Wireless ISPs: Emerging from the Shadows

Broadband Wireless Business Magazine
By Nancy Gohring
March/April 2002

The world of the wireless ISP (WISP) is a bit of a mystery, even to telecom gurus. By some estimates, over 1,100 of them exist.

"Nobody ever talks to us. We're not on anybody's radar screen. The manufacturer doesn't know who we are; the government doesn't," said Marlon K. Schafer, owner and self-described window washer of Odessa Office Equipment, a WISP in Eastern Washington. The number of ISPs in the United States is on the upswing, according to some experts, but it comes after a time of consolidation when their numbers shrank. Many ISPs are tiny, serving small rural communities and only a couple hundred or fewer customers.

"The ISP of the next few years will be the family farmer of the last several decades," Schafer said.

Emergence and Doubt

The future of the WISP is about as murky as that of the family farmer in the United States. In such a budding industry, it's hard to predict what the playing field of the future will look like.

Some industry mavens suspect that consolidation among the regional WISPs will occur. At the same time, the tiny providers serving rural areas will go on much the same as today. Others suspect that resellers will pop up as a way to cobble together a wide footprint that can allow marketing economies of scale.

A third view is that WISPs will deploy innovative business models to spur expansion. For example, BroadLink, which has run trials with EarthLink, doesn't offer service directly to end users. Instead, BroadLink aims to operate its network and sell the use of it to ISPs.

Despite market uncertainties, existing WISP players are confident of a number of things - especially that they're proving the viability of fixed broadband wireless. Many have managed to keep their heads above water by expanding only as fast as their pocketbooks allow. At the same time, they've watched while well-funded and more ambitious fixed wireless providers, like Winstar, filed for bankruptcy protection and Sprint put the breaks on its expansion. WISPs have a variety of ideas about what their futures will look like.

Slow and Steady Wins the Race

Big or small, many WISPs have a play-it-safe attitude. That mindset has resulted in the fragmented market that exists today, brimming over with small- and medium-size service providers. Such an environment will soon be ripe for consolidation.

With aspirations of growing into a strong regional provider, NextWeb started offering T1-equivalent broadband connections primarily to businesses in the San Francisco Bay area in mid-2000. Its strategy has been to focus on that one market and prove the business before launching a growth plan. NextWeb doesn't disclose customer numbers, but David Williams, vice president of business development and marketing at NextWeb, says the company serves hundreds of users.

By contrast, many of the more well-known companies in fixed or even mobile wireless data aggressively tried to cover markets stretching across the country. Nearly all of them, ranging from Winstar and Teligent to Metricom, have failed.

"They tried to expand too quickly without enough money to complete the markets," Williams said. "Then they have to go back and get more money. Right now, it's not there."

NextWeb has a different plan, according to Williams.

"Instead, we said, 'Let's focus on one market - let's really do well and establish ourselves'."

In November, NextWeb completed three rounds of fund raising, attracting $5.8 million, which will fully fuel the business for its current network size. As the company becomes profitable or close to it, NextWeb will look into launching service in Southern California. But that's about as far as NextWeb's expansion vision goes.

Selling Innovation

A number of WISPs got into business as a way to prove the viability of a piece of equipment they developed and hoped to sell to other WISPs. That developmental history may explain why WISPs don't have their sights set on massive expansion.

Renaissance Networking Inc., a Phoenix WISP, started offering broadband fixed wireless service as a way to prove the capabilities of a router that it developed internally. The company, which targets business users with high-speed connections, ran into so much demand that it eventually built out seven antenna sites that currently serve 300 wireless customers, said Robert Hoskins, director of marketing for Renaissance.

Renaissance may expand its coverage to other towns in Arizona, but it won't go further than that. The company recently signed a deal to manufacture its router in bulk to decrease its retail cost.

airBand is another WISP cautiously moving ahead. airBand currently serves business customers in Fort Worth, Dallas, Houston and Phoenix. As for its future expansion plans, "a lot depends on capital markets," said John White, vice president of marketing and strategic business development at airBand. The company is currently operating under a fully funded plan. It will base expansion plans on its ability to get additional funding.

airBand also relies on a combination of standard gear and the home-grown variety. Its technology allows it to monitor quality of service on a port level for customers. airBand has also developed a way to use flyover picture data to determine what kind of service it can offer to any potential customer.

"We know what kind of service we can give on a given building without leaving the office," White said.

BroadLink, which has about 3,500 end users receiving service via its ISP customers, also uses some internally developed technologies in its network. However, this company has aggressive expansion plans. In conjunction with standard gear, BroadLink uses its BrightEdge computing platform that offers performance management, scalability, enhanced security and open access to its network.

"We can leverage off-the-shelf equipment, but not by itself," said Tim McAllister, executive vice president, chief technology officer and founder of BroadLink. "Open access, security and scalability are issues."

WISPs Look to Wireless

Despite their cautious attitudes about growth, these WISPs are confident of the demand for broadband over fixed wireless links. They are particularly aware of a budding interest from the wired ISP community, which has begun to seriously look at fixed wireless as an access option.

The WISPs eagerly hope to leverage their experience with fixed wireless to capitalize on potential demand from wired ISPs.

BroadLink's McAllister believes that ISPs are desperate for lower cost, high-speed solutions (such as BroadLink's) as alternatives to expensive DSL or cable.

"The ISPs have been squeezed," he said. As a result, they may be interested in teaming up with WISPs in a number of different ways, including by reselling airtime from the WISP.

In Atlanta, EarthLink has started delivering service to customers via BroadLink's network. The deal isn't exclusive, so other ISPs can also use BroadLink's network to further their reach. EarthLink markets the services to potential customers so BroadLink doesn't have any advertising costs for end users.

"With the demise of Winstar, Teligent and MobileStar, we're seeing the larger ISPs taking a serious look at this as a way to survive against the telco and the cable operators because they've made it quite clear they aren't going to share their networks no matter what the law says," said Schafer of Odessa Office Equipment.

Other WISPs that primarily serve customers directly are often open to arrangements similar to the BroadLink/EarthLink deal.

"If they want to buy my service wholesale and sell it, I say come on AT&T, I'll discuss that with you," said White.

BroadLink's Approach

McAllister believes that BroadLink's business model may be the only one that can allow a WISP to serve large- or even medium-size markets.

WISPs in small markets may do fine serving as both operator and ISP, McAllister said. However, once they try to offer service in first- or second-tier markets where RBOCs and cable modem service providers have strong brand and name recognition, the new operators will have trouble finding the money to market their services competitively, he said.

"In our model, we're leveraging the ISPs' marketing dollars, and not just one ISP," he said.

Even though BroadLink's goal is to independently grow nationwide, the company is considering a number of different options for expansion due to the current market conditions.

"Given the state of the market, we potentially could look to an affiliate-licensing relationship, much like in cellular," McAllister said.

The company has been approached by ISPs and carriers with interest in licensing its technology and network architecture and even asking BroadLink to build a network for them. BroadLink is open to all such sharing and expansion plans, including selling its internally developed BrightEdge product to other WISPs.

WISP Network Builders

Such innovative arrangements aren't far fetched. Wireless Online, a WISP serving 34,000 businesses, ISPs and residential customers via 82 cell sites in Kentucky, Georgia, Missouri, Illinois and Indiana, employs a number of different methods for expansion.

Wireless Online will build a wireless system for an ISP, deliver Internet services directly to businesses or residential users and deliver fixed wireless networks to campuses that allow for roaming.

Ultimately, the business models of Wireless Online and BroadLink might not prove successful. However, they are proving that wireless works.

"The good thing is that we're proving the point that wireless broadband can be successful, economically sustainable and we can leverage off-the-shelf equipment," McAllister said. Others agree in the value of the success of even the smallest WISP.

"It's evidence that fixed wireless can work," said Andy Fuertes, an analyst with Allied Business Intelligence. "People have lost faith in it, but here you have entrepreneurial small players using off-the-shelf equipment."

WISP Consolidation

Those big-name broadband service providers and ISPs might have some stiff competition if they wait too long to get into the business. While BroadLink hopes to expand nationally on its own, other national WISPs might emerge from the combination of regional providers. NextWeb's Williams believes that companies like NextWeb will continue to grow and mature into strong regional WISPs that could combine in the future.

"It will be the companies with the bigger vision, like NextWeb, that might team up with other regional players for a strong national presence," Williams said.

He expects consolidation to begin among the regional WISPs in a couple of years. Even then, Williams foresees overall growth in the number of WISPs. So, with consolidation, the total number of WISPs could remain about where it is today.

"We'll see a lot more of the traditional ISPs adding a wireless component to their offering," Williams said.

The Launch of Boingo

While consolidation among regional providers might occur in the form of mergers and acquisitions, other types of consolidation could occur as well. In the portable 802.11b market, Boingo Wireless has emerged as essentially a reseller of services. Created by Sky Dayton, known for founding EarthLink, Boingo never plans to actually operate networks, but aims to strike deals with 802.11 network operators to allow travelers to log onto those networks wherever they may be.

Such an arrangement could happen in the fixed wireless space, although many WISPs believe that their customers are primarily concerned with Internet access in their homes and businesses and not when they're traveling. That type of set up would be challenged in the fixed broadband space also because of the nature of many WISP owners, especially those serving small markets, Schafer says.

"These are fiercely independent individuals. They're not going to give somebody else control of their networks or give up their customers. Resistance is going to be pretty high to doing that - we've all been screwed by not owning our networks," he said.

Barriers to Consolidation There are other reasons why consolidation might not happen soon, or ever, among small WISPs serving rural communities.

"They'll stay at nice, good-quality local businesses," Williams said. "There's not really a big opportunity for them to consolidate. The big boys don't see much value in picking up hundreds of small companies, so they'll focus on large regional ones."

Similarly, wireline ISPs have continued to exist and thrive in small communities, even while only a few large companies have dominated the nationwide scene.

"We've seen tremendous consolidation in the ISP space, but the numbers [of ISPs] keep getting bigger," Williams said.

Even if one company wanted to buy up a bunch of WISPs serving rural markets, it's not clear how open those small WISPs are to selling their businesses.

"I would lean toward believing if the price is right," Fuertes said. "What's driving most of these guys is their entrepreneurial nature, and if they see an opportunity to make a nice turn on their investment, they will."

However, therein may lie the trouble. Schafer figures that in today's market, if he wanted to sell his business, he might be able to fetch $100 per customer. But that would only pay off his debt and maybe a bit more.

"So where's the incentive? Where am I going to replace my income [from the business]?"

He imagines that if the market were where it was a couple of years ago and an established operator offered him more like $1000 a customer, then the deal would seem a lot sweeter.

"If that happens, we're outta here," Schafer said. "But less than that, I have a great little deal going on here." Schafer looks at his WISP business as part-time work and fills in the rest of his time with consulting work.

Another hurdle to consolidation in the WISP market is that the operators employ a wide variety of often noncompatible equipment and different frequencies.

"It can be somewhat of a barrier, but it's not a show stopper," Fuertes said.

"The ideal merger situation is where your company uses the same architecture and equipment and everybody uses the same back-office system," Williams said. "But that never happens."

However, because each operator will serve different markets, it doesn't matter that each market uses different gear, except that the company can't take advantage of purchasing economies of scale.

If two companies in one market combine, it can actually be an advantage if they use different frequencies. NextWeb, for example, uses the 5.8 GHz band to offer high-speed services to business customers. It could combine with a company using the 2.4 GHz band, which usually means the company targets residential users, for a complimentary business.

Tiny WISPs Eke It Out

The smallest of the small WISPs see a number of different options for the future.

Kevin Summers, owner of KISTech, an ISP in the Portland area serving seven customers with wireless says there could continue to be "thousands of us little guys doing this, building up networks slowly and making decent money at it."

Summers hopes that some day, vendors will come up with revolutionary gear that will make it easier and more economical to build the networks.

"It's possible at that point the big guys will come in and scoop us up, but I don't really see it happening," Summers said.

In the meantime, the tiny WISPs will try to make a good living off the business and strive to pay back their startup costs.

"I found someone with fifteen grand burning a hole in their pocket and bought a bunch of stuff and put it up," Schafer said. "Someday, I'll have to pay mom and dad back."

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Wireless ISPs: Emerging from the Shadows

Wireless ISPs: Emerging From the Shadows