Fighting for Seattle's Coffee Houses
March 30, 2004
Telerama's CEO has left his company's home town of Pittsburgh to take on Starbucks, Cometa and others in what may be hotspot central for the country.
Doug Luce has a simple insight, one of many lessons learned in three years of hotspot deployment as CEO and founder of independent Pittsburgh-based ISP Telerama (the ISP dates back to 1991; its hotspot operation is newer). He's realized that just as the phone companies and major manufacturers make a significant error when they ignore local ISPs as potential customers, so too the hotspot builders are missing out by ignoring small, local coffee chains.
Of the 13 hotspots his company has signed as customers in Seattle, seven are owned by local chain Caffe Ladro, two are a nascent chain called the Cherry Street Coffee House, and the remaining four are independent.
The Telerama business plan is all about getting a better margin out of DSL service. With the RBOCs engaging in predatory pricing, an ISP needs to provide something extra that users will pay for.
Telerama's hotspot pricing for its subscribers works like this: dialup subscribers pay $29.95 per month for hotspot access, dialup, web space, and e-mail. DSL subscribers pay an additional $29.95 per month for 608 Kbps down/ 128 Kbps up DSL access at home. That allows Telerama to recoup the wholesale price of DSL, which, at about $44 per user, is much higher than the retail price (currently $29.95 to $34.95 depending on the bundle).
Telerama has a special offer for nonprofits and college students: $9.95 per month. Luce points out that most students have access through their college, but like hotspots because they can socialize at them. "Also," Luce notes, "students are early adopters. Many have laptops and use Wi-Fi."
For casual hotspot users, Telerama offers a choice between $4.95 per day, or $0.04 per minute. Luce says that Telerama recently introduced the per-minute rate in response to customer demand.
All of this compares favorably with T-Mobile's hotspot pricing, which offers a choice between $39.99 per month ($29.99 is prepaid for one year), $9.99 per day, or hourly pricing of $6.00 for the first hour plus $0.10 per additional minute.
The coffee connectionTelerama's experience shows that T-Mobile got one thing absolutely right in its alliance with Starbucks. Luce says that for hotspots, "we're focusing on coffee houses. Coffee houses are by far the most attractive target for hotspots."
Restaurants, Luce says, are good, but not nearly as good as coffee houses. Luce had high hopes for laundromats, but found little use there. Trials at health clubs were not very successful either, although Luce says that's understandable. People tend not to use the computer when they're sweaty, and health clubs often have free TV. Luce says that usage at a video store was low, although he likes using the IMDb when looking for a good movie.
He says Telerama is secure, but that any responsible ISP would educate its users about the risks they run, on wired as well as wireless connections. "We're as secure as any public hotspot, but there are security issues and people need to be aware of them. There's some FUD that's not true. People are not going to get onto your computer very easily. The major risk is someone getting your credit card number from a site that's not using SSL. On the other hand, I do everything at a hotspot. I feel completely protected."
The company uses SSL to protect the network. "We use SSL-encrypted IMAP for our e-mail, and our webmail is SSL. We're not using WEP because the administration is too difficult for the average user."
Telerama takes advantage of other publicly-available technology as well. The company's captive portal is built out of NoCat. Its innovative network management system is built out of IRC, the instant messaging protocol notorious for its vulnerability, but modified by Telerama to improve its security.
Luce says that hotspot operators have to monitor their networks carefully. "People will push the antennas over, or do all sorts of things. The only way you can absolutely be sure the hotspot is working is to log into your own hotspot and send an end to end test, send a packet all the way out to the Internet."
Telerama designed what Luce calls a "virtual laptop" that is on a USB client card. "Everyone relies on SNMP," he says. "But that doesn't tell you if someone's unpowered the antenna booster or snapped an antenna off."
Hotspot operators have to be prepared to supply tech support. "The coffee folks and the baristas don't want to be bothered with setting up users' computers," notes Luce.
Setting up a hotspot is setting up a customer. An ISP has to make a commitment to serving that customer over the long term. Telerama is not using an extremely aggressive sales pitch to sign up as many hotspots as possible. "I've been turned off by so much junk I read from corporate PR," says Luce. "I try to be sincere. It's not always the best policy, but I cannot fathom doing anything else. We lay out the risks. When we go to a coffee house, it's less of a sales job than an education session."
In the future, Luce hopes to prove and establish a business plan that can be implemented anywhere in the U.S. The ISP Telerama formed a wholly owned subsidiary, Telerama Wireless Corporation, in November of 2003 to focus on rolling out hotspots across the nation. With the RBOCs selling DSL to ISPs at higher prices than retail, Luce feels it's the only way to make money on DSL (Telerama uses Covad for DSL). "It's a way to increase the margin on DSL. You bring in multiple users on each DSL line through hotspots."