So You Want to Be a Wireless Broadband Service Provider?

Wireless Internet Service Provider (WISP) start-up companies now dot the landscape across the United States. As the demand for broadband Internet access in rural and secondary markets continues to grow, many more are expected to emerge. Some estimates indicate that as many as 30 new WISPs launch plans each month to operate in the License Exempt Spectrum Bands: 900 MHz, 2.4 GHz, and 5.8 GHz (U‑NII band). Many of these companies are created and operated by wire-line ISPs, electric utility companies, former telephone company employees, or business-oriented entrepreneurs. These may well be people just like you.

While a strong demand for broadband services signals a great opportunity in rural and secondary markets, there are critical start‑up decisions and significant pitfalls that a new WISP must avoid. An under-developed business plan, insufficient knowledge of the market, or lack of competitive insight can be a prescription for failure.

Understanding Your Business Concept

As with most businesses, successfully starting and operating a WISP is highly dependent on controlling costs and reaching revenue goals. Knowledge of network design, network operations, business planning, and project management are some key elements in managing costs. Understanding the local market and the competitive offerings available to the local market are central to developing realistic revenue projections. In addition, the availability of funding, for both initial start-up and the early stages of the venture, is critical to the success of the business.

If you are planning to startup a new WISP operation, there are many up‑front steps you need to take. You will need to understand your own core competencies and your market/competitive environment. You will also need to formulate your preliminary set of service offerings, your pricing expectations, your prospective network design, and your operating structure. Furthermore you will need to justify the venture to yourself, or to your potential investors. Once funded, you will need to implement your project plan, fulfill key milestones, and maintain flexibility to adjust to unforeseen events.

Building Your Preliminary Business Case

The first step to consider is why you are qualified to be a WISP? What expertise do you bring to the endeavor? How about the expertise of your prospective partners and staff? What are your strengths? What are your weaknesses? Are you technically oriented? Do you have experience as a network services operator? Do you know how to create and follow a business plan? Do you have a readily available source of capital?

As you proceed with your venture, you need to take full advantage of your strengths and recognize the areas where you need help. You also need to possess sufficient insight and understanding of the business in order to acquire expertise in your most vulnerable areas.

The next step is to assemble a high-level business case model. You need to define the services you wish to provide, how you plan to provide them, define the geographic area(s) you wish to serve, the types of customers and markets you wish to reach, and the network elements you are likely to utilize. Your baseline network and other infrastructure expectations must also be stated. Estimates of capital requirements, overhead expenses, expected sales, cost of sales, and other variable expenses must also be considered. Check your exposure to risks, including competitive, financial, scheduling/timing and market sensitivity. Can you tolerate the risks?

Only when these steps have been taken, can you to determine if you have a compelling business case. Once you are satisfied that you have at least a viable plan, you will need time to acquire more facts and details about your market. Your potential financial backers will demand this due diligence. Even if you plan to fund your enterprise personally, there are still questions you should ask yourself. There are three critical steps in fully evaluating your market: assessing your competition, understanding your market, and what type of local enabling infrastructure is present (or needed).

Understanding Your Competition

The first step in the full evaluation is to conduct a detailed competitive analysis. There are a variety of sources of competition, but the primary participants in the market are DSL service providers, CATV providers with cable modem service, and other planned or established WISPs. You may also want to investigate your exposure to local competitive fiber deployments in your market, particularly if you are targeting business enterprises situated in medium to large office buildings. If your plans include a premium service offering with a small number of high-paying subscribers, you may also consider satellite services as a competitor or future competitor.

You will want to know the geographic limits of the competitive services provided in your market. Every provider will have a footprint in which they operate. DSL is constrained by the distance to the telco central office, along with the availability and quality of the telco’s copper distribution network. Competing WISPs may also have critical distance limitations, usually as a direct result of line-of-sight issues. In all cases, the competition is usually better able to field a viable competitive service for subscribers in close proximity to their distribution hubs. Accordingly, the market at the edges of a competitor’s service footprint will be easier to target than in the rest of their service area.

You need to answer other questions regarding competitors’ services, as well. What specific services do they offer? What are the upstream and downstream data rates? How much do they charge per month? What are their non-recurring equipment charges? Do they offer promotional rates or discounts? How is their service quality generally viewed within the market?

The presence of a competing WISP could mean that someone has beaten you to the punch, and that you are well advised to select a different market. However, in some cases you may choose to compete, depending on the answers to some key questions. What frequency is the WISP using? If it is unlicensed, what are the prospects for interference or avoiding interference (either physically or by operating on different channels or bands)? Is the WISP stable and growing, or is it struggling?

With a detailed understanding of your competitive opportunities and challenges, you are now in position to evaluate the market opportunity and your options for approaching it.

Understanding Your Market

While your preliminary business case requires only a cursory evaluation of your market, you need to drill down to the next level of detail. Are you targeting specific niches? If so, you need to quantify those opportunities in your area. Regardless of the focus of your business model, you should understand both the consumer and the business markets within your targeted footprint.

How many business enterprises can you reach? What is the breakdown of Small Office/Home Office (SOHO) enterprises? How about Small/Medium Enterprises (SME)? Is there any substantive Large Enterprise opportunity? What is the breakdown of the industry classification within this commercial market? How many professional offices are there? What about retail establishments? Are there concentrated regions of opportunity, or is the market physically dispersed?

The same exercise needs to be conducted for the consumer opportunities in your area. How many households are there? Are there scattered clusters of housing or is it a homogenous footprint? What are the relevant demographics of these households (e.g. household income)?

It is much easier and safer to choose markets that are non-competitive. You will get faster, higher penetration levels and have the ability to establish premium prices for your services. If you do choose to directly compete with other providers, will your services have a differential advantage that you can leverage to your potential customers? Or will you need to engage your target customers and your competitors on a commodity market model?

Finally, you need to refine your prospective service offerings, prices, and estimated sales. Your assessments here should be a combined reflection of the inherent market and the competitive alternatives available.

Completing Your Location Analysis

The final steep in your market research includes an examination of the enabling infrastructure, any local elements that are potential assets in the construction of your network. Specifically, you need to investigate potential physical enabling elements include the towers, tall buildings, and high ground for positioning your network transceivers. This is particularly true if your prospective network has line-of-sight constraints and your footprint contains obstacles such as trees, hills, and mountains.

You will also need to reach an Internet gateway. Are there local ISPs or major Internet POPs nearby? If so, how could you link your network to those local points? If not, how will you plan on backhauling your customer traffic to a remote POP? In any case, what are your leased transport options? Is there local fiber capacity available from the local power or CATV companies, or other commercial providers? How about established wireless backhaul links from other providers? Is it feasible to construct your own backhaul facilities, wireless or otherwise? Finally, what are your leased access options from the local telephone company?

Planning Your Network

There are several basic considerations for your network that you need to specify. You will need to decide whether to use unlicensed or licensed spectrum. Unlicensed networks will probably be lower in cost, while licensed networks will provide significant protection from existing and future sources of interference.

As you select specific hardware, you should consider several factors: Capital costs, the costs for core network elements, Customer Premise Equipment (CPE), and network administration equipment. You will also want to assess your network operations costs (administration, surveillance, and maintenance). Other factors in the selection of your network platform include reliability, range, capacity, flexibility, and compatibility with your desired service plan (hot spot, hot zone, wider area point-to-multipoint, and/or point-to-point).

Similarly, you need to develop your backhaul architecture. This is your cost for leased service, or your own capital and operational program if you plan to build your own.

As part of the overall selection of distribution and backhaul network elements, you will at some point need to conduct a physical site survey of your planned network points. This will include a spectrum analysis for the relevant frequencies at your prospective transceiver sites in particular, and throughout the target market area in general.

Will you also construct your own ISP operation integral to your comprehensive service? Or will you outsource this function? In either case you need to account for the associated capital and expense in your planning efforts. Other elements of your network plan include a bandwidth management system and any peripheral equipment needed to support ancillary services.

Planning the Rest of Your Operation

You need to support your services, your customers, and your company. The requirements will vary somewhat with the size, scope, and sophistication of your enterprise. However, the basic functions in an operations/administration plan are essentially the same.

As the operator of a service company you will have installation, maintenance, and other customer support functions that you will need to fulfill. The personnel required depend largely on the size of your projected customer base. You should expect certain economies of scale with these functions.

You will also need to market and sell your services. Your marketing strategy and sales program are critical to the success of your venture. Many operators believe that their mere existence in a formerly broadband-free market is enough to attract customers. In practice, the “if you build it, they will come” strategy is full of peril. The limited number of customer prospects with a latent propensity to buy requires that you educate your market before it’s motivated to buy. Motivating the rest to switch from their established narrowband solutions is something you will need to actively promote. And of course, launching operations in an area already served by a competing broadband service is even more difficult. You need to develop a workable approach to this highly critical marketing function and staff it accordingly.

You will also have a diverse list of administrative tasks that must be conducted. These include the management of billing, collections, real estate, legal, accounting, among many other functions. You will have payroll and other expenses associated with staffing all these areas in your operation. You also need to make provisions for executive compensation. A fatal flaw in many business cases is underestimating the cost and complexity of starting and maintaining a successful business. You can avoid this pitfall by completing a detailed, comprehensive, realistic inventory of the elements you will need to support your business.

Is this a viable business?

It is time to crunch the numbers. This is the point at which you will incorporate all of your organized plans and assessments into a single business plan.

Based on your forecasts and equipment specifications you will be able to calculate the capital you require to start your operation. You should account for all your cash flow (investment, indirect expense, direct expense, and revenue) in a month-by-month projection. From this you can discern the total funding required for maintaining solvency. Your detailed cash flow analysis also assesses the projected net present value of your venture, which tells you whether or not your project is a winner.

Sensitivity analysis should also be conducted to assess your exposure to risk. This starts with a simple view of the payback period. Long payback periods make for risky ventures. You will also modify assumptions, forecasts, prices, and costs, recalculating your plan’s cash flows for more sophisticated views of the variability of your financial picture.

While you will have some exposure to risks in all of your initial assessments, the biggest risks usually are tied directly to sales projections. Those risks can be controlled somewhat by the network architecture you select. Having low initial fixed costs helps protect an enterprise from early catastrophic failure. Lower CPE costs and other factors that will help to increase your operating margins will bolster your long‑term profitability.

Is your business plan a winner? If not, you need to go back and rethink the aspects of your plan that may be dragging it down. You may need to consider a different approach to your market, possibly considering a different menu of service offerings. You may need to reconsider your decisions on whether or not to outsource certain functions. You may need to make dramatic changes to your deployment schedule, or consider alternate technologies. You might decide to pick an entirely different market footprint, or not to launch a WISP at all.

Final Step…

At this point you have completed a detailed business plan and you have a solid business case. If you've decided to proceed, you will need funding. There are many sources of funding that you can pursue. You may or may not have substantial personal capital to invest. Friends and family can possibly provide loans or equity. Angel capital, venture capital, and commercial loans represent other alternatives. And don't forget to tap into government grants and loans, in particular taking advantage of existing programs tailored for WISP-friendly rural and suburban markets. You need to be able to convince some combination of these sources that funding your venture is worthwhile. Your due diligence in evaluating the details of your business concept is a key critical factor to establishing your credibility with these sources.

With your funding in hand, you are in a position to finalize your deployment schedule. You may well wish to "pre-sell" your market to a degree, since early significant sales help to insulate a new business from short-term failure. Also, you likely have outsourced or leased elements of your operation that depend on other enterprises and their intervals in serving you. Local permitting requirements are another potential bottleneck in your network construction schedule. You will want to provide ample time for these third party and regulatory functions, or even find practical ways to obviate the need to deal with them in the first place.

In addition, you have a plethora of other administrative tasks that should be addressed before you start buying equipment. These include purchasing agreements, staffing, site/land lease agreements, and testing intervals, among others. Finally, there are possible seasonal market/technical considerations for your service launch. All of these factors contribute to your overall schedule for enacting your plan.

…Launching your business

One of the most significant moments in your rollout plan occurs when you write your first big checks to your equipment suppliers. Everyone knows the adage that “time is money”, and from this point forward, time is not on your side. Every delay, every unforeseen roadblock will depress the value of your venture. Neglecting key plan elements while fighting deployment obstacles can compound the risks.

You will need the discipline to follow your plan and keep to your schedule. But you will also need to manage your business real-time. This means making sensible or necessary changes and corrections to the course you have set. If you and your investors have evaluated and planned the opportunity well, you will have an adequate cushion to adjust to unexpected events or to a reality that differs from your assumptions and projections.

Conclusion

There is plenty of hard work and complexity in starting up a new WISP. But this should not be a source of discouragement. There are plenty of excellent business opportunities available in the marketplace, even in constrained economic times. As long as you conduct your due diligence, effectively plan and manage your resources to their fullest potential, and utilize your experts required to sustain the venture, there is every reason to expect success.

About the Authors:

Steve Araps and Robert Veltman are the managing executives of The BTP Group. The BTP Group is a full service, consulting company specializing in the planning and deployment of WISP enterprises. See www.btpgroup.net for more information.