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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 in the system;

  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 access points (APs) 2×2 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 A 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 2×2 MIMO so we left 3-6dBi on the table of signal quality and bandwidth. However, we spent $10,000 instead of $100,000 to $150,000. For 10% or less of the cost, we got 50% of 2×2 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 WiFi 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 2×2 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 line-of-sight (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 the 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 or 1 week subscriptions. 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, too. Hotspots like restaurants, parks, and sporting venues will add more revenue.

How to generate significantly 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 APs 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 monopolies 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 agencies 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 APs on streetlights if they aren’t attached to fiber. Those locations are providing a PTMP system already for the APs. 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 2×2 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.

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