Towerstream built it, but will they come?

Towerstream has built a citywide Wi-Fi network in Manhattan and is offering access on a wholesale basis to carriers who want to offload data traffic from their 3G networks.Will this be a profitable business? So far Towerstream has no carrier customers. The details of the network are quite impressive. Towerstream deployed more than 1000 access points and they claim that more than 100,000 devices have logged on every day during the testing phase. What makes Towerstream’s network different from earlier municipal Wi-Fi networks is that they are not offering Wi-Fi access directly to customers, but rather to the carriers as a data offloading mechanism. We all know that negotiating with carriers takes a long time. And we also know that maintaining and upgrading a network is expensive and they will need to get a return on their original investment as well.

So now we will have seen two business models with large scale Wi-Fi deployments: (a) the model in which the wireless ISP – the network owner/operator – offers Wi-Fi access directly to end users; and (b) the model in which the network owner/operator offers wholesale access to carriers for data offloading from 3G to Wi-Fi.

The first model — directly offering access to end users — is tricky in a large city because it requires a huge capital expenditure upfront and needs an anchor tenant like the city itself (e.g., Minneapolis) to break even and make a profit. On top of this, many people don’t want to pay for Wi-Fi because they can get it now in cafes, restaurants and other locations. Moreover, those on the move often have a cellular data plan which they use while in a car, bus, train, or when they’re walking around.

The second model — offering wholesale access to the network as a data-offloading tool — runs into the carriers’ reluctance to hand over control of any part of their network to third parties. Obviously it’s cheaper for a carrier to share the network (built by someone else) with other carriers; however, guaranteeing good service, upgrades and proper maintenance will require tightly drafted service level agreements.

In the early days of muniwireless, I proposed that cities offer their fiber networks and their citywide wireless networks to wireless ISPs on a wholesale basis. This would ensure some competition in the marketplace where several ISPs offer Wi-Fi service to residents and visitors in a city.

This is not how things turned out. Many cities decided to follow the old cable franchise model where one company builds and owns the network, and offers service to end users while giving the city a percentage of the revenues. That model failed where there was no anchor tenant providing the wireless ISP with steady income stream. But in those days, there was no iPhone and the demand for data access from smartphones did not exist, although many readers of MuniWireless accurately predicted the coming data demand. One might argue that the old muniwireless model came too early.

Now we have the same model I had proposed, but rolled out by a private company (albeit for data offloading). Let’s see if they can succeed. I really hope Towerstream makes a profitable business out of this because it means improved wireless service for smartphone owners.