Chapter 14 - Money Talks

I have gotten calls from many people that want to start a WISP company, whether using a mesh/muni model or a PTMP system. Although I believe there is no better time than now, that doesn’t mean it’s easy but I hope to prove that it’s financially feasible everywhere. Competing against satellite or cellular services like EVDO, WiMax, or even LTE is a no-brainer in areas that have no wireline services. I’ll cover the new Sprint/Clearwire LTE service just announced for Phoenix in another article. I can build small, profitable financial models all day that can provide superior services even at subscriber/bandwidth models of 10-1. There are also other services like VoIP that can be provided but for the beginning of this analysis, we are going to focus on Internet services only. However, let’s take this into the professional corporate/investor level and see what happens.

Breaking this down into 3 areas and 2 types of design models to cover areas. These areas are a gross oversimplification because each area has different RF models that also have to be considered based on how RF friendly they are. However, for the sake of argument, let’s use these numbers:

1. 
   
   Rural – 20 or less potential subscribers per square mile
2. 
   
   Suburb – 600 potential subscribers per square mile (2700 people per square mile in Phoenix)
3. 
   
   City – 3,000 plus potential subscribers per square mile (Boston 12000 people per square mile)

The 2 basic types of models are PTMP and WiFi. So, let’s look at how each of these models can be deployed profitably. We covered inexpensive WiFi systems early on and I still stand by that model, but let’s analyze it a little more critically and see where it fits in the big picture. More important than anything, is it possible to build a system that has the financial strength to be a growing and profitable company versus Joe Technical’s weekend hobby?

As many WISPs have successfully demonstrated, clearly it’s possible to be profitable if you market in some rural areas. Assuming a starting company of 4 people, the revenue generated has to be around $40,000 per month to be profitable at the low end. I’m just summarizing some of the spreadsheets that I have used so you will have to take my word on the cost structure. With an average monthly rate of $30 per month per client, we calculate that it will take 1333 clients to make that type of revenue each month. By all accounts, that’s a pretty impressive size to jump right into. Keep in mind this doesn’t include your original Capex and how much investment you need to get to 1333 clients. It’s not going to be cheap.

If you are a hot-spot provider, you get revenue from hourly, daily, and weekly rates. Those markets are also shrinking in the U.S. for the most part but some new ideas for phone users are coming forth. In this discussion, we are going to focus on the monthly subscribers. There are also other revenue sources such as installation revenue, business rates that are higher than personal subscriber rates, and other normal ISP types of services. Additional services might require additional staff with more expertise, thus raising the associated monthly costs.

Rural markets are easy. Set up a PTMP system on whatever inexpensive vertical assets you can get access to. If there is not a lot of vegetation, these systems can handle36 square miles easily per tower and up to 300+ users per tower. This assumes you don’t already have competition in the area and there is no interference. You just need 7 towers with 200 users on each tower cover your monthly expenses and be profitable. If there are any of these areas left in the U.S., let me know but I’m not going to hold my breath.

However, there are some rural markets that are underserved simply because of distance, vegetation, and costs of deployment. They may not have 1300 clients, but find a few of them with a couple hundred clients per area and the plan still works. Some of these areas were just not reasonable to do with 2.4GHz or 5.8GHz. They may have been a good 900MHz radio option but limits in equipment, the band, and interference mean that most of the 900MHz products either only delivered 1.5Mbps or the cost of deployment was too high. Newer 802.11N 2x2 MIMO equipment that is hitting the market now should allow for an improvement in throughput in these areas with client bandwidth similar to anything available in the 2.4 and 5.8GHz bands and cost far less. Depending on the design, it should be reasonably easy to promise 10Mbps to a client on the wireless link depending on back end bandwidth. 900Mhz isn’t an ideal band due to limited spectrum width and interference in city or even suburban deployments. However, it extends out the range of clients in dense vegetation areas. In most rural deployments without too much interference, I would expect bandwidth off a centralized tower to max out around 160Mbps with the right setup in 900MHz.

Let’s move into the suburbs now. Most suburbs are served by cable, DSL, or a combination of both. To be honest, DSL is simply not living up to the hype of the marketing division. In Phoenix, Qwest advertises speeds up to 20Mbps when they are lucky to hit 3Mbps, even within 1 mile of Sky Harbor Airport in the middle of the city. Move 300 feet and not only can they barely deliver 640Kbps, they can’t keep it running more than a month or two before it to crashes again. In my case, after I complained for the umpteenth time, they told me with one more complaint they would pull out of our business complex leaving me with no wireline high-speed bandwidth. I had to move my office just to get 3Mbps after several years of subpar service. Even if you are satisfied with your DSL service, it only takes one bad technician adding one more client in your area to cause it slow down or crash again. If this is the main provider of service in your area, I say let the best technology win. I will take WiFi based wireless over any area where DSL is the only technology available. That alone means that major cities still have opportunities.

Cable is another matter. Cable companies are promising huge amounts of bandwidth today and for the most part are very technically stable. In Phoenix, I have a 20Mbps circuit. However, I get around 11Mbps on Speedtest or Speakeasy most of the time. Other times I have seen it down to 1Mbps. Even though you may pay for a specific level of bandwidth, there is no SLA that you will be delivered that level as opposed to a business level SLA agreement. The reality is that the bandwidth advertised is the burst speed or web browsing speed. If you download or try to move large files such as video or a file transfer, that speed will be reduced significantly. However, other than fiber to my house which I doubt I will see in my lifetime, it’s the usually the fastest option.

In either case, this isn’t a market where 1Mbps is going to fly. Even Grandma and Grandpa are watching NetFlix. Google TV is no longer an urban legend either. Throw in every game machine out there downloading movies and unless you are willing to run with the big dogs, this is not a battle ground you want to enter. I’m talking about a wireless service where you plan in advance on delivering 5Mbps average to everyone with peaks up to 50Mbps or more and no more than an 8-1 bandwidth to user ration. 802.11 b/g/a won’t fly here. You have to be ready to invest in bringing a large bandwidth pipe in and the subsequent costs of deploying 1333 users. I have numbers on both PTMP and Muni-WiFi models but to simplify this model and since the area is generic, let’s assume a 50-50 model.

Since we are estimating 600 households per square mile (houses and multi-dwelling unit) and assuming we get 20% of that market, we need about 10 square miles to meet our $40,000 revenue total. That also means we need about 4 towers or building assets to ensure we have LOS to all the locations. Estimating a cost of $25K for the backhaul (assuming the entire system is wireless) gives you 2Gbps. However, it might make more sense for a local fiber, MPLS, or even cable backhaul although using a company for your backhaul that you plan on competing against may not be the best idea. Unless you consider bringing an anti-trust lawsuit against multiple telcom providers while they drive you out of business a fun time, you probably want to find other local carriers. In the end, we have determined that the tower installations will cost about $125,000.

Since half the clients are WiFi, we are still going to have to install 16 APs or more per square mile. I’m going to use that number along with some numbers on designs I’m working on now to come up with $30,000K and 360Mbps per square mile. Each AP will deliver up to 100Mbps to start with and if you go back to previous articles, can deliver several hundred Mbps if needed. Since we have the vertical assets, backhaul to the street lights is taken care of. The problem here is that it still costs us $300,000K and is the largest part of the Capex. Additional revenue sources have to be found here to justify this but we will discuss this later.

Our numbers assume that half of the clients will require truck rolls. That will cost $195,000 to deploy. Considering that each technician can do about 4 installations a day, it will take 160 man days to install enough clients. Since there is only about 20 workdays per month, it will take 8 crews to get up to this number within a month. Most of us would have to outsource this unless you have several friends with days off who also happen to work as installers for Direct TV. The revenue on installations will range from $0 to $200 depending on the market. Assume $100 and the net cost of deployment is going to run about $60K.

The other 650 clients can be installed any time since they are WiFi based. Either they can connect directly or some type of CPE device can be made available. Let’s call that a no Capex cost since $50 will come pretty close to the actual cost.

To summarize, the Capex for this model costs $530,000 to deploy. Even if we net $10K per month which is reasonable, this isn’t going to fly financially with a 4.5-year ROI. This is also a maximum bandwidth system than can compete directly with Cable/DSL/LTE or anything else out there for the near future. Scaling it out further doesn’t improve the ROI but it sure increases the revenue stream. So, how can we make it more cost effective? There are two ways, reduce the cost or find more revenue.

Start with the idea that we only need 100Mbps per square mile in the beginning. This reduces tower costs down to $15K per square mile for a backhaul system that will support 720Mbps instead of 2Gbps. We just saved $75K. It also drops the per mile costs of the WiFi system to about $20K per square mile. That’s another $100K on the savings side.

There isn’t much that can be done on the truck rolls other than to consider the option of doing the installations in house. That saves about $50 per installation but it may take 3-6 months to get up to 650 installations. That’s also more reasonable in most models that I have developed. What I didn’t take into account is the advertising necessary for this speed of penetration but there are several cost-effective ways to do this. I’m leaving this number alone for that reason.

The cost is now down to $360K. The ROI is down to 3 years but is still not that reasonable except for this, cable companies are not reducing their rates. In fact, they keep going up along with the bandwidth. One of the reasons is that they are being squeezed on the TV side by content providers demanding more revenue per users. At the same time, it’s much more difficult to raise TV cable rates due to competition from satellite providers and local ordinances. People are also dropping land lines faster than a Bugatti Veyron because of cellular phones. As much as I complain about cruddy DSL service, the reality is that it has also taken many of the Internet clients from cable due to low cost, which helps to drive the prices down. You do get what you pay for however. Hey DSL companies, here is an idea. Instead of trying to bring fiber to the home which you clearly can’t cost justify, how about just bringing it down the street so my little modem doesn’t have to connect 3 miles away across some 20 year old wires. If anybody needed a wireless option, the DSL companies do and they have boxes on almost every street. Having those assets for a wireless design would be my wildest dreams but for some reason, they can’t get off the wired mentality.

There are other revenue sources for this that I have covered in previous articles. Think through some ideas with cell phones, hot spots, multi-dwelling buildings, backhaul, VoIP, other ISP and business services, and the ROI actually starts dropping to about 2 years or less. If you have an existing company that already has sales people, project managers, and office staff in place, then the costs of getting to this point is pretty reasonable. Peg that at about $50K. Starting this project from scratch probably means about $150K. That adds 6-18 months on the ROI. Scaling the system and deploying more slowly puts out the ROI but reduces the Capex as the system starts paying for itself in about a year. There are many ways to play with the numbers but the bottom line is this, it’s now possible to compete with wireline services in any market. I’m also basing my numbers on what equipment can be bought today. I am pretty sure tomorrow may bring many more surprises that will change the financial and technology foundation of WiFi and that tomorrow is far closer than we think.

Chapter 6 – Free is not a Business Plan

Our system is installed and our credit card maxed out. Now, we have to either pay for it or figure out how it’s going to save what we invested in it. As an income based system, it’s pretty easy to figure out a direct correlation between expenses and revenue. If there is some kind of defined savings, we need to try and make that objective and measurable.

Let’s talk about the profit scenario. These are just the direct costs:

1. 
   
   We spent $10K putting the system in.
2. 
   
   50Mbps costs $450 per month (data center plus roof rights)
3. 
   
   Pole rental costs $5 per month per pole (16 poles) or $80 per month

On the income side, you are going to have daily, weekly, and monthly clients. Let’s say you charge $5 per day, $15 per week, and $30 per month. It’s fairly easy to calculate your income/revenue to put a profitable scenario together. However, let’s go back to the original premise of a low cost system.

A municipal WiFi system has the basic problem of reduced range due to simply physics limitations. I plan to share additional ideas along this area in the near future but for now, let’s assume all clients are 2.4GHz and we still need 802.11G compatibility. This means that we either spend the money on an expensive, all-encompassing infrastructure, ala the sixty AP 2x2 MIMO design, or put that cost on the client side. Having the clients cover part of the Capex not only means a lower initial investment, but costs can scale upward with income.

This design took the original Muni AP concept, added 6dBi or better on the antenna gain, and had the benefit of 802.11N improvements in receiver sensitivity that adds another 10dBm. It doesn’t take advantage of 2x2 MIMO so we left 3-6dBi on the table of signal quality and bandwidth. However, we spent $10K instead of $100,000-$150,000. For 10% or less of the cost, we got 50% of 2x2 MIMO performance and 120% of the performance of legacy 802.11b/g systems. Don’t worry, there is a lot of capacity still left on the table that we can add later.

We now have to deal with the problem of not being able to connect to 60% of the indoor clients. This isn’t unique as most of the Muni-Wireless systems recommended some type of high-power indoor repeater device. Unfortunately, it was an afterthought when they determined that a high percentage of users couldn’t connect or basically that the system was grossly oversold. The indoor repeater balanced the power equation between high-power AP’s and weak laptop transmitter. The problem with these devices is that they create more interference on the channel due to that combination of high-power and omni-directional signal pattern. A better solution for the network is a directional client radio with higher gain antenna and lower power. There are many products but I suggest Ubiquiti Nanostation 2M or Nanostation 2M Loco radios. They have an optional window mount for indoor coverage and cost less than $100. They are also dual-polarity 2x2 MIMO in case the network gets updated later (hint, hint). The radios may need to be mounted outdoor for longer range or to get over the tops of houses or trees which means truck roll. These devices are not repeaters all you get is Cat-5 to the computer. Indoor wireless coverage will require a separate indoor wireless router .

How does this affect our profitability? Assuming 200 potential clients in 1 mile area, we need to get 18 clients at $30 per month to break even on the direct bandwidth costs, not including the payback on our Capex. That’s less than 10% of the potential clients in our 1 mile area, assuming all residential housing. Not an unreasonable number. There won’t be a lot of profit on residential truck rolls but at $200 per install, at least it won’t be a loss.

With 50Mbps per square mile and 70 clients, the system can be cost competitive with most wire line services. What happens however, if there isn’t a data center down the street? We have to figure out how to backhaul from a data center much farther away and probably within a LOS shot for a direct wireless. That could cost anywhere from $500 to $15,000 depending on distance, interference, and frequency availability on the roof. Although you could contact the local loop carrier and ask for a quote on bandwidth, the reality is you will pay $300-$3000 for 1.5Mbps to a 45Mbps DS-3 circuit. Some areas have MPLS and other data options but if you can get 10Mbps for less than $1000 per month from a local carrier, you are doing well.

Another option is to look for wholesale carriers for DSL. Although DSL usually ranges from 512Kbps to 7Mbps average, this goes up or down in an area based on distance to the Central Office or DSL switch. Assuming you can get 7Mbps down and 1Mbps up and your DSL wholesale carriers allows you to resell the bandwidth, you will probably spend about $60. Order 7 of them, put a Peplink 710 router on your network and you have 49Mbps down and 7Mbps up of available bandwidth. No individual gets more than 7Mbps down and 1Mbps up, but the router will load balance the users to get them the best bandwidth available. You are still below your $450 per month budget but the router will cost $4000. Peplink and other companies have smaller routers for fewer DSL lines starting at $300, so you can budget based on expected system needs. Keep in mind your oversell rate of about between 10-1 and 20-1 and that means 70-140 clients getting close to full bandwidth 100% of the time. 70 clients would generate about $2100 per month in revenue compared to your direct costs of $030 per month. The DSL idea can scale starting from 1 circuit keeping monthly costs in line with revenue.

The previous scenario is basically worst case. Assuming you have apartment complexes in the area, not only does the revenue potential increase, so does the percentage of temporary users. These are users that need 1 day, 1 week, etc… The revenue per day for 1 day users is 5 times higher than monthly users. Anything you can do to attract those users is a huge increase in revenue. Throw in areas that include business users, and the revenue potential goes up even further. Business users can be charged 40% more than residential users so there is more potential there also. Hot-Spots like restaurants, parks, etc… will add more revenue.

Here is where we are going to diverge from the original concept of mesh systems and open up the opportunity to make significantly more revenue. It’s been mentioned that the only way to really guarantee 100% performance of a mesh network is to install 60 AP’s per square mile. The reality is that it’s extremely difficult to recoup the kind of capital expenditure at $2500 to $3000 per installed AP (parts, labor, back end, and other miscellaneous costs) you need for this coverage and the monthly costs. Even our design, scaled out to its maximum potential down the road, will cost $1400 per AP installed (but it will it move some serious bandwidth). If it was easy to make a profit, companies would be throwing up municipal systems so fast; it would make your head spin. Throw in monthly costs of pole rental, backhaul or local loop costs, support, business expenses, etc…, and this model fails unless you get the following:

1. 
   
   The local government pays for use of the network thus supplementing the cost or by being the anchor tenant.
2. 
   
   Sprint, AT&T, Verizon, or some other carrier pays to hand off some of their subscriber bandwidth needs since their purse strings are slightly deeper than most of ours
3. 
   
   You find the 1% area in the country where wired carriers use their monopoly’s to make it easy to compete, there are lots of free vertical assets, and there are very few trees.

The system we designed achieves the strategy of 100% street coverage which meets most of the needs of public safety and municipalities. This opens up the government market. We have determined that some users will need indoor subscriber units. However, the one area that hasn’t been covered directly is the idea of the system simultaneously being used as a Point-To-Multipoint (PTMP) system. Basically we need a hybrid muni system. A PTMP system has the advantage of range but doesn’t provide street level coverage and usually won’t cover indoor. With an outdoor antenna on the client side, the system can support clients up to 2 miles away LOS. Our upgraded system will support up to 5 miles or more. This greatly multiplies the potential revenue of the system. Clients purchasing indoor units are creating a mini-PTMP system already. The only difference is that as the provider, you will have to provide staff that can go on-site and install a radio in a residential location. On the positive side, it can also be another source of revenue since the cost of equipment will be less than $110 for the install. Keep in mind that every subscriber we add brings in another $360 per year or more. This design with that addition, keeps the best of both worlds.

The focus of municipal networks has historically been high-density areas. The obvious advantage is having a market potential of 10,000 clients or more. These are the kind of numbers that are needed to cover a multimillion Capex. The budget model we created allows for much lower density deployment while still creating a design that creates a product that has value for public safety, water meter, parking, video surveillance, and other options that create value for a municipality to become a client. That provides two potential markets. Throw in the PTMP market, and we have not only created 3 markets, we can provide a more reliable, stable product with higher bandwidth capacity per client, and a larger coverage area.

Does this change the model of a true municipal network? Not really. Besides cellular, the most profitable wireless networks are PTMP. They cover many of the areas that wired never moved into. For example, I have an area of 50 homes that was never profitable for wired due to the length of runs. Put up a single AP with an omni-directional antenna, feed it with a T-1, charge $60 per month, and everybody wins. It beats satellite hands down and people still watch Netflix. Some part of the municipal network usually has roof rights for backhaul, usually on unlicensed frequency, to the AP’s on streetlights if they aren’t attached to fiber. Those locations are providing a PTMP system already for the AP’s. I’m suggesting that this same model be used for clients. In later articles, I will show you how this part of the network can be upgraded to easily deliver 20Mbps to residential and 50Mbps or more to businesses.

I’ve taken some heat for the fact that this system isn’t 2x2 MIMO. Keep in mind that this was first designed to create an inexpensive and/or profitable network. It will perform better than an 802.11b/g system due to better receivers, higher antenna gain, and better protocol. It can also support a PTMP design that can cover a couple extra miles around the 1 mile area for additional customers. The network is better controlled with more users using directional antennas for indoor coverage which reduces interference in improves s/n ratio. It doesn’t have 100% indoor ubiquitous coverage but it also doesn’t cost $150,000 per square mile, although it can be upgraded. We will next cover how to increase the bandwidth at each AP up to 80Mbps or so and expand the total capacity.