(Original posted at http://www.von.com/blogs/guest/2009/05/wi-fi-no-longer-the-rodney-dangerfield-of-wireles.aspx )
I may be dating myself here, but I’m sure many remember Rodney Dangerfield’s famous line – “I get no respect.” Until recently, that has been the general attitude toward Wi-Fi in certain circles, but the tide appears to have turned. Finally, Wi-Fi is starting to get the respect that it deserves.
Much has been written this past week on the rumored partnership, between Verizon and Boingo, as first reported in the WSJ. Yet to be confirmed, it is expected that this will allow Verizon broadband subscribers to roam across Boingo hot spots, at no additional cost. If this is the case, it suggests that Verizon is a fast-follower (in telco terms), to comparable offerings from AT&T and Cablevision for their subscribers. In no way does this diminish the significance of this potential announcement – it is a bold move by an 800-pound gorilla and one which I’m sure was heavily debated internally.
So why would a service provider embrace Wi-Fi today? The motivation depends on the type of service provider we’re talking about, but the answer really lies in the fact that the number and type of mobile devices and data-rich applications has reached the tipping point, and that it’s been embraced by their subscribers.
Wireline broadband providers have been in the Wi-Fi business for years now, with Wi-Fi-enabled, home gateways as the standard CPE for cable and DSL broadband customers. But now, these same subscribers are walking around with dual-mode handsets, Wi-Fi cameras, gaming devices, netbooks and are demanding broadband connectivity, outside the home. It makes sense for these same service providers to enable a similar experience outside of the home as well. Not ubiquitous coverage, à la failed muni, but targeted coverage where they eat, shop and congregate.
But how do you make money if you’re giving away the service? The answer lies in the question: What’s a subscriber really worth?
All service providers report information like monthly or quarterly churn, average revenue per user (ARPU) and adjusted operating cash flow (AOCF). One way of quantifying the value of a subscriber is to calculate the net present value of the expected revenue stream (ARPU) or net cash flow (AOCF) over the average lifetime of a subscriber. Reducing churn, increasing ARPU and improving margins (AOCF) all have a positive impact on customer valuation.
Service providers constantly have to grapple with the “spend” per sub relative to the increase in value. Increasing ARPU is one way, but seldom realistic, given downward price pressure by competitive offerings from substitute providers. In many cases, maintaining ARPU by creating additional value-add is a more realistic approach.
Furthermore, upfront customer acquisition is expensive, so retaining that subscriber for as long as possible is critical. Service providers are finding that reducing churn is a key element in their financial success and long term viability. Those companies that are losing or that churn customers are valued very differently than those that are seeing net new subscriber adds.
This is a slightly simplistic explanation, but the market appears to be speaking. It is possible to generate an IRR that justifies the investment required to add Wi-Fi to an existing service offering. Wi-Fi is fast becoming table stakes for the major MSOs, wireless and wireline operators as they compete for a share of our wallet.
RIP Rodney.
That’s my .02!
Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.
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