Tales From The Towers

Chapter 23: I Can See Clearly Now The Rain Has Gone!

By December 1, 2017 No Comments

WISPs are starting to get a little recognition with Obama’s new initiative to provide more funding and loans for Rural Broadband. He announced a new initiative to take back more bandwidth below 1GHz and auction it off. Then he came up with the brilliant idea to use those funds to pay for a real public safety infrastructure. The timing of that was about a week after Chapter 21. I’m not saying Obama is a big fan of “Tales from the Towers” and that he would plagiarize other people ideas like extending the Patriot Act or keeping Guantanamo Bay open, but, okay I am saying… Everybody has to have their fantasies.

Then the Obama administration announced they are using leftover funds and probably some other money the Fed just printed up out of thin air yesterday, to extend loans to bandwidth providers. Apparently the several billions already spent didn’t end up providing a lot of bandwidth to the end users (big surprise), but funded lots of fiber projects, bandwidth for government entities, and data collection consultants (lots of value there). So they created a new program to try and help the WISP operators again.

The sad part is that it’s the wrong thing to do. Throwing money to one company who can fill out forms better than their competitor screws up the free market in that area. Nature abhors a vacuum and a WISP operator can now profitably serve areas with as little as 10 users. If users are willing to pay, someone will set up shop to make money. The government doesn’t need to give money to companies to provide service to these areas. For example, giving money to Hughenet, SkyBlue, Echostar, and Spacenet to lower the cost of satellite internet was just plain stupid and totally against free-market principles. Local WISP operators who can provide better service or higher bandwidth now have to lower prices to compete. That means less revenue for those operators to expand their service. Of course, once a user experiences real Internet service other than satellite, they typically won’t go back, regardless of price.

For example, Triad Wireless operates an area that has 54 total homes over about 15 square miles. Most of the users were on satellite for $60 per month. That meant those users had no real-time action game playing, no Netflix, no video-conferencing, no Skype, no remote backup software, etc… Due to the remoteness of the area, the only landline option was a T-1. We brought the circuit to one centrally localized house, extended the system with wireless, and 10 users signed up with an install fee of $250 which wasn’t far off from the satellite provider (it’s also a really long drive from our office). Even though the bandwidth wasn’t ideal, it opened up a lot more options than those users had with satellite. For example, one of the residents is a teacher who had to drive 20 miles into town to find a faster internet to teach their class twice a week. His video conferencing simply didn’t work over satellite.

As word of mouth spread on the difference in performance between a T-1 shared between 10+ people (19 at last count) and the satellite systems they had, most of the satellite users in the area dropped their contracts. The increased user count allowed us to expand the system to 3Mbps at a cost 33% higher than satellite. Most of the users would rather pay $80 per month for up to 3Mbps of real bandwidth with no monthly caps than pay $60 per month to SkyBlue for limited capabilities. Some of the users opted to stay with the 1.5Mbps peak. The users know the bandwidth is limited and if someone is hogging it for a long time, we throttle them back for a while. When things slow down, we open the pipes back up. It’s worked for 2 years like a charm.

That doesn’t mean everyone can afford to pay $80 a month. This area has very large acreage properties in a very remote area 25 miles from a small city. In other areas where it’s economically possible, Triad Wireless plans on rolling out a $10 or less monthly service under the “Education Everywhere” program for lower income students. It just depends on the environment but it demonstrates that it’s pretty easy for a WISP to get into a lot of nooks and crannies not addressed by cable or DSL providers.

Satellite companies typically charge for installation and a certain level of access fee to make a profit. I have no problem with that. However, if the government steps in and gives the satellite companies money to eliminate the install fee and subsidize the monthly fee to offer $40 per month service, that gives them an unfair advantage over a local WISP operator. I’m not saying that I can’t compete in a fair market, I just can’t compete when the government is taking taxes they collect from my company and then shovel it into the bank account of my competitor to be used against me. I would rather pay the Mafia since I they would guarantee I wouldn’t have any competitors muscling in on my business. I would also get better protection, and at least I know the rules going in. Losing a kneecap is better than watching your business and economic viability collapse because some feel-good politician with absolutely no business experience 2000 miles away just sold you out to a big contributor, but enough about our useless federal government that isn’t competent enough to balance the books on a lemonade stand.

More spectrum simply needs to be opened up for free that can use equipment that doesn’t take the Manhattan project to design. Regulate it like 3.65GHz but don’t let any cellular companies use it. If a company owns spectrum in an area, then they shouldn’t be allowed in. If Jim Wright can be allowed to keep Southwest Airlines out of Texas (sure, politicians can’t be bought), then the FCC should be able to keep Verizon, Sprint, and AT&T out of the new band. If those big companies are allowed in this band, smaller operators might just as well start setting up shoe polish stands. The most efficient companies in terms of speed of deployment, lowest cost, and best customer support are the independent WISP operators. The closer the owner/operator is to the customer, the better the service.

Of course, the telecommunications group donating the least amount of money to our “we never met a donation that didn’t influence our vote” politicians are also the WISP operators. From what I’ve seen of GE’s tax bill, several congressman and senators are probably sitting on “I love Jeffrey Immelt” tattoos. I do know that a bunch of Democrats added “I love Netflix to their other cheek recently”. I’m not holding out much hope that they will do the right or even the smart thing for the small business owners who employ 80% of the people in this country. I’m also not holding much hope for my invite from Obama to ride all over the world in Air Force One.

Fortunately for the rural market, several new technologies may start removing the chokehold that local fiber and wired incumbents have in the U.S. For example, if you want local loop fiber in many states, although you can find a middleman, you probably still end up on one of the two local incumbents in the state. If you are in Mexico or Canada, you end up on one, count them, one local loop fiber provider. Last I checked, that’s usually not the best deal for the consumer but it makes it possible for the richest man in the world to keep his place on top in Mexico. At the same time, the government wants to help WISPS which are usually a handful of employees, by asking them to fill out paperwork that takes 2 attorneys, a CPA, 5 grant writers, 3 RF and network engineers, a market research expert, and two psychics. So how do the smaller WISPs continue to compete in what is clearly a difficult business environment caused by government rules?

We talked about what the cost of bandwidth was in a data center. In some areas, it’s as little as $1-$2 per MB (probably shared somewhere) or the highest pricing I have seen for a Tier 1 provider is around $5-$6 per MB. If the connection point includes local loop, the cost is probably $20 per MB or higher. Since the profit of an ISP is the reselling of that bandwidth, it’s important that cost stay low. That means we start at the data center whenever possible. I recognize this isn’t an option for everyone, but for this model, we are banking on the idea there is a reachable data center.

Let’s assume that your state has 2 incumbent carriers for local loop and you remember what happened to Covad when they built their company on a single source supplier model. I just don’t trust a local loop provider that also happens to be a competitor. Most companies have the ethics to not lower your system performance to damage your company. But think about this, do you want to build your company on the premise that it’s easier to ask for forgiveness than permission and let the lawyers handle it after you are out of business? The local loop provider could also easily mess with your pricing model and either undercharge you or provide better performance since they know your numbers.

I also wouldn’t bet my survival on a rogue IT guy buried inside a big company whose job may be on the line when their revenues go down. There are too many ways to slightly screw up a network without anyone being aware if or how it’s done. Telmex is the experts at that. Just try to make a Skype or VoIP call across the Mexico border to a Telmex business DSL client to avoid paying international phone rates. It sounds like Obama speaking without a teleprompter under 10′ of water. You can’t build a house on a shaky foundation.

So if we don’t’ want to use local loop, what’s option 2. We build our own backhaul to connect to the big boys. If your coverage area is within a couple hundred miles of a major city, wireless backhaul can now move 1Gbps for 20 miles or more with no compression. Compression is useless with video streaming since the packets compress as well as a Sumo wrestler in a Southwest airlines coach seat. The days of 100 users sharing a T-1 circuit are over. To be competitive today you need lots of bandwidth. You need to plan on moving big chunks of data long ways early on even if you don’t need a lot to begin with. Video streaming will be the major type of traffic over the next few years. Historically, this would take multiple radios bonded together or multiple hops.

Let’s run the numbers and see how this works out for a really big pipe. 1Gbps with local loop charges probably cost no less than $15K per month. That’s $180,000 per year. 1Gbps pipes are the sweet spot with Tier 1 providers in terms of cost per megabyte. If you can use the new hardware from Bridgewave or Exalt, who now have products that can move 1Gbps over a single pair of radios for about $25-$30K, to go 20 miles, then you have passed the first test. Assume that there are some obstruction or terrain issues between the data center where the fiber feed is available and that you need an additional tower in the middle.

Going over the Capex to go 20 miles, the fixed cost is two radio pairs costing $40,000K installed worst case, assuming an outside installer for a total of $80,000. The monthly costs are $7K at the data center and probably about $500 per month on the tower co-location fee. Toss in the $15K-$20K you are going to have to pay for the survey and licensing of those frequencies, and that puts the first year cost at $190,000. It takes approximately 12-13 months to break even over paying a local loop carrier. However, year two you are now saving over $100,000 or enough Moola to put up a parallel link to handle the growth of your WISP operation since your service now has awesome bandwidth.

The only key difference between the products is how far you can go. The problem with the Bridgewave is that it’s only available in 18GHz and 23GHz frequencies. This is fine for the 10 miles hops and mild climates. Go further than that and the antennas will be big enough to saucer 5 kids down snow hill or you will be singing “Don’t let the rain come down” every time it gets cloudy. Keep in mind that when you use dishes that Shaqille O’Neil can hide behind in higher frequencies, tower load and sway also now becomes an issue. In this case, it’s easier to put an 8′ dish on a building at 10 feet and a 4′ dish on a tower rather than a 6′ dish in both places. The 4′ dish also has a wider beam pattern allowing for a little more tower movement. The sizes of the dishes are generalized but you get the idea.

Exalt has the option to use 6GHz and 11GHz which means 10 miles could become 20+ miles. Curvature of the earth starts to come into play in flat terrain areas at those distances if nobody left you a pair of convenient mountains to work off of. Even if you keep the hops to 20 miles, that now means 6-8 hops gets you border to border coverage for the entire state of Indiana from Indianapolis. Since I doubt you get $15 per MB pricing all over the state even if it was available, these radios now just technically and financially opened up very big pipes for pretty much most of the country.

Based on the amount of interest I’m seeing from several venture capital groups I’ve talked to over the last few weeks, I’m sure I’m not the only guy that figured this out. Going back to some numbers we discussed in the past, 3600 users with that type of bandwidth generates $100,000 to $150,000 per month in revenue. We are spending $200,000 for our backhaul and that cost drops by $100,000 the second year. The revenue stream is a minimum of $1,200,000 per year when the system is built out. It doesn’t take an accounting genius to figure out that certain WISP models can be a highly profitable endeavor. However, if we can figure that out here, imagine how much number crunching is going on at the big cellular companies. They are promising enough bandwidth to your phone to download a Peterbuilt. Unfortunately when you try it, you find out that if you want the trailer, it will cost another $10 and you are only allowed 1 gallon of gas to run the whole thing for 30 days. Either that or they throw up a 25mph speed limit after you driver for an hour. The end result is that the federal government will let the multi-billion dollar cellular companies charge for the use of bandwidth on a per MB basis but the mom and pop WISPS have to give it away for free. I’m sensing a double standard here.

 

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