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August 25, 2008

Guest Commentary on MuniWireless

That tireless promoter of wide access to broadband, the globetrotting Esme Vos, extended a gracious invitation for me to write about the prospects for the Long Island Wi-Fi project, and I used up many bits in responding to her invite.  I tried to put the project in contrast with the work that we have been doing on Fire Island, and in the context of the competitive environment that it faces.  You can try to glean some nuggets from my brain dump at this link, or read the whole thing after the jump:

Lessons Learned from Long and Fire Islands

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 its 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 Metro-Fi has shown us, free, advertising supported, standalone Wi-Fi providers are an unsustainable business. Tom Evslin so rightly points out in his Fractals of Change blog that advertisers need millions of page impressions provided by you for them offer any significant income. When you have a single destination content source, such as a website / 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 also.

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 well penetrated 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 from people at the lower end of the revenue scale, and offer a free tier 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 installed, getting them put skin in the game, and it 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 setup to even begin to support a sustainable business model for e-path. The free access and 95% build out requirements guaranteed stillbirth.

This is a u-til-it-y 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 excessive outages are just not tolerated. 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 WISP, think hard about the 24x7 nature of the business, and the customer service requirements. And if you do compete with a wireline provider, think about how your business will be sustainable when the wireline provider starts to cut prices to win back customers.

On Fire Island, we’ve been able to succeed 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 experience 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 WiFi 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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