Heat, Water...and Wi-Fi

By Gerry Blackwell

March 01, 2004

EdgeFocus is creating an interesting niche business providing wireless access for residents throughout apartment buildings.

Ryan Easley, founder and president of Irvine, California-based EdgeFocus, claims his small company is the largest provider of Wi-Fi-based high-speed Internet access systems to apartment buildings in North America.

In fact, Easley says nobody else is attacking this market niche seriously. If true, this is surprising given that the notion of using Wi-Fi to light up entire MDUs (multi-dwelling units, AKA apartment buildings) has been around for at least a couple of years -- and that EdgeFocus seems to be doing fairly well at it.

The company has partnership agreements with major real estate investment trusts (REITs) that manage large, mostly upscale apartment buildings. They include Aimco with over 1,740 properties, which Easley says is the biggest, and Archstone-Smith , the number four or five player.

EdgeFocus bears the capital costs of building the Wi-Fi networks, which typically cover entire complexes, inside and out, and shares revenues with the building owners -- usually a 10- to 15-percent cut.

EdgeFocus Wi-Fi service is currently available to slightly fewer than 10,000 units, all in buildings in California. The company expects to be able to offer service to 40,000 units by the end of the year, contingent on finding additional funding.

EdgeFocus has just under 1,500 residential subscribers so far. They pay between $26 and $34 per month for up-to-1-Mbps service. The service typically delivers 500 to 700 Kbps, Easley says. The beauty is they can get it anywhere in the complex, even by the pool.

It takes about 12 to 14 months for a building to "mature," he explains. Most sales of the service are made to new tenants as they move in, so it takes that long to start getting a significant amount of turnover of tenants.

"We have some properties now with 62-percent [penetration]," he says. "And we have some properties with 8 percent. Our business model says we get 12 to 15 percent after one year, 25 to 30 percent after two years -- but we believe the numbers will go up as Internet adoption rates increase."

The company is not breaking even yet, but it's not losing a lot either. Easley says it has enough money in the bank to support the current rate of expansion, adding coverage of about 1,500 to 2,000 units each month. It will earn revenues this year "in the ballpark of a couple of million."

The company got this far on a little under $2 million in angel financing from family and friends. Easley is planning to go after another $5 to $10 million in venture capital in the second quarter of this year so he can crank up the pace of expansion. His REIT partners are ready now, he says.

"We had to go in and do a property or two or three with the big players so they could get comfortable with us," Easley explains. "A lot of [relationships with REITs] are maturing at this point, though, and they are passing over a large number of buildings to us [to be installed with EdgeFocus networks]."

The additional funding will be needed to meet the end-of-year target of 40,000 units covered, but the company could continue without the funding, he adds.

"We could continue to build out at a rate of 1,500 to 2,000 units a month and grow our subscription base, and it would be a very good small business," Easley says. "But that's not the direction we're looking at right now."

The aggressive expansion this year will mostly involve lighting up buildings "in the pipeline," buildings owned by existing owner-partners. It will take EdgeFocus out of California for the first time, to Seattle -- but not much further.

Wi-Fi in apartment buildings is the kind of business that requires a local presence to manage effectively, Easley says. Unless the company can find regional operating partners or work out some kind of franchise scheme, it will likely remain a west coast company.

MDUs are not the only opportunity EdgeFocus is working on, however.

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