Next-Gen Wireless Internet Firms Take On Telecoms in Cities, Suburbs

Xconomy San Francisco — 

If you’re a city dweller, and unhappy with the big company that provides your Internet connection, chances are good there’s a scrappy little outfit that thinks it can do better for you.

Metropolitan areas have become target territories for the wireless Internet service providers, or WISPs, that for a long time have been the only options for rural residents whose neighborhoods aren’t reached by giant telecom companies such as Comcast and AT&T. Thousands of these mostly small Internet providers connect customers’ homes through wireless networks that eventually link up to fiber-optic cables or other main Internet conduits further up the line. Equipment innovations have made it possible for WISPs to provide high-speed Internet in cities as well, as they try to win customers away from the big, established providers.

The number of WISPs is growing in the United States because “the planets are aligned” for them, says Jimmy Schaeffler, chairman of consulting firm The Carmel Group, which produced a detailed industry report on WISPs for the trade association WISPA last year.

At the time, the report counted more than 2,000 U.S. wireless Internet service providers, but Schaeffler says there could be as many as 3,000 to 4,000 by now. (Some but not all WISPs are listed in WISPA’s member directory.) The growth has been spurred by many factors, he says, from improved wireless technology to government policies on wireless spectrum, plus consumers eager to trade away their cable channels in favor of streaming video, and investors more willing to fund WISPs. But the top reason is that wireless networks are inexpensive to build, he says. All those advantages now make WISP startups more competitive in urban centers as well as in remote regions, Schaeffler says.

San Francisco-based Common Networks, one of the newer WISPs, raised $25 million this month in a Series B funding round led by General Catalyst and joined by earlier investors Eclipse and Lux Capital. That brings its fundraising total to $34.3 million. It’s not the only WISP taking on the major Internet service providers in the Bay Area. Fremont, CA-based Sail Internet has raised a total of $4 million from investors including Engineering Capital, Ulu Ventures, Better Ventures, v1.vc, and the Stanford-StartX Fund, CEO Kevin Fisher says. The startup, founded in 2015, is now in the process of raising a Series A funding round, he says.

In some cities, the presence of a startup WISP might be a novelty. But San Francisco was the birthplace of some of the first intrepid urban WISPs. Monkeybrains was founded there in 1998, and in 2003 it was followed by Webpass, which was acquired by Google Fiber in 2016.

San Francisco is not alone in having more than one WISP. In Boston, Webpass faced competition from NetBlazr and Starry, and the crowded field might have been one reason why Google Fiber decided to wind down Webpass service in Boston early this year while maintaining it in San Francisco and other cities.

Why choose a WISP?

Why would city households and business owners take a chance on a startup wireless provider and close their accounts with readily available brand-name networks? One easy answer is price: WISPs are often able to offer competitive rates, because their costs of operation are lower than those of companies that install and maintain coaxial cable lines, fiber optic cables, or satellites in space, Schaeffler says. WISPs can recover the expense of equipment and set-up for a new customer in about a year, he says, while the payback period can be as much as five years for fiber networks, and more than three years for cable services.

To access the data and videos their customers want, WISPs tap into broadband content on the Internet by buying access to other networks, Sail’s Fisher says. Sail buys Internet connections through a wholesale market, and can also link directly to high-traffic companies, such as Netflix and Facebook, through inexpensive peering arrangements that bypass the Internet, he says.

Sail’s fiber Internet connections feed into its server cages in four commercial data centers, where the company picks up the task of transmitting data to its customers by using wireless transmitters on the data center roofs, Fisher says. Those roof antennas send signals via precisely focused radio frequency waves to cover the final distance to the customer’s location. Those signals are picked up by a salad-plate-sized receiver on the customer’s roof. Such receivers are inexpensive—they’re sold on Amazon for less than $100.

From the rooftop receiver, an Ethernet cable carries the signal down the side of the house, where it can enter through the same hole a Comcast wire would run through, Fisher says. Sail then connects to any router model, and this in turn can be connected by wire to a computer. The router also delivers Wi-Fi service to mobile devices within the house.

WISPs can’t match some of the capabilities of cellular networks, which keep mobile devices connected to the Internet when their users tote them out of the house. Smartphones and other mobile devices, wherever they are, can tap into the cellular provider’s network. A WISP offers Internet service for consumers using their computers and devices within fixed locations—homes, offices, factories, campus buildings—which is why their connection is called “fixed wireless.”

That said, WISPs can only reach buildings that aren’t surrounded by trees, or tucked behind a hill or other barrier to radio frequency waves. Wireless providers like Sail require that the customer’s rooftop receiver have an unobstructed line of sight to the company’s transmitter, or to a hub spot that can be mounted on any number of structures where Sail gets permission—a tower, an office building, an apartment block, or a subscriber’s roof. Home subscribers who host a Sail hub spot get free Internet service, Fisher says.

Line of sight isn’t a problem for cellular networks, because cellular frequencies can pass through foliage and windows, Fisher says. But cellular networks pay billions to use those government-licensed frequency bands, he says, and they place caps on the data customers can access, charging them more for extra data. In contrast, the wave spectrums that WISPs use cost little to nothing, Fisher says. Sail doesn’t impose data caps, because it doesn’t cost the company more when customers access more data. “Our costs are not related to the bits you consume,” Fisher says.

Schaeffler says the Federal Communications Commission has been looking for new spectrum bands that could be made available to WISPs, which are also referred to as broadband wireless providers. The FCC is also stimulating the market for rural broadband coverage, pledging nearly $1.5 billion this week for bidders from all technology types to build new infrastructure in underserved regions, Engadget reported.

To buy its transmitters and end-user receivers, Sail relies on a handful of key wireless broadband equipment suppliers including Santa Clara, CA-based Mimosa, a venture-backed company founded in 2012; and Siklu, based in Fort Lee, NJ, and Israel. Such companies are fed by revenues not only from rural and urban U.S. WISPs, but also from global regions that have a dearth of fiber and cable connections to buildings. Sail leaves it to these suppliers to invent better wireless hardware and software, and concentrates on refining the terrain-mapping technology that identifies the optimal spots to place its transmitting hubs. Mapping is the key to building out a profitable network where service will be good for customers, Fisher says.

Price and speed

The wireless equipment suppliers’ innovations “are improving wireless speeds to the point where they are approaching cable and ultimately will catch up to fiber,” according to the “Broadband Wireless Access Industry Report 2017” produced by the consulting firm where Schaeffler is chairman and chief service officer. (For a detailed explanation of some of these technical advances, see Wade Roush’s story for Xconomy about Starry.) According to the report, revenues from providing broadband wireless service to customers were at least $2.3 billion in 2016, and could exceed $5.2 billion by the end of 2021.

Common Networks offers no-contract Internet service for $50 a month at 75 Mbps, both for downloads and uploads, and currently serves more than 70,000 homes. The service began in Alameda, CA, and plans include expanding into Silicon Valley communities including Santa Clara, Sunnyvale, and North San Jose in 2019.

Sail advertises no-contract home Internet service for $49 a month, at speeds as fast as 300 Mbps for downloads and up to 100 Mbps for uploads. The speed varies, however, according to location and other factors, such as the existing cable infrastructure within an apartment building. In neighborhoods of single-family homes, Sail’s target speed is 100 to 200 Mbps for uploads, Fisher says. Fisher says Sail is serving nearly 1,000 customers in Fremont, San Jose, Milpitas, and at two new beachheads in Santa Clara and Cupertino. The company plans to continue growing in Silicon Valley and expand to the entire Bay Area, he says.

Speeds for big Internet providers can vary widely as well. In late 2017, Recode tabulated the top overall providers per city based on aggregate speed tests, and Comcast’s Xfinity won in Boston with speeds of 82 Mbps for downloads and 23 Mbps for uploads. In Memphis, TN, Xfinity was also the top provider, but the speeds were 40 Mbps for downloads and 13 Mbps for uploads. Wireless service Webpass took the top spot in Oakland, CA, with a download speed just short of 67 Mbps and 21 Mbps for uploads.

Fiber networks, however, beat speed records hands-down—where they are available. In rankings this year by PCMag.com, which runs its own speed tests, the top three spots among all U.S. Internet service providers went to Longmont, CO, municipal fiber-based service Nextlight, then Google Fiber, and in third place, Sonic, a fiber-optic network that operates in the Bay Area. Here again, though, a WISP made a showing: Colorado-based DirectLink ranked ninth. DirectLink’s speed was second only to Nextlight’s in Colorado regions where both are available.

Santa Rosa, CA-based Sonic is a formidable competitor for the Bay Area’s WISPs, but it has struggled for access to utility poles so it can run its Gigabit-capacity fiber into more homes and offices, FierceTelecom reported.

It can be difficult for consumers to make direct price comparisons between a local WISP service and the rates of their big competitors, which display low monthly charges for an initial period requiring a contract of a year or more. The established companies also bundle Internet plans into package deals that can include mobile connections and a set menu of cable TV channels.

For people who want to create tailored “bundles” of their own, WISPs offer the option to become cord-cutters—foregoing cable TV and spending their money on the streaming video services that best suit their interests from a proliferating number of companies such as Netflix and Roku.

The growth of this on-demand online video entertainment—much of it watched at home—is one big factor that makes fixed wireless an important segment of the Internet service market, Lux Capital partner Renata Quintini wrote in a blog post, as Lux invested in Common Networks when it emerged from stealth mode in mid-2017.

Despite the popularity of using mobile devices on the go, Quintini says the home is a center for many growing areas of online activity. “More people are working remotely, and doing so for longer periods of time,” she writes. Millions of people are also turning to online education to earn degrees and build workplace skills, she says, while connected devices are multiplying within homes, delivering more kinds of services, such as security and smart assistants like Google Home, Amazon Echo, and Apple HomePod. Fans of high-end virtual reality experiences also need faster Internet speeds, Quintini says.

WISP niches: suburban neighborhoods, consumer-friendly policies

The WISP pioneers in San Francisco—Webpass and Monkeybrains—started out by concentrating on dense high-rise neighborhoods and business centers in San Francisco. Their new competitors are trying to reach homes in outlying metropolitan areas. Common Networks is focusing on suburban markets in the western United States as it plans its ultimate expansion. Similarly, Sail Internet is targeting dense suburban and medium density neighborhoods in San Francisco, and the company has its eyes on medium-sized cities such as Sacramento and Spokane, WA, CEO Fisher says.

“We’re going after the sweet middle where most people live,” Fisher says. Sail originally intended to serve mostly houses and apartment buildings, but it responded to demand from businesses, he says. Some Bay Area industrial parks and other business centers are poorly served by established Internet providers, Fisher says.

In addition to competing with entrenched ISPs on the basis of price, WISP founders often take consumer-friendly stances on policy issues that further distinguish themselves from the telecom giants. For example, Common Networks pledges not to store or sell its customers’ personal browsing histories, and Fisher says Sail doesn’t track the browsing patterns of users. Sail will also continue to honor the principle of net neutrality—recently overturned by the FCC—by transmitting all content on an equal basis, Fisher says. The FCC action this year now allows Internet service providers to offer higher speeds or better service to content distributors who pay them more.

The entry of a WISP into a metropolitan area can put competitive pressure on an entrenched ISP, both as to price and user policies. But it may be hard for some of these small players to maintain a market toehold, let alone scale up substantially and become big companies themselves, Schaeffler says.

The incumbents will often drop their rates for a while, making it hard for the small newcomer companies to draw away customers, Schaeffler says. The big firms with video franchises also have corporate relationships that can give them a lock on the movies and other content that customers would still want to access if they cut the cable cord, he says.

That said, big telecommunications firms and tech companies are not dismissing the WISPs as irrelevant little pests. In fact, large companies such as Verizon and AT&T are using the same wireless technology to extend their own networks, as detailed by FierceWireless. Buying a WISP is one way to accomplish that, as Google did with Webpass.

That means the established Internet service providers are part of a pool of possible buyers if a WISP founder is ready to sell. That could make potential WISP investors more sanguine, because an acquisition offers an exit short of an IPO. Other possible acquirers, Fisher says, include mobile carriers like T-Mobile, satellite communications companies, and streaming video services like Netflix that might want to protect their access to customers, he adds.

For now, Fisher says he’s focused on becoming a nationwide player in Internet access with millions of subscribers. He wouldn’t rule out an eventual acquisition, though.

“If the right partner comes along and believes in your vision, you should be open to it,” Fisher says.

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