Why the Long Island Wi-Fi project is doomed: lessons from Fire Island

As our Fire Island Wireless network is closing out its 5th and most successful season, I would like to share a few things I’ve learned as they apply to the Long Island Wi-Fi project. Even though the plug has not been pulled officially, the writing is on the wall for the Long Island Wi-Fi project, and it is an obituary. Cablevision is launching its Optimum Wi-Fi network, offering complimentary access to 2 million wired subscribers over the tri-state area, not just Long Island, and that pretty much dries up any potential paying customers that E-Path might have had.

As the death of MetroFi has shown us, free, advertising-supported, standalone Wi-Fi providers are in an unsustainable business.Tom Evslin so rightly points out in his Fractals of Change blog that advertisers need millions of page impressions to have any significant income. When you have a single destination content source, such as a website or a blog, there’s a chance to reach this level, but to try to reach that level by building out a huge network to catch those millions of page views by interrupting a user or inserting them into browsing streams a few at a time collected over tens of thousands of locations, the capital expense equation doesn’t work. With $50/pole/year rental from LIPA, the operational expense E-Path faced was a non-starter.

There needs to be a market

Having dispensed with advertising as the sole means of support for an Internet distribution network, we are left with subscriptions to generate revenue, either at the retail level, or in the form of anchor tenancy by large organizations.A pure-play outdoor provider in a market already saturated by wired ones sees no demand for its subscriptions. It can’t compete on a price or performance basis. We thrive on Fire Island because the market is not served well by the incumbent DSL service provider, cable is absent, and the demand for bandwidth is driven by affluent vacationers used to having and paying for broadband service at their primary residence. E-Path would have had to cobble together a customer base composed of people who don’t make as much money and they have to offer free Wi-Fi service as well.

There needs to be a sustainable business model

The ISP business is all about aggregation of cash flows, subscriber growth, and network management, keeping provisioning and operational costs low, and using those cash flows to expand the network to more users, greater footprints, and performance improvements. Once a critical mass of users is achieved, the operation can be self-funding, with new generations of equipment being deployed to bring higher tiers of service, (with higher cash flows) to existing customers and new territories. It’s an annuity business; it works better as it gets bigger.

On Fire Island, we don’t require service contracts, but we do require customers to buy and have CPE (customer premises equipment) installed, getting them put skin in the game. This lowers our deployment costs. When the customer has anted up just to get service, they will stick with you for a while, until they feel like they’ve gotten full use out of their investment. Unfortunately, the Long Island Wi-Fi RFP was not set up to even begin to support a sustainable business model for E-Path. The free access and 95% build out requirements guaranteed failure.

This is a utility business, full stop.

When you start an ISP, you’re starting a utility, just like a water, sewer, or electricity distribution system, and you’d better be prepared to make it reliable, because customers do not tolerate outages. To make a Wi-Fi system reliable in the face of growth, you need to have sufficient capacity, and also the ability to educate customers, as most folks translate the experience that they have in their homes to their expectation of how an outdoor Wi-Fi network should work. Customer service and education are paramount, once your customer base gets beyond the early adopters who will jump through a few hoops to stay connected. Average people don’t read the documentation; they pick up the phone and complain when they can’t get a signal inside their house. If you are an entrepreneur thinking of starting a wireless ISP, think hard about the 24×7 nature of the business, and the customer service requirements. And if you do compete with a wireline provider, think about how you can sustain your business when the wireline provider starts to cut its prices to win back customers.

On Fire Island, we’ve succeeded because we offer broadband services beyond the reach of DSL, and where we compete with DSL, we offer higher upstream performance, price parity, and a better customer service than the incumbent. This is the niche where fixed wireless distribution of broadband has a chance to succeed. Using wireless, whether Wi-Fi, WiMAX, or some other radio technology to compete against entrenched cable and fiber wireline providers is suicidal for a retail play. Towerstream has been successful because they have found a business niche. The density necessary for a buildout to provide performance equivalent to wireline without using CPE is cost prohibitive. Infill and greenfield deployments are where it’s at for a pure-play WISP, and Wi-Fi should be used by existing wireline providers to extend their customers’ access outside the home, delivering more value to their customers and keeping the cellular data carriers at bay.

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Craig Plunkett is the founder of CEDX Corp. He has built Wi-Fi networks in NYC, on Fire Island and for the Hamptons Jitney: Urban Hotspots (a Manhattan oriented small-venue hotspot network), Wi-RAN on fifty Hampton Jitney buses, and Fire Island Wireless (fixed broadband and hotspot access to the communities of western Fire Island, New York).

Comments

  1. Mike Perkowski says:

    Craig is certainly correct about the unsustainable business model.

    But in my opinion, the real reason the Long Island WiFi project failed is, quite simply, the short-sightedness and arrogance of the two county executives involved, Steve Levy and Tom Suozzi. When I read Levy’s comments in Newsday after the deal was announced, to the effect of “if it fails, it’s no big deal because we’re not investing any money,” you had to know this was set up for failure. Of course, Suffolk and Nassau could have committed to being anchor tenants for such important, potentially money-saving apps like public safety and voice over WiFi, and EVENTUALLY piggybacked on the infrastructure for public access if and when a business model emerged that made sense. But that would have meant spending some money, and neither of the politicians ever really “got” wireless from the standpoint of those applications. It was always about free public access, which politicians will always get behind because it’s political candy and easy to claim credit for — even if it never happens.

  2. I think tax payers would be willing to pony up the dough for a reliable wireless network. I see enough people in Suffolk and Nassau counties usings their portable machines outdoors and at wi-fi hot spots. Cablevision should work with the local government to make the network an affordable reality. That would go againsts the interests of their corporate benefactors tho

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  1. […] Plunkett has written a good commentary on why the Long Island, NY countywide Wi-Fi project is doomed. Craig is the founder of CEDX, has set up Wi-Fi service on the Hamptons Jitney, unwired Fire Island […]