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Monday, June 16, 2008
WiFi In The Cross-Hairs
In 1999, the European countries kicked off plans to auction spectrum for 3G. A ballpark US$200B down the road and 3G still seeks validation. But the establishment is on its side allowing the 3G bus to careen from country to country leaving a trail of red ink. However, just one ISP blunders with WiFi deployment in American cities and the Inquisition is back.
To understand better the brouhaha hark back to 2004 when Verizon launched a political broadside against Wireless Philadelphia. Demonstrating just what clout means Verizon got Pennsylvania Governor Ed Randell to sign a law barring MuniWireless initiatives unless the municipality or local body first offered the incumbent service provider an opportunity to deploy its own network. That the incumbent had all these past years to deploy a broadband network and didnt simply means irony does not trump political muscle.
Then a funny thing happens. There was a groundswell of protest from the citizenry making the good Governor rapidly backtrack resulting in a last-minute deal allowing Wireless Philadelphia to proceed and with EarthLink subsequently winning the contract to deploy. MuniWireless was now officially in the telecom establishments cross-hairs. Taking on City Hall is one thing. But to take on the corporate telecoms establishment, groundswells and big cojones arent enough. Especially when the ISP depends on the same incumbent to provide fixed line connectivity to WiFi base stations.
In 2005 Diana Neff ?the lady behind Wireless Philadelphia ?explained its economics to me:
- In lieu of Capex related payments, the city government becomes the anchor tenant.
- Power, locations for base stations provided for free.
- ISP free to offer internet access into homes , offices at commercial rates.
- Free Internet access in open parks.
- Subsidized Internet access to weaker sections.
Thats the economic gist. Is its net wherewithal enough to rumble with fully amortized copper running voice and owned by an incumbent able to cherry picks where to put its DSLAMs? Id say, barely. Just about. If all goes well. Now, if the municipalities were to ante up to also mitigate the Capex burden in addition to becoming anchor tenants, we could have a robust stand-off.
Here is the core argument on the economics.
- Nothing is free.
- Recurring revenues are a bitch to kick-off. To generate a stream that makes sense is usually a three year wait. This is the incumbents huge advantage. His three year wait occurred in the Triassic era.
- If the municipalities pay for equipment and become anchor tenants, MuniWireless has money then to wait out the gestation period required for monthly recurring revenues to stack up.
- If the municipalities are not going to pay for equipment, they need to ante up properly as anchor tenants. If neither, the MuniWireless operation goes bust.
- Again, the same economics do not apply to a cellular player because the 2G networks are comfortably amortized and the service ubiquitous.
- Unbundled services from the incumbent are a bedrock for MuniWireless economics. Without it the whole enterprise remains fraught.
- Lastly, look at the blood around 3G to understand what it takes to launch a new service, even when the service is allowed to rest on 2G crutches. In comparison, WiFis burn is peanuts and all it takes for the economics to work is at a minimum, strict & wholehearted adherence to the Neff model.
Its safe to say that besides a continued reliance on incumbent backhaul, the basics of the Neff formula werent adhered to as ISPs like EarthLink sought to light up Americas urban landscapes. In a rush to move away from a dying dial-up business deals were signed up at the same velocity they are currently unwinding. We watched from the sidelines as each new deal resulted in one more concession and then another and another thrusting a precedence on the rest of the industry. By 2007, cities were refusing anchor tenancies and delivering a double whammy instead by demanding free services if the ISP were to be allowed to address the city population.
MuniWireless?teething problems then have more to do with possible economic mismanagement and incumbent hostility than with WiFi technology. The same WiFi for example, is working wonderfully for T-Mobile in their WiFi@home service linking your home WiFi and the thousands of T-Mobile WiFi hotspots to their cellular network. This service is WiFi's wedge into the telecom establishment's door.
So someone may have screwed with MuniWireless but WiFi isnt the perp.
Seeing T-Mobiles intent theres more to WiFi than WiFi. I wrote in 2005 about patching WiFi to cellular networks suggesting UMA (Unlicensed Mobile Access) as a method for cellular companies to co-opt WiFi and bring true broadband into the realm without investing in a questionable 3G. Kudos to T-Mobile for doing it two years later.
But WiFi-cellular links are already pass. If the cellular companies have been too slow/reluctant/hostile to the technology doesnt mean the technology wasnt there. WiFi is the tip of an OFDMA iceberg and the WiFi-WiMax nexus is whats going to shake up the networks next. One doesnt expect to see a WiMax operator mulling too much on the pros & cons of connecting to WiFi at the edges over a common IP back end. The first casualty of such ubiquitous footprints with high speed mobile wireless broadband access to the internet is going to be band-aid applications like Blackberry. Whether you sit at Starbucks, walk up to your car with your Frappuchino or drive off home, you can directly access your email server/service at a minimum 2-5mbps.
There are some very dedicated people working hard at IEEE under the IEEE P802.21 working group to develop standards for these vertical (cellular ?WiFi) and horizontal (WiFi-WiMax) nexuses. The standard is slated for finalization by 2008 at which point WiFi begins its real role as the owner of the edge. As we old telecom hands have learnt at great expense, thats where the winning lottery ticket is hidden.
For a non-incumbent, to make sense of a WiFi-centric business one needs to adhere to the economic arguments made in these article. That keeps the business afloat while you spread your network one home after another, one caf after another. Your intent is to have as large a footprint as possible before you make that call to T-Mobile.
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