cable service and what wireless there is, mostly point-to-point microwave, isn’t very good, Evans says.

“We were pretty sure if we could go in there with service every bit as good as people get in the city, we could capture significant market share,” he says. “Thus far demand has actually exceeded what we expected. We’re looking at two percent penetration after only three weeks.”

The dollars and bits

How good is the service? Average throughput is 2.5 Mbps downstream, 300 Kbps up, with uplink speeds set to bump to 1 Mbps with implementation of updated network technology next month.

Customers pay from $50 to $60 a month for all-you-can-eat service, depending on the length of their commitment. Month-to-month, no-contract service costs $60. For a one-year contract, it’s $55, for a two-year contract, $50. They can purchase the modem outright for $200, or lease it for $7.95 monthly.

The other appeal of these two markets is that because of their size (under 20,000 in population) and the absence of available broadband service, they were eligible for support under a Department of Agriculture loan program. Stelera recently announced it had won $35 million in low-interest (four percent) loan financing from the DoA to bring broadband service to about 55 markets across its coverage area.

That area includes parts of Texas, New Mexico, and Colorado, where Stelera has the largest number of licenses, many contiguous or almost contiguous; plus areas in Kansas, North and South Dakota, Oregon, Washington, and Arizona.

The future

It’s enough to build a company, Evans says.

“Assume that we only covered half of those people, so three million, and you could get ten percent penetration—300,000 subscribers is a pretty good-sized business.”

But, Stelera will look to acquire additional licenses in the future. Purchasing from other successful bidders is one possibility. While the big license holders will likely guard their assets closely, a trade market may grow up among smaller players, Evans says. It may also be possible to lease licenses owned by the bigger companies.

In the meantime, though, Stelera has its hands full with an aggressive roll-out schedule. It expects to get the first 55 markets—mainly those covered by the DoA loan—up and running by the end of 2008, then add another 100 in 2009. Evans hopes to have 250 to 300 markets in operation by the end of 2010.

While the company is exclusively focused on offering broadband Internet service now, it intends to add to its service portfolio.

“I think there’s a great opportunity for us to go out there and be a CLEC [competitive local exchange carrier] and offer a real low-cost alternative,” Evans says. “So our next step is to look very seriously at getting into VoIP.” He expects to be offering VoIP services by as early as the end of 2008.

The next logical step after that? IPTV to round out the triple-play is a possibility, Evans says, although the jury is still out.

For one thing, it would have to wait until HSPA has moved further along its evolutionary path. The maximum throughput with today’s technology is 7.2 Mbps, but with the next version, which will require only a software upgrade, that will bump to 14.4 Mbps—enough for limited TV services.

Further out, LTE (long term evolution), which will require hardware changes, is promising downstream network speeds of from 50 to 100 Mbps.

“Then you can start to talk about IPTV and much more,” he says.

Given its strategy of offering service levels to rival copper- and fiber-based providers, has Stelera tied its wagon to the wrong wireless technology? Evans naturally argues not.

Advantages and disadvantages of HSPAHe considered most available technologies—with the possible exception of point-to-point microwave, which provides unreliable service and requires a truck roll to add new subscribers to the network. He also rejected Wi-Fi fairly early, not liking the number of access points it would require.

WiMAX remained on the table, but in the end Evans decided that from a purely technological point of view, HSPA and WiMAX would serve him equally well, but he could get to market faster with HSPA.

Cost structures for WiMAX may eventually be lower than HSPA, he concedes, but for now, it’s cheaper to build with HSPA, and will remain so into the mid-term future and possibly beyond. This is mainly thanks to volume demand from big players such as Vodafone in Europe and T-Mobile here. Telestra, Australia’s ILEC, is building out networks across the country and is another big customer.

The all-in cost to buy and deploy base stations, each of which covers a radius of between 2.5 and four miles—in rare instances up to six—is about $100,000. Stelera chose Nokia base stations for its initial build-out, but other familiar cellular network equipment providers, including Ericsson, Alcatel, and Lucent all have product, and there is no reason Stelera couldn’t use other vendors’ equipment in future, Evans says.

The company recently announced it would source all modems—the equipment subscribers use to receive signal—from BandRich Inc., one of four or five vendors with product, most based in the Far East. Stelera pays less than $150 for each modem.

Ceragon provides wireless backhaul services to get traffic from Floresville and Poth back to San Antonio, then Stelera uses standard Ethernet services to carry it from there to its single data center in Oklahoma City OK, where the company is headquartered.

Can Evans execute his plan without going out to the capital market? (So far the company has been funded from his own resources and those of family and friends.) It’s not clear yet, he says.

If he needs to raise money, he will. It’s certainly available, and he claims to have lots of experience, raising billions as a CEO at other companies in the past. Going public, he hopes, is not in the cards: been there, done that.

“I’ve had the pleasure or misfortune to be CEO of two public companies,” he says. “There are lot of benefits—and lots of pains in the butt. If I need to do it to create value, I will. In the meantime, I sure like being a private company. But you have to do what you have to do.”

Spoken like a true pragmatist. Stelera will be an interesting one to watch. Evans may just have hit on the correct model for finally bridging the digital divide in rural America.

Story adapted from ISP-Planet. Gerry Blackwell is a frequent contributor to ISP-Planet and Wi-FiPlanet.

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