According to Broadband Week, capital funds are depressed for WISPs. Meanwhile vendors are producing cheaper and more effective wireless products. Ventures like CoMeta may provide new options for end users while government funding opportunities may exist for fixed wireless in rural areas.
Unlike ISPs in large metropolitan areas, rural ISPs have to pay an additional long haul charge to interconnect their networks with carrier POPs located in major cities. Thus, many can’t afford connectivity. Oregon’s state-wide SONET rings will help deliver broadband to remote areas. Nebraska-based Axtell Tech provides broadband to a tall building then provides 100 to 150 customers with wireless for $50/month.
The Rural Broadband Coalition was recently founded to help ISPs take advantage of the money available via the broadband program of the Rural Utility Service (RUS), a service of the US Department of Agriculture. Some $20 million in federal funds has been allocated to finance broadband service in rural communities.
Wireless ISPs have typically funded themselves through out-of-pocket savings or through other business profits. Companies struggle to get the first $250,000 to launch. Many WISP entrepreneurs have started with one site and little planning.
According to Paul Stapleton, editor-in-chief of the I$P Report, a financial newsletter for ISPs.
“Fixed wireless is a nascent industry, coming on the heels of a telecom meltdown. The key for an access company positioning itself to acquire funding is to acquire subscribers and clearly understand its path to profitability. Venture capitalists look for companies with $5 million in annual revenues and a clear way to get to $50 million in revenue.”
Venture Capital
VCs typically like national plays but the fixed wireless industry is a regional business for now. “Papering a deal costs $25,000 to $50,000 in lawyers fees alone,” Stapleton said. “When you add the costs for due diligence, accounting assessment and travel, the cost escalates fast. It’s just not affordable to do small deals.”
Stapleton believes funding is coming for bigger operations. “Venture capitalists operate in packs. Once the first investments start, then others will follow quickly,” says Stapleton.
Loans and Grants
The Small Business Administration loan program requires red tape and paperwork, and qualification requirements are fairly strict, but solid business and profit plans can succeed with banks.
Some companies succeed with private grants monies. Private monies are tougher for commercial firms to secure. Private grantors usually favor nonprofit groups and generally stipulate how the monies will be spent.
Department of Agriculture
The USDA Rural Utilities Service launched a pilot program over two years ago to provide grants and loans for rural broadband deployment. A number of companies successfully secured large grants and loans. Rural Utilities Service Grants were successful enough to justify expanding and extending the program through 2007.
LMDS Communications, for example, consummated a $5 million loan in March from the Rural Utilities Service to construct an LMDS wireless broadband system for 24 rural communities in Western Pennsylvania and Southwestern New York.
The Federal Government, through the 2002 Farm Bill, announced that it was going to provide $2 billion dollars in grant and loan monies over the next six years for rural broadband,” said Damian Kunko, director of consulting services for Adaptive Systems International, a Washington, D.C.-based consulting firm. “The first grants round expired in November. However, we expect up to $100 million per year in direct grants starting next year running through 2007 and $200 to $300 million per year in loans during the same period.”
The loan program launched in November of this year (2002). According to Kunko,
“This program is designed to ensure broadband connectivity to schools, libraries, education centers, healthcare providers, law enforcement agencies and public safety organizations, as well as residents and businesses.”
The specifics of the loan process are similar to the grant requirements and will be released in November. The government estimates that preparing the supporting documents and the application will take 152 hours.
Agriculture Grant Restrictions
The USDA Rural Utilities Service program is designed for communities with populations of 20,000 or less. Companies must be public bodies, such as corporations, nonprofits, municipalities and Indian tribes, for example. Individuals and partnerships cannot participate.
Some of the criteria that participants in the program have to meet include the following:
- The community must have no existing broadband service.
- Each applicant must provide a community center with free access for at least two years.
- Applicants need 15 percent of the grant request to meet the matching funds requirement.
Areas ranked highest will be the smallest. Additional points are scored for the economic need of the community. Broadband service must be offered to all businesses and residents of the area.
The successful applicant must provide service free-of-charge to the critical community facilities in the area for two years. This includes the community center, hospitals, police, schools and libraries. Remote health care seems to have lots of interest.
These requirements are only part of the restrictions that must be met. Maps and engineering designs must be submitted with the application and much more.
Grants and loans may be the key to rural broadband connectivity, especially if satellite internet access goes away. Grants are basically free money. Loans can be very low interest with liberal payback terms (10 years). For operators with a rural strategy, it could be the only ready source of funding.
The economics aren’t simple but it could boil down to this; an unlicensed wireless ISP, charging $50/month to 200 users could generate $10K/month or $120,000/year. In two years, it could be self-sustaining. Rural telephone, cable operators and ISPs might be good partners - especially if they can deliver new services previously not possible.
Federal grants are available from NTIA’s TOPS, HUD’s Community Block Grants, Community Housing Connections, US Foundations, Ron Wyden’s Grant Links and others.
Private foundations include Digital Divide.gov, Digital Divide Links, Benton Foundation: Digital Divide, PowerUp (AOL), nPower (Microsoft), Intel Grants, 3Com’s Urban Challenge Program, Pew Trust, The Foundation Center, GrantsNet, MacArthur Foundation, T-Howard Foundation and others.
Commodity wireless re-writes the economic fundamentals of broadband. An economic model with $20/month wireless broadband along with “free” broadband, to community organizations seems entirely reasonable.
Commercial entities like AT&T Wireless or Sprint Broadband may enter the field using aggregated “hot spots” or licensed MMDS band. But unlicensed wireless ISPs provide an opportunity to try different low-cost economic models at low risk.
The money is there. Try it.
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