The SkyWeb Alliance - Page 2

As it turns out, harmonizing core offerings was not that difficult to do. The three companies' prices -- basically set by the market, they say -- were already quite close. Products may be slightly different -- one may sell 1, 2 and 3 Mbps service, another 1.5 and 2.5 Mbps -- but it will be possible to offer clients with multiple sites in different parts of California a consistent service, a single point of contact and single bill.

"Each of us will continue to have unique things in our own markets," Williams says. "But we wanted to make sure we had a core set of high-demand services harmonized throughout the state."

The fact that the companies are remarkably similar in a number of ways must have made it easier for them to come together. All have the same principal target market -- SMBs. And all are at roughly the same stage in their development.

They have between 500 and 650 customers each and are growing rapidly. SkyRiver, for example, had 75 customers 12 months ago, just under 600 today. SkyPipeline has doubled its customer base in the last 12 months. They all claim to be gross-margin-positive within individual cell sites, and all say they expect to hit profitability this year.

The technological differences are relatively minor and disappearing fast. NextWeb uses 5.8 GHz technology for local access and 18 GHz licensed technology for regional backbones. The other two use a combination of 2.4 and 5.8 GHz unlicensed technology.

Yankee Group's Schroth believes this similarity in technology will translate into significantly increased buying power. The reduction in cost of customer premises equipment (CPE) from about $1,200 to $600 or $700 is partly what has fueled the growth of these companies. Now they'll be able to bring those costs down even further. "And that is very important for their ROI positions," she says.

The size and efficiency of the combined companies also makes SkyWeb a more interesting supplier for prospective resellers, Schroth says. She notes that SkyRiver had already signed a deal with Time-Warner. Other telephone and cable companies are looking to expand their reach into the SMB market, but would rather deal with a bigger company, Schroth says. SkyWeb should be a better fit for them.

The benefits of the larger market area cut both ways when it comes to resellers, Redman notes. "We're now able to deploy our sales force [and resellers] for the benefit of all members and now we'll also be able to reach resellers that we've not been able to bring on board in the past."

Let's be friends before we merge

All the supposed benefits of the alliance beg one question: why didn't the three companies just merge?

"It could happen," Redman says. "But one miracle at a time. There's a lot of good will here, we all get along well. This new buying power is benefiting all the companies. As we move along, we'll see how things snow ball. Nobody is ruling out a merger."

On the other hand, a merger would be a much more complex agreement to hammer out, the members say, with more risks. And they saw that they could avoid risk and complexity and still realize significant short-term benefits by forming the alliance.

The alliance will likely grow. All are agreed that adding more partners makes sense. The implied ultimate objective is to create an alliance or a company with a national presence.

"There are a lot of ways for us to grow," comments Redman. "My least attractive method is deployment, the most attractive is acquisition. The middle road is partnering up."

The alliance may be looking for new partners sooner rather than later. "We'd welcome other partners," says Warren. "We'll look at what kind of value the company brings to the equation of course. But generally, the more the merrier."

Not that the SkyWeb will be indiscriminate. Williams estimates there are about 1,300 WISPs in the country. "Many of those would not really fit," he says. SkyWeb would be looking for other companies with similar or complementary strategies that are at a similar stages of development.

"We're certainly not interested in bringing in [partners] and training them," Redman says.

The SkyWeb Alliance is the first of its kind. Given the claimed benefits, it seems only a matter of time before other regional WISPs start to stick themselves together in similar ways.

"I really hope so," says Schroth. "I think it's a valuable strategy. There are a ton of WISPs out there. I see no reason, if they can pull together their services and marketing, why others shouldn't benefit in the same way. But this being the first of its kind, others will probably watch pretty closely what happens [with SkyWeb]."

They certainly should. Saying you're excited about partnering and hyping the supposed benefits is one thing. Actually proving the value of the alliance with increased growth and market share for all is another.