Podcast Audio | Posted by Phil Leigh on April 4, 2011
1. Recurring Revenues. A Wireless ISP is a utility with no rate-of-return limitations. Monthly subscriber fees are as regular as clockwork much like those of a CATV operator, telephone company, or tax collector.
2. Infrequent Subscriber Cancellations. Since Internet access is increasingly essential, well-run Wireless ISPs normally experience low subscriber cancellation rates. For example, Towerstream – which is the most prominent publicly traded WISP — reports subscriber churn at about 1.4% monthly.
3. High Profit Margins. Unlike electric power or water utilities, there’s normally little incremental cost after subscribers are added. Towerstream reports average gross profit margins of 75%. Furthermore, it achieves EBITDA margins of 50% – 70% in its most established markets like New York and Boston.
4. Latent Demand. The industry’s roots are in rural areas where Landline ISPs declined to offer service owing to the uneconomic cost-per-subscriber of laying cable. Even today a demand backlog remains for potential users presently out-of-range of WISP networks. Regulatory and technological advances such as TV Band White Spaces increasingly enable the industry to profitably reach such potential users.
5. Organic Growth. Much like unsolicited consumer demand drove growth for broadband Landline ISPs during the first half of the past decade, WISPs often find consumers seeking-out their services. They are less often required to artificially induce demand with costly incentives.
6. Favorable Competitive Environment. Often rural WISPs only compete with satellite operators who cannot offer prompt interactivity owing to lengthy communications paths to outer space and back. In small cities and urban markets, Landline ISPs frequently provide favorable price umbrellas — particularly for business customers. For example, as a B2B specialist Towerstream normally under-prices telephone competitors by 30% – 50% even though it operates in nine of the fifteen largest markets including New York, Los Angeles, and Chicago.
7. Comparatively Modest Capital Requirements. Compared to Landline ISPs which must lay cable and pay – one way or another – for franchise authority, Wireless ISPs require little capital investment. First, they typically employ free unlicensed bandwidth with no spectrum auction requirement. Second, they can expand service into new geographic sectors merely by erecting incremental base stations.
8. Capital Needs Linked to Subscriber Growth. Once a base station is put into service the capital investment required to add a new subscriber is mostly limited to customer-premises-equipment. There is no need to install cable throughout new service territories before accepting additional customers.
9. Incremental Revenue Sources. Many smaller WISPs are only beginning to offer VoIP and video services. They’re starting to offer broadband, VoIP, and video “triple play” bundles by partnering with a satellite operator for the video.
10. Urban Development Threshold. Much like the CATV industry evolved from an unfamiliar niche into a massive business by moving into urban markets thirty years ago, WISP’s are at a similar threshold today. For example, for much of the past decade Towerstream has effectively competed for business customers in some of the largest urban markets.
However, a second potential is to provide a metropolitan “bandwidth oasis” to relieve cellular congestion caused by smartphones and tablet computers. For example, in New York City Towerstream is building a Wi-Fi network with 1,000 access points enabling smartphone and tablet users to wirelessly access the Internet without using cellular services. It’s designed to have twenty times the capacity of fourth generation LTE cellular systems.
11. First Mover Advantage. Since WISPs use free unlicensed spectrum, competitors cannot be artificially denied market entry. Instead, incumbents with the best tower and antenna sites acquired through years of operating experience are often crucially advantaged relative to newcomers.
12. Favorable Regulatory Environment. The FCC is acutely aware of a need for improved wireless Internet service. Consequently, the Commission’s five-to-zero vote for TV Band White Spaces appears to be a decisive turn toward free market principles. It implies that unlicensed spectrum will be a key component of future wireless broadband policy.