WiFi is great as the last link between the network and the user. It’s high enough bandwidth that it’s not a bottleneck, people know to look for it and the available hardware and clients are well advanced. Consumers will pay for casual access, but in that case they expect performance. They love free WiFi and will put up with a surprising amount of hassle to access it. Companies like Meraki have made it very cheap and easy to get a “drinking fountain”, amenity grade WiFi service up and running, on a paid or free basis.
On the other hand, WiFi is problematic when used as core network technology, even in a small city. Meshing is fine for linking a hotspot to a network gateway, but it falls down when you try to use it for blanket coverage of a metro-sized area. You need to do two things to make a metro scale WiFi system work: get traffic off the WiFi nodes and onto landlines or point to point wireless as quickly as possible, and have some control over the CPE, which should be specialized, relatively high powered units.
Eight years ago, when metro WiFi was just getting started (Cerritos, in Southern California, was the first), manufacturers were saying you needed 16 nodes per square mile to make a mesh network work with laptop-grade equipment. Two years later, after months of re-engineering, we finally got it work in Lompoc with about 40 nodes per square mile and (costly) high-power CPE. Today, the talk is about 70 or more nodes per square mile.
It’s a losing battle, for two reasons. First, as more people use more unlicensed devices, the environmental RF noise floor keeps rising, even with the addition of a new frequency band. Adding nodes is a short term fix but in the end just adds to the problem. Second, customer expectations and demand keep rising. What was good enough five years ago is hopeless today. Expectations and performance trends are heading in opposite directions for metro WiFi.
Amenity grade WiFi service works in stadiums and airports, and for hotspots around cities. In a concentrated location, like a stadium, it’s better not to use mesh for backhaul, except in the most hard to reach spots. You have so many people hitting any given node, that adding traffic from another node to that router slows things down for everybody. When users are more spread out, mesh will work better. But it will never work as well as a 1:1 node to gateway ratio, which is not so difficult to achieve in a controlled environment like a stadium or airport or mall.
Municipal wireless was declared dead at the Wireless Communications Association’s recent symposium in San Jose, but the picture that emerged from three days of discussion, debate and presentations at the European Wireless and Digital Cities Congress in Barcelona this week was more comprehensive and nuanced. And optimistic.
The difference lies how you define municipal wireless. Older, more familiar models are certainly dead. No one expects a private company to invest in building a city-wide WiFi network to provide public Internet access, whether free or for a price. Cities are moving away from building general purpose wireless broadband systems, of any sort, and are increasingly cautious even when considering specialized networks, such as those dedicated to public safety applications.
Big ticket municipally funded wireless infrastructure projects in the developed world are dead for all practical purposes. It’s a big planet, and if you look hard enough you can probably find an exception or two. More than that in the developing world, where needs, resources and governing assumptions are different. But cities in the U.S. and Europe won’t be spending their own money to build ubiquitous wireless broadband pipes. Private capital won’t be available, either.
National governments might still fund some projects, particularly specialized ones focused on public safety and security or development projects for rural or other underdeveloped locales. Gradually though, even that kind of funding will no longer be allocated to basic broadband infrastructure.
Going forward, the emphasis will be on developing, deploying and supporting network-agnostic applications. In some cases applications will be initially developed to ride on a particular network, because that’s the network that happens to be available. Even then, extending applications to other systems will just be a matter of creating interfaces. Municipal wireless applications will not be captive to a given technology or network operator.
Bedforshire Police, in Britain, is giving Blackberries to its police officers, so they can run specialized applications such as crime and identity database access or computerized dispatch in the field. About half of the impressive list of applications are browser based and could be accessed by just about any recent mobile device. The other half make use of the Blackberry operating system and network protocols, but could be adapted for use on other devices or networks with appropriate front end software.
In the U.S., Tualatin Valley Fire and Rescue, in Oregon, is using several overlapping networks, both commercial and in-house legacy systems, to tie field units into a comprehensive information system. Having multiple layers allows them to cover a very large geographical area with redundant access, and prevents a single network operator or equipment vendor from monopolizing their budget. The applications are all network-agnostic, the field equipment is cheap and commercially available, and the relatively low cost of switching wireless broadband providers keeps the market competitive.
Municipalities and other local agencies will still be buying public safety radio systems, and those systems will provide an increasing level of digital bandwidth. Cities will also fill in network gaps where necessary or saturate relatively small areas that have a critical (and budgeted) need. But those systems will be one element in a diversified network strategy and, except for the most critical and specialized applications, will be dumb pipes. Those systems will not be bespoke, vertically integrated packages that quickly turn into legacy technology.
The creativity and funding will be focused on building the applications, generating and managing the data that feeds those applications, and developing management and operational strategies that maximize the benefit of this abundance of information. Right now, much of that work is being done on a city by city basis, but the next step – and the next opportunity – will be to create robust, high level applications that can be carried via any standard network protocol and accessed by any mobile device.
Going forward, municipal wireless will be vibrant and alive, and will mean something very different from the dead and dying concepts of the past five years. The truly municipal elements will be applications and data. The wireless part, indeed pipes of any sort, will be a commodity, to be purchased as a service for the most part and only built in limited circumstances for specific needs.
Nearly all of the city-scale, mainly WiFi-based wireless ISPs of the past three years are dead. Some, like Philadelphia, lumber on as zombie ventures. A few small town systems will continue to operate as long as the social and political consensus supports the subsidy required. And there are a couple of big city projects that haven’t burned through their initial operating capital yet.
But the rest are dead. The disease that killed them was cash flow hemorrhage, brought on by virulent churn.
Churn measures the percentage of total subscribers who cancel service and have to be replaced, in a given period of time. It also lets you calculate subscriber lifetime. In the mobile phone industry, a typical 2.5% monthly churn rate results in an average subscriber lifetime of about 40 months. Take an ARPU (monthly revenue per sub) of, say, $53, subtract $30 a month to provide service to a subscriber, and there’s sufficient cash flow over that period to pay off a subscriber acquisition cost (SAC) of perhaps $400 and still have something left over to improve the balance sheet, or grow the business, or even pay dividends. The business model works, although different companies implement it in a variety of ways with a wide range of results.
Let’s run the numbers for a municipal (or municipally bounded) wireless ISP (WISP). First of all, ARPU is limited by competition from DSL. At a typical monthly cost of $20 (forgetting for the moment promotional rates that are a few dollars less initially), and with performance metrics far superior to WiFi, DSL keeps WISP rates in the $15 range. (DSL’s superior performance is constantly debated, mostly by wireless equipment manufacturers and other vendors, but the hard fact is that it’s almost always faster, usually has significantly greater effective market coverage and, most importantly, always delivers a more consistent subscriber experience. Some will argue this assertion, but real world results trump arguments).
From that $15, subtract $12 for a small system (5,000 subs, say) and $8 for a large system (more like 50,000 subs) to pay for the cost of providing service. These cost figures are highly optimistic, it’s very possible to see a monthly operating cost of twice that range. But for the sake of discussion, let’s start with a rosy operating cost scenario.
In the best case, then, you have $7 per month left over to pay down SAC, put towards growing your subscriber base and improving your network. Let’s start with SAC. Take just the cost of providing and supporting the installation of CPE (consumer premise equipment, in other words the wireless bridge every subscriber needs to access the service reliably from homes and businesses), the direct cost of selling and activating a new customer, and a little indirect marketing cost, and you’re over $200. But let’s say $200 for SAC.
With $7 of operating cash flow, you’ll need 26 months just to break even on the average subscriber. If you can hang on to that subscriber for as long as mobile phone company does, you have a makeable business case. Unfortunately, WISPs don’t, and can’t, manage that essential trick. WISP churn rates are 2, 3, 4 times and more that of mobile phone companies. At a 7.5% monthly churn rate, which is not particularly high for a WISP, your subscriber lifetime is only 13 months, half what you need to pay the cost of getting and serving a sub. Even a 5% churn rate won’t get you there, and that’s wildly optimistic.
It’s easy to build a spreadsheet and plug in numbers that make it work – lower churn, lower operating cost, lower SAC, higher ARPU. And dozens of would-be municipal wireless ISP operators did just that. But the real world doesn’t pay attention to spreadsheet models and powerpoint presentations.
An $8 operating cost, $15 monthly rate and a $200 SAC are difficult to achieve, but possible. What’s not possible is a monthly churn rate much under 7% or so. And that’s what kills the model. The annual loss (or subsidy) is in the hundreds of thousands of dollars for a small system and in the millions for a large one.
The high churn rate is a direct and inevitable consequence of the competitive position of a WISP versus DSL and other wired technologies. If significantly superior service is available for $20 a month – and it is – people who rely on Internet access (which these days is nearly everyone who has it – it’s long past being a luxury) will pay the extra $5 if they can afford it. Unless they don’t want to sign up for a minimum term of a year or can’t pass the phone company’s credit check standards.
So as a competitive tactic (and often as a matter of public policy), WISPs either adopt easier credit standards and shorter terms or, more usually, all but eliminate those requirements. As a result, the core subscriber profile leans heavily towards households with lower disposable income and credit scores, and people who don’t plan to be in town very long. With this subscriber profile, even a well designed and operated WISP is going to have a high churn rate, well out of reach of a sustainable enterprise.
Mobile workers are touted as the sweet spot for municipal broadband, but they tend to give up on service and churn out too, for a couple of reasons. First, WiFi-based WISPs are not optimized for truly mobile service. When you’re driving around in a car, for example, handoffs from one access point to another are problematic. Second, service ends at the city limits, and it’s a rare private sector or government worker whose job is limited to a single city, except for city employees themselves. Mobile data service from cellular providers is a far better solution to both problems, and people with job-related needs quickly migrate to those platforms.
The grand municipal WISP ventures of the past three years died when the cash transfusions stopped. In some cases, they simply ran out of capital. In others, they had unworkable business models, often resulting from unrealistic demands by policy makers for free service and various other perks. When the subsidies, explicit or otherwise, stopped, the systems went dark. RIP.