I have received calls from many people who want to start a wireless ISP (WISP) business, whether using a mesh/muni model or a point to multipoint (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. There are also other services like VoIP that can be provided, but for the beginning of this analysis, I will cover Internet services only.

A WISP can serve three types of geographical areas:

  1. Rural – 20 or fewer potential subscribers per square mile;
  2. Suburban – 800 potential subscribers per square mile (1100 people per square mile in Scottsdale); and
  3. City – 3,000 plus potential subscribers per square mile (Boston: 12000 people per square mile).

Until now, the WISP business has operated using two design models: PTMP and WiFi municipal systems. I’m going to add a third model — Guerilla WiFi. Most major vendors support a PTMP model which is a centralized Hub and Spoke model. WiFi municipal systems are pretty well known.

Guerilla WiFi is my idea of using smaller, cheaper radios to create hybrid PTMP and WiFi hotspot designs to reduce costs and improve capacity. Hotspots can be as large as entire neighborhoods or more. Guerilla WiFi is also scalable and this reduces implementation Capex. The tradeoff is that it requires much more on-site time and design work before being deployed. Each individual location will have to be physically site surveyed. Decisions need to made on how and what equipment should be deployed for the best cost/performance ratio. The engineers have to get out of the labs and ride some man-lifts to get the best system.

So, let’s look at how each of these models can be deployed profitably. We covered inexpensive WDS based WiFi systems early on. 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, 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, I calculate that it will take 1333 clients to make that amount 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 repayment and the Opex costs while trying to ramp up to that many clients.

If you are a hot-spot provider, you get revenue from hourly, daily, and weekly rates. Those markets are also shrinking in the US for the most part, but some entrepreneurs have come up with new ideas for phone users.

In this discussion, I focus on 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 more staff with more expertise, thus raising the associated monthly costs.

Making money as a wireless ISP in rural areas

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 handle 36 square miles easily per tower and up to 300 users. 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 to cover your monthly expenses and be profitable. If there are any of these areas left in the US, let me know but I’m not going to hold my breath. This is also the greatest hunting grounds for the elusive 5.1-5.3GHz frequency transmitters.

However, there are some rural markets that are underserved simply because of distance, terrain, vegetation, and cost of deployment. They may not have 1333 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 2.4 GHz or 5.8 GHz. They may be a good 900 MHz radio option, but limits in equipment costs and interference mean that most of the 900 MHz products either only delivered 1.5Mbps or the cost of deployment was too high. Newer 802.11N 2×2 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 5.8 GHz bands and cost far less. Depending on the design, it should be reasonably easy to promise 10 Mbps to a client on the wireless link depending on the backend bandwidth. 900 Mhz 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 80 Mbps with the right setup in 900 MHz.

Making money as a wireless ISP in suburban areas

Let’s move to the suburbs. Most suburbs are served by cable, DSL, or both. To be honest, DSL is simply not living up to the hype of the marketing division. In Phoenix, Qwest advertises speeds up to 20 Mbps but they are lucky to hit 3 Mbps, even within 1 mile of Sky Harbor Airport in the middle of the city. Move 300 feet and not only can they barely deliver 640 Kbps, 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 3 Mbps after several years of subpar service. Even then, they screwed up upgrades, routed my static IP addresses incorrectly (4 hours on the phone fixing that one), and even took me offline when they added more users on our area. 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 to 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 in 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, they are technically stable. In Phoenix, I have a 20 Mbps circuit. However, I get around 11 Mbps on Speedtest or Speakeasy most of the time. Other times I have seen it down to 1 Mbps. Even though you may pay for a specific level of bandwidth, you do not have service level agreement (SLA) that guarantees a certain amount of bandwidth, unless you enter into a business level SLA. 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 videos or songs, that speed will be reduced significantly. However, other than fiber to my house which I doubt I will see in my lifetime, it’s usually the fastest option.

In either case, this isn’t a market where 1 Mbps is going to fly. Even Grandma and Grandpa are watching NetFlix online. Google TV is no longer an urban legend. Throw in every game machine out there downloading movies and unless you are willing to run with the big dogs, this is not a battleground you want to enter. I’m talking about a wireless service where you plan in advance on delivering 5 Mbps average to everyone with peaks up to 50 Mbps or more and no more than an 10-1 bandwidth to user ration. 802.11 b/g/a won’t fly here. You have to be ready to invest to bring in a large bandwidth pipe and assume the subsequent costs of deploying 1333 users.

I have numbers on both PTMP and Muni-WiFi models. To simplify this and since the area is generic, let’s assume a 50 percent hotspot and 50 percent PTMP – in other words, Guerilla WiFi.

Guerilla WiFi business model using 2 Gbps backhaul

Since we are estimating 600 households per square mile (houses and multi-dwelling units) and assuming we get 20 percent 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 line of sight (LOS) to all the locations. Estimating a cost of $25,000 for backhaul (assuming the entire system is wireless) gives you 2 Gbps. 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 antitrust lawsuit against multiple telecom providers while they drive you out of business an amusing way to spend your time, you probably want to find other local carriers. In the end, we have determined that the 4-tower installation will cost about $125,000.

Since half the clients are WiFi, we are still going to have to install 16 access points (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 $30,000 and 100 Mbps per square mile. Each AP will deliver up to 100 Mbps to start with. If you go back to previous articles, if needed, we can deliver several hundred Mbps. Since we have the vertical assets, backhaul to the street lights is taken care of. The problem here is that it still costs us $300,000. This is the largest part of the Capex. The other problem with this plan is that you better be attending some political fundraising parties with checks in hand. This type of plan requires local contacts who will take your call. Either that or hire the mayor’s girlfriend (Phoenix joke).

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 $60,000.

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. Without getting into too many other details here, WiFi has many more markets available to it that haven’t been utilized. Obviously government is one market but if I had to create a business plan based on how fast government works, then I’m going to retire broke. There are many markets that haven’t even been realized that have yet to look at WiFi as a viable backhaul. I smell potential.

To summarize, the Capex for this model is $530,000. 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 however, 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.

Guerilla WiFi business model using 100 Mbps backhaul

Start with the idea that we only need 100 Mbps per square mile in the beginning. This reduces tower costs down to $15,000 per square mile for a backhaul system that will support 720 Mbps instead of 2Gbps. We just saved $75,000. It also drops the per mile costs of the WiFi system to about $20,000 per square mile. That’s another $100,000 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 to shorten the deployment time, but there are several cost-effective ways to do this. I’m leaving this number alone for that reason.

The Capex is now reduced to $360,000. The ROI is down to 3 years but is still not that reasonable except for this little fact: cable companies are not reducing their rates. In fact, they keep going up along with bandwidth. One of the reasons is that they are being squeezed on the TV side by content providers demanding more revenue per user. At the same time, it’s much more difficult to raise TV cable rates due to local ordinances and competition from satellite providers. 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 away from cable due to low cost, which helps to drive the prices down. However, you do get what you pay for. Hey DSL companies, here is an idea. Instead of trying to bring fiber to the home which is too expensive, 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 needs a wireless option, it’s the DSL companies and they have boxes on almost every street. Having those assets for a wireless design would be my wildest dream but for some reason, they can’t get off the wired, slower than carrier pigeon, mentality. Either that or they should open up a real estate division to help me move to one of the mythical 20 Mbps areas.

There are other revenue sources for this that I have covered in previous articles. However, I can tell you in the residential market, you really need to think about the average user revenue conservatively at $50 per month. Think through some ideas with cell phones, hot spots, multi-dwelling buildings, and possibly others for residential. On the business side, you have other options such as intra-city services, backhaul, VoIP. Increasing the revenue gets the ROI down.

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. Scaling the system and deploying more slowly lengthens 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 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. I can’t wait to start telling you about them.