• by Philip Leigh , August 9, 2011

The rising popularity of Internet video in combination with the advent of the smartphone and tablet computer places an obscure segment of the Internet Service Provider industry at the threshold of major opportunities. Although Internet access is dominated by a duopoly of CATV and Telco operators, a promising third category is the Wireless ISP (WISP). Not to be confused with cellular carriers, WISPs offer Internet service to subscribers from fixed base stations to radio transceivers typically mounted on subscriber rooftops, as pictured.

The first WISP was organized twenty years ago by a young computer consultant in Laramie, Wyoming after he discovered the only Internet access in the town was at the University. He approached a number of local businesses with a proposition to provide them Internet access wirelessly through unlicensed spectrum normally used by cordless phones. His connection to the Internet backbone was a T1 line (1.5 mb/s) which the local telephone company connected to his house for $6,000 a month. Essentially, all subscribers shared the bandwidth of that singe T1.

The industry grew steadily thereafter mostly in rural markets where the low population density resulted in unattractive economics for laying CATV cable to the home and subscribers were too distant from telephone exchanges to receive DSL service. But circumstances are changing. WISPs are starting to compete effectively in cities, including the biggest ones like New York, Los Angeles, and Chicago.

Specifically, CATV and telecom companies realize a growing percentage of subscribers want to cut-the-cord to Pay TV and landline telephony and instead rely upon high-speed Internet and mobile phones for electronic media and communications. In order to discourage cord-cutting the duopoly has two responses.

First, they make it difficult to get economical rates for high-speed Internet access unless subscribers also agree to a package of other services such as Pay TV and landline telephony. Second, it appears the duopoly is ready to impose rates based upon bandwidth consumption. The annual National Cable Television Association conference in June revealed an important shift in informal discussions about such rates. Previously, such conversations centered on whether the rates should be attempted at all, but this time discussion gravitated toward when and how.

An unintended consequence of both actions is to create a competitive opening for Wireless ISPs to invade urban markets.

The biggest expense to Wireless ISPs is a connection to the Internet backbone, termed "backhaul." In rural markets WISPs are at the duopoly's mercy for such connections, but in cities - particularly big ones - competitive backhaul providers are readily available. For example, in Boston Verizon charges $500 monthly for a T1 line which provides 1.5 mb/s. In contrast, Cogent sells 100 mb/s service for $700. The cost differential in dollars-per-megabit/second is $267 for Verizon and only $7 for Cogent. Thus, WISPs connecting to the Cogent backbone in Boston can dramatically reduce backhaul expense. On example is Towerstream, which is a big city WISP. Management says Towerstream under-prices local landline providers by 30% - 50%.

Initially, big city WISPs will be more competitive for commercial accounts than residential ones. That's because the most competitive rates offered by the CATV-Telco duopoly provide faster download speeds than upload ones. However, commercial accounts often need fast uploads because they're sending information as much as receiving it. In contrast, consumers are more often watching video than uploading it thereby needing faster download speeds than upload ones.

Ultimately, however, as consumers intensify their search for ways to purchase Internet-access-only - as opposed to packaged bundles - Wireless ISPs could become the only alternative in many markets since use of unlicensed spectrum enables them to expand geographically without regulatory roadblocks.

Another major WISP opportunity is the construction of Wi-Fi networks to offload cellular Internet traffic generated by portable devices like smartphones. But, that's story for another day.