One ISP's Profitable Hot Spots

By Jim Wagner

September 20, 2002

First Step Internet makes a strong case for the potential profitability of WLAN, successfully mixing Wi-Fi with dial-up, DSL, and fixed wireless to create an Internet cornucopia in rural Idaho.

While some fixed wireless ISP purists sneer at the idea of deploying and maintaining Wi-Fi in the community, making a profit on the endeavor isn't strictly the end goal of a successful ISP business.

Case in point, First Step Internet, an ISP based in Moscow, Idaho, which has taken a winding road to its destination today as a dial-up, digital subscriber line (DSL), fixed wireless, and wireless local area network (WLAN) provider.

While many ISPs date back to the online bulletin board services (BBS) of the early 1990s or the entrepreneurs of the dot com boom, First Step found itself an ISP almost by mistake.

Originally, First Step was a research and development outfit contracting out to companies like IBM and Fujitsu in 1989. Soon, however, engineers at the company started working from home, using a program to dial in to the servers at work.

Then friends started asking for the dialer and the engineers were handing diskettes out like program guides at a sporting event. After a while, First Step started charging for the access and set up shop as an ISP and Webhosting company in 1995.

Today, First Step provides dial-up, DSL, fixed wireless, frame relay, T-1, colocation, Web design and hosting, and WLAN support to cities throughout Idaho and even into Washington. The company has been quite successful in each area when it comes to customers:

  • Dial-up: almost 15,000
  • DSL: 1,000
  • Colocation and Webhosting: 500-600
  • Fixed wireless: An aggregate of around 1,000 (the number fluctuates; with multi-dweller units and Washington State University campus as customers, churn rates are a whopping 65 to 70 percent every three years).

Like most rural WISPs, First Step benefits from the fact the Bells will never sink a lot of money into bridging the digital divide to towns like Moscow and Pullman in Idaho. According to Kevin Owen, president of First Step, the biggest competitor is cable operator Adelphia, which currently has problems of its own.

Wireless is an attractive technology in dispersed communities. For business owners, for whom the alternative is a $1,000 a month T-1 line, fixed wireless looks pretty good, even if a service level agreement (SLA) isn't available.

"We don't have an SLA, but we are proactive with our customers to make sure they have everything they need," Owen said. "Most of our new customers are coming from a circuit, so when they can save over a $1,000 a month, it's difficult to cost-justify not signing onto our service because of an SLA."

Owen, who joined up with the ISP in 1995 shortly after giving sky diving instruction to a group of First Step employees, has been steadily building the company up with successful projects, like backup 5.8 GHz fixed wireless connectivity for the University of Idaho to First Step's OC-12 pipe, which gives First Step a steady revenue stream through a standby fee.

Success in the more conventional modes of broadband access gives Owen, who has an MBA through Washington State University, a chance to take the risk with Wi-Fi, an industry still going through growing pains and looking for a successful business model.

None are questioning that Wi-Fi is a popular consumer product but some suggest that making money, especially on hot spots, could be difficult.

Tammy Parker, an analyst with ARC Group, said ISPs will be "keenly" disappointed if their primary goal in rolling out Wi-Fi is to make quick money.

"WLAN hotspots should be considered as marketing tools rather than profit centers," she said.

The long-term benefits of WLAN are what most of today's providers are thinking about, in spite of large buildouts epitomized by Sky Dayton's Boingo dreams today. A more measured approach is favored by Pass-One, an association geared towards boosting the Wi-Fi hotspot business, creating "roaming" services throughout the nation (like early analog cell phone sites).

First Step has WLAN hotspots throughout its coverage area, with 20 hotspots alone in Washington State University apartment complexes. Other places include schools, pizza parlors, several malls, and the airport that serves Moscow, Idaho.

The ISP uses Karlnet-loaded LAP AP-1000s at the distribution points. For lightweight backbones the company uses the Karlnet Turbocell. For heavy-duty backhauls, it relies on Trango Broadband 5.8 GHz and Wi-Lan 120-58 radios.

Users are charged $45 a month for unlimited access in these areas. According to Mike Hall, a First Step sales manager, some users don't even see a charge since it's taken care of by the location owners.

"Depending on the arrangements made for a site location, some hotspots are open to the public for access with no fee to the user," he said. "A very popular hotspot in downtown Pullman is the Daily Grind Coffeehouse. They are packed almost every night with groups of students studying together with a shared notebook equipped with wireless."

In some areas, he continued, apartment managers add the Internet cost into the monthly rent, so users don't consciously see a First Step bill.

Idaho's geography plays a part in Wi-Fi's success; a dearth of options makes hotspots more desirable than an urban area with a choice of providers.

"We admit that our network revenue models are for more rural areas, and continue to be profitable," Hall said. "We try to provide a mix of fixed wireless and 'hot spot wireless' in every community we serve. Even in small towns such as Palouse, Wash., a good portion of main street and the local bar and restaurant provide antenna-less service to our customers."

To deter potential war drivers in the community who think the airwaves should be free, First Step has set up MAC address authentication on its equipment, and the network operations center (NOC) is set up for dynamic IP addressing, to prevent MAC address spoofing.

It's a good start in an industry In-Stat/MDR recently reported would reach almost $1.9 billion in North American revenues by 2007. The firm reported WLAN revenues would reach $219 million this year.

So maybe there is money to be had in Wi-Fi -- today, not tomorrow.

Reprinted from ISP-Planet

Can WISPs make money? Join us at the 802.11 Planet Conference & Expo, Dec. 3-5 in Santa Clara, CA. One of our sessions will cover "Refining Your WISP Business Plan."



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