Fatport: No Money Yet, but it's Coming

By Adam Stone

August 27, 2003

The Canadian hotspot operator is happy with its slow but steady growth in locations and customers, and will continue to expand by licensing its model and offering customers combined GPRS and Wi-Fi services.

Sean O'Mahony is not making a profit yet, and he is frankly amazed that anyone would expect him to.

Look at cellular, he says. That technology was on the streets for almost a decade before anybody made any money. So why should things be any different with hotspots?

As president and CEO of Canadian hotspot operator FatPort, O'Mahony provides Wi-Fi access through about 100 wireless access points in coffee shops, hotels and other public locations. Backed by private investors, he has grown his network slowly and steadily, and today has modest but respectable numbers to show for his efforts.

FatPort has 2,000 paying customers and is adding 10 to 15 more each day. The firm sees 90 unique sessions a day, a figure that grows 18 percent a month. FatPort charges $4.95 (all figures are Canadian) for 60 minutes of access, or $34.95 a month. The average revenue per user is $18 each month.

O'Mahony expects to break even when he hits 3.7 monthly subscribers per location. Right now he has 2.8 per location.

"We think it's a good business," he said. "People like it, they use it and they are willing to pay for it. You are not going to make money today, but you will five years from now."

That's probably a pretty good estimate, according to analysts, who see public-access Wi-Fi developing more slowly than other areas of the wireless market. "When we talk to consumers, we have seventy percent who know what Wi-Fi is and what it does, but only six percent who say they have ever used it in a public place," said Julie Ask, a senior analyst with Jupiter Research.

While he waits for the tide to break, O'Mahony is running with trim sails: Just eight employees keep FatPort moving forward. At the same time, he's supplementing the hotspot business with two other product lines that he hopes will help carry him through to the big money.

First, O'Mahony is licensing out the FatPort business model to other would-be hotspot operators. The licensing fee and ongoing royalties buy FatPort's authentication system, billing apparatus and other back-end infrastructure. "You get a year and a half of our work all rolled into one, and you are off and running," he said.

In addition, the firm is about to launch a third line of business that should greatly expand its reach. O'Mahony has struck a deal to purchase 2.5 GPRS wholesale from a Canadian carrier, and now plans to package that bandwidth into an all-you-can-use, single price offering of combined Wi-Fi and GPRS.

"People like FatPort, and this gives us a way to supplement our Wi-Fi services as we keep expanding that network over the next couple of years," he said.

With current technology it will not be very convenient to switch back and forth between the two networks, O'Mahony admitted, but it is better than nothing at all. Moreover, he said, the dual-network offering speaks to one of the prime concerns expressed by consumers. "They don't want different billing rates, and they want all they can eat on both networks, for a single price. If we can give them that, people will be all over it," he said.

Maybe so, but it could take a while, in which case O'Mahony is right on the money with his strategy of implementing multiple business lines at one time. "It's a good business move at this point, just because there is not going to be a whole lot of revenue coming in from doing things just one way. It shows some real business savvy," said Aaron Vance, an industry analyst with Synergy Research Group.

FatPort's biggest concern right now is cash flow. The firm has just about used up its initial $1.5 million in investment money (again, Canadian dollars) and O'Mahony says he will need $5 million more over the next three years to meet his business objectives. On the plus side, he says: The business is right on target.

"For the past there quarters we have seen revenue increases of between 30 and 60 percent, so it is all going in the right direction," he said. It will still take some time to go cash-flow positive, "but that is the nature of Wi-Fi right now. If you are in hotspots, and if that kind of timeframe is not in your game plan, you might as well pack it in now."



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