Tales from the Towers Chapter 50: Cry “Havoc!” And let slip the dogs of war

Interesting fellow that Shakespeare because not only did he write plays, he also acted in them. And although Tales from the Towers doesn’t hold a candle (pre-electric times, you can groan now) to Mr. William’s contributions to culture, I have a double life too. If you haven’t guessed it yet, writing articles really isn’t my full time job (my wife is giving me the look that says I should find another hobby), I actually run a WISP, do installs, and handle tech support calls. After 10 years though, and many mistakes and successes, I’ve decided to rethink my network from the ground up as if I was starting tomorrow and share that. The idea is to help lay out a simplified road map that will bring forth thousands of new WISPs into the market that can start breaking down the digital divide without taxpayer money and creating a new business. Since a thousand bee stings can take out the biggest animal, the more companies that jump into the industry, the better the chances of competing against the incumbents. It’s time to open the floodgates of small business entrepreneurs and begin the war for last mile bandwidth delivery everywhere. And although few outside Star Trek fans will recognize one of Shakespeare’s most famous sayings, they will recognize this modern variation, “Who let the dogs out”! Hopefully it’s the WISP industry.

Why would anyone want to start a WISP you ask? Although many of us in the industry would say because we don’t have a life, the reality is that it can be a profitable small business model. How about this, a typical WISP gross profit margin is about 90% (this varies depending on where you live). Yes, you have read that correctly. In the U.S., bandwidth costs average about $5-$20 per Mbps to a tower or some other demarcation point. In some areas, it’s as little as 40 cents and others as much as $300 but in the 90% of the country that I believe WISPs have the greatest opportunities, bandwidth is inexpensive. Even if it’s $20 per Mbps, that’s still a profit margin of 80%. Wal-Mart would go apoplectic if they get half that and they squeeze suppliers like ripe lemons. And my razor has more margin between the blade and my face than Amazon has on their products. For any small business operator to find a product that he can buy for $5-$20 and resell for $100, legally I might add, is like printing money if you have the technical and marketing skills.

Between the FCC and the federal government being in the pocket of the incumbent cellular operators, tax-payer subsidized DSL providers, and all the FTTH zealots whose business plans are more like a lobbyists guide to squeeze taxpayers instead of a real business plan based on profit, it seems like being a WISP would be a huge challenge. Ubiquiti, Cambium, and a few other companies now have second generation 802.11N inexpensive and broad product lines that are simple enough for even beginners to install and manage. Throw in Mimosa with new 802.11ac product lines (Ubiquiti is already shipping UniFi with 802.11ac) in the near future, and the wireless providers will be able to deliver speeds that will make DSL operators cry. With those resources and lower costs, a wireless provider can provide bandwidth at wireline speeds and undercut the pricing or provide faster bandwidth at the same price. Either way it’s a win-win situation and a golden opportunity to jump on the bandwagon of an industry that is only going to grow. I’m not going to get into the triple-play option even though right now it’s the best model to fund FTTH. I personally believe it’s a dying model as Voice-over-IP and Video-on-Demand will force everyone to a pure IP play in the future.

If you don’t think a WISP business model is a good idea, let’s analyze what the government thinks it costs CenturyLink (or what CenturyLink tells them it costs, boy do I want to send that invoice. Yea, yea, it costs me $775, that’s the ticket ) to deploy a single customer with DSL with a speed of 3Mbps down. The Connect America Fund was paying $775 per customer for deployment for these pathetic speeds plus subsidizing the monthly bills. A WISP can do it for about $250 on-site and another $100 for the backhaul infrastructure per customer and probably make a profit on the install (hey FTTH guys, it really can be done without subsidies). And even better, a WISP can charge less. Unfortunately, I wouldn’t expect anyone from the FCC to do the research necessary to save the taxpayers from this CAF boondoggle. They are very, very, very, proud of it but hey, ignorance is bliss (here is where you should get sick to your stomach). Private enterprise really can succeed without small business killing government intervention.

Before jumping into any business though, we need to analyze the competitive environment, DSL and Cable, since they provide most of the population bandwidth. What’s interesting here is that while DSL is on the decline due to limitations and age of copper wire, it’s not really being replaced by better DSL. In some CenturyLink areas for example, they are pulling fiber closer to the homes to get their DSL speeds up to 40Mbps. However, unless another wireless technology comes along though, that’s probably their swan song until they upgrade to FTTH (don’t hold your breath waiting for it though).

DSL providers have 2 basic areas, cruddy service in low-density areas where they are the only provider and reasonably decent service in areas where they probably compete against cable providers. There are opportunities in both areas although the cruddy areas are where I would start first. Those are typically pocket or peripheral areas but if you can get about 20 customers or more, it’s a profit center. It’s also a place to build from and test the local zoning code in cases those are issues.

In areas where they are delivering far more bandwidth, they are also charging more. And since they also try to bundle with either their service or satellite providers, they have to add taxes (another reason to avoid triple-play since it also adds more office infrastructure and accounting requirements). In Arizona for example, a phone/internet bundle CenturyLink package delivering 1.5 to 40Mbps with bundle is about $30-$65 plus taxes (almost $10 worth if it’s bundled). They also have a package with Direct TV and then the costs start climbing well about $100. And all those packages come with contracts of at least 1-2 years.

Cable providers aren’t much different though. They are not only all about bundling; they have constant price increases and fees along with higher prices to start with. Although cable providers can provide some great speeds, up to 150Mbps, it’s still more expensive to deliver than wireless. Triple play providers like cable are also under a huge amount of financial pressure from content providers. When they have to pass that cost along to customers, the customers don’t differentiate the services, they just know their bills have gone berserk and start looking elsewhere. I’ve had customers call me with cable bills that hit $200 and we just tell them about Ooma (don’t even mention MagicJack unless your idea of a good time is slamming your head in your refrigerator door), Roku, and local TV. Amazing how much people will adjust their viewing and phone habits to save $100 per month.

Cable providers are getting hammered by the FTTH zealots who simply don’t understand that almost NOBODY really needs 100Mbps to their house today and NOBODY in the investment community is willing to fund it unless they also happen to own a Senator. Just to make the FTTH subsidized fiber supporters have a conniption, the cable providers should publish the percentage of their users that have 10Mbps, 20Mbps, etc… Then publish their average use and peak numbers. Selling 50Mbps circuits and above is one of the biggest scams in our industry today. It’s all about the latency, baby!

There is no FTTH business plan on this planet that was taxpayer subsidized that I’m aware of as a stand-alone business that is profitable that I’ve ever heard of. I’m still waiting to see one, but please feel free to send your financials if you think you have one. I’ll stand by and hold my breath. LinkedIn is a great place to see examples of that. If you take the WISP position or even suggest that FTTH is not financially viable today to the “Experts” when the government gets involved, you learn that you should be committed because you dare to point that out. Apparently stating facts is redefined as zealotry when you ask for the financial results of these projects. The best excuse I have heard about getting me off a FTTH discussion when I kept insisting on actual facts was where I was banned from the group, not because of my view but because my picture wasn’t professional enough (apparently it wasn’t my good side). What I really want to do is follow the money to see how much these consultants and companies are making from the taxpayers while fully knowing the plan will fail. In this case, it’s all about the money baby!

The end result is that if you start a WISP, don’t worry about the FTTH providers unless you think some clueless bureaucrat in California or the CAF/FCC gets the idea it’s a great place to waste more taxpayer money. Even if they come into your area, they will be selling something that is more expensive that what a WISP can provide and few people will pay for. The FTTH boys think everyone should pay at least $50 for 10Mbps or more if you want faster. The good part is that they will provide middle –mile backhaul for you to undercut them and will probably get bought out by Google for $1 when it loses so much money, even the politicians get tired of funding it.

Privately funded FTTH systems that have triple play products are actually a bigger threat to wireless systems and natural migration paths for triple-play WISPS although they are generally in more rural areas or urban areas. Many of the companies currently doing fiber started out as WISPs meaning they are generally more efficient, and usually already profitable. They are playing for the long-haul and have the resources and experience to do it the right way with little or no taxpayer subsidies. The bad thing for them is as they get closer to higher density population centers, unless they are Google and the local government bends over to help them, government regulations make it difficult for them to expand into cities or suburbs. It always amazes me that the local bureaucrats would rather ignore local business for years or just make life miserable for them to justify their jobs, rather than reach out and see how the can actually help them be successful. Then when things aren’t going to so rosy for the municipality, they fall all over themselves looking for a savior like Google who doesn’t give a flying donut about them. Here’s a clue zoning department, cold call every WISP and ISP anywhere near you and see what you can do for them in terms of making the regulations easier to work with them instead of just writing new ones. You won’t have to sell your soul to a Google because you screwed up for years and are now trying to fix the mess you created.

Now that we know the general competitive landscape, the next question is where to start your business. Although our country is wonderfully diverse in terms of density, intelligent guys like Brian Webster have analyzed some states down to how many driveway basketball nets per square mile. Other resources like www.wispa.org, the FCC, and www.goubiquiti.com, have coverage maps of WISP service areas among many other services that we will cover later. Without getting overlay complicated, I define the areas into rural, suburban, and city areas. Most rural areas already have at least 1 WISP covering them and some rural areas have multiple WISPS. My personal preference and where the articles will be focused on (Okay, I detour when it comes to government intervention in the private industry), is between suburban fringes through to the city fringes. This is the most opportune areas for WISPS that have the biggest investment bang for the buck. It’s also the easiest way to get inexpensive bandwidth. Next article we will focus on the RF environment, planning, and budgeting since those are going to be very closely tied together (and I’ll probably make some other political comment there also). Time to go, the Big Dog is scratching at the back door to get out and he’s got some business to take care of, as do we all.

About Rory Conaway

Rory Conaway has been in the IT and Wireless Industries for the past 25 years as an author and consultant. He currently operates a growing WISP operation in Southern Arizona. He consults with investors, manufacturers, and WISPs, and develops financial business models for startups. In addition to writing articles in industry publications such as Mission Critical Magazine, Mr. Conaway also writes the series “Tales from the Towers” that can be found on various such as www.triadwireless.net and www.muniwireless.com. He has also engineered several wireless designs such as S.P.I.R.I.T. and Guerilla Wireless as well as building integrated wireless and video surveillance for airport security, municipal and critical infrastructure, SCADA systems, and hotel/MDU deployments.

Comments

  1. casualobserver says:

    As a casual observer, I found your article fascinating. Assuming your math is right, a WISP generates basically the same Gross Margin reselling Broadband someone else has funded (i.e, whoever you’re leasing it from spent or is spending a bunch of money) as Oracle does selling entirely proprietary Database Software, and higher than Microsoft did even when Office was a virtual monopoly

    Seems like a great opportunity, totally unclear to one uneducated observer how it stays this way for very long.

  2. The problem with the details of starting up a WISP is the number of skill sets you need. We are currently working on some ideas to reduce that to 1 for start up WISPs.

  3. Fascinating read.

    I can see how it would require an intimidatingly wide range of skill sets to startup a WISP. By my count you need to tackle at least three different types of IT specialties plus some broadcast/RF engineering. Plus you’ve probably got to be able to at least supervise a lot of the physical plant buildout and maintenence.

    On top of that you’ve got a double helping of legal and political issues that other businesses don’t have. And that’s before you get to the ‘business’ parts of starting and running a business. My hat’s off to anyone
    who can manage all those roles.

    Of course, the margins you describe are the sort you usually associate with selling crack :)

    How much capital (ballpark) does it take to startup a WISP? Is it the sort of thing one can start for $5,000? $50,000? $500,000?

  4. Taimoor Bajwa says:

    “NOBODY in the investment community is willing to fund it unless they also happen to own a Senator”

    reminded me of the ALEC-sponsored bill against municipal broadband, These lobbying political fat cats never stop eating…

    P.S. I think your hobby is probably the best quality (and most honest) market analysis out there. Hands down.

  5. Rory Conaway says:

    Thank you for the compliment. The great thing about Internet is that everything can be read by everybody else. It’s getting harder to use anonymity to hide corruption and cronyism, not that it’s stopped the shenanigans that are still going on though. Have to hand it to the Russians though, their corruption and incompetence is on display all over the world. $51B dollars and not only are they still not ready, their infrastructure for hotels and foreign visitors is a shining example of why Socialism is a total failure.

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