Wireless DataComm Business Plan

The spectrum Wi-Fi utilizes to deliver broadband is unlicensed by the FCC, which greatly reduces costs in setting up a new network and the time needed in order to install such a network. In turn, this creates a low barrier to entry for Pie in the Sky Wi-Fi and the ability to deliver services in any location without the need to apply for special licenses or permits with the FCC. When compared to setting up a cellular tower in just one area, Wi-Fi takes just a fraction of the time and investment with absolutely no regulatory interference or special permits needed from the FCC.

Fortunately for all users of Wi-Fi, and the company, Wi-Fi is the global standard for this type of connectivity to the Internet. Unlike GSM or CDMA with non-conforming standards, Wi-Fi has become the de facto standard for wireless Internet access, and because of its quick and rapid acceptance, this open standard will stand the test of time. The price of wireless related components, such as the specialized processor chipsets that enable better utilization of this technology, have dramatically decreased in price and jumped in customer demand. For example: in 2002, a Wi-Fi radio chipset cost about $16 wholesale; at the current pace, this price is expected to be lower than $2 by 2006. Demand for these same chipsets has increased over 80% just between 2002 and 2003.

With dropping wholesale prices and rapidly rising demand, the acceptance and implementation of this technology will be very swift. Already in 2003 many manufacturers are offering Wi-Fi cards very inexpensively if not already providing them as built-in options. In 2003 almost all midrange to high-end laptops included built in Wi-Fi capability.

There are various estimates regarding the growth potential of the wireless industry. Some reports look at the Wi-Fi industry as an entire sector, including the sale of both services and hardware, while others examine only the delivery of hardware, chips or services separately. In all cases, the estimated growth is positive for a company like Pie in the Sky Wi-Fi, as a new player in an emerging market. The Wi-Fi industry as a whole is expected to grow at an incredible rate, with projections range from no less than a compounded annual growth rate of 50%, all the way up to 415% over the next five years.

The annual recurring revenue for access services based on unlicensed broadband wireless (UBW) technologies, currently at $250 million, will approach $2 billion by 2008, according to ‘Unlicensed Broadband Wireless: Solutions and Applications,’ a new research report from Parks Associates. This report profiles more than 20 equipment vendors and their unlicensed products, analyzes different service market segments, provides perspectives of incumbent carriers, wireless ISPs, and consumers, addresses market challenges, and forecasts service and equipment revenue growth.

According to this report, residential service revenue will post the most dramatic growth, followed by the small enterprise (SME) market, and the UBW market will have an overall compound annual growth rate (CAGR) of approximately 50%. Underserved markets in the U.S. still represent the low-hanging fruit for service providers using UBW technologies, according to the report, including newly developed communities and urban edge markets.

“In the past two years, the proliferation of wireless ISPs and the declining cost and improved quality of equipment have generated momentum for this industry,” said Yuanzhe (Michael) Cai, research analyst with Parks Associates. “Looking forward, service providers will focus not only on expanding their footprint but also increasing the take rate within existing coverage areas. In the meantime, further declines in equipment costs will help more WISPs justify their residential business plans. Also, the industry will get a further boost around 2006 when real benefits from WiMAX standardization start to materialize.”

By 2005, the analysts cited predict that, “80% of all commercial notebooks sold will be wireless-enabled. They also predict that by 2005, 50% of Fortune 1000 companies will have extensively deployed wireless LAN technology based on the latest 802.11 standards. And, by 2010, the majority of Fortune 2000 companies will have deployed wireless LANs to support standard wired network technology LANs.” –iv

4.1 Market Segmentation

Pie in the Sky Wi-Fi has three primary market segments: Commercial Property owners, Multi-tenant residential property owners, and ISPs. Our marketing efforts toward the first two groups will be similar, while with the third group, we are offering different services, and our marketing focus will be different.

Commercial and Residential Property Owners

The primary customer for Pie in the Sky Wi-Fi is the landlord who has never considered providing Internet access as an additional service to create a competitive advantage, due to cost constraints of installing a wired network. Wired networks do not allow the flexibility that wireless does. For property owners, addressing the individual needs of each tenant is expensive using traditional installation practices, so it was never really a viable option for them due to cost constraints.

Internet Service Providers (ISPs)

The core focus for an ISP is providing raw connectivity to their clients, whether wired or wireless. ISPs need service providers to handle the installation of these networks. In most cases, the ISP will either outsource these services or refer them to a reputable provider if the company does not do the installation themselves.

4.2 Target Market Segment Strategy

Although the Pie in the Sky Enterprise solution can be utilized in any area where high-speed wireless Internet access is desired, the company will focus its sales and marketing efforts on three key sectors. We project that the commercial and residential segments will together comprise 50% of overall sales and the ISP segment will fill in the remaining 50%.

Commercial and residential property owners and business owners:

Our primary marketing goal for these segments will be to educate owners about Wi-Fi and the benefits of installing a Wi-Fi network, both as an increased revenue and a cost-saving opportunity. As part of this effort, we will focus on the ease with which a wireless network can be installed or updated in any location without the need to manage the network on-site.

We will also emphasize the value such an amenity can add to a landlord’s property, in terms of attracting and retaining tenants, and differentiating their property from their competitors’. We will use simple analogies, like the extra appeal of a property with private parking included in the rent, to help landlords understand the benefits of investing in a new technology. Just like parking spaces, built-in wireless Internet access offers property owners and businesses an additional competitive advantage over others. What was once a risky, unnecessary and expensive proposition for a building owner is now a needed and highly sought-after utility for all residents, both commercial and residential.

This value proposition will be used throughout all of the marketing initiatives put forth by the company. Below is a cost comparison example for a typical 30,000 square foot office building:

1. Commercial property and business owners

Pie in the Sky Wi-Fi will target office buildings, industrial campuses and truck stops. With vacancy rates at an all time high for commercial property, many building owners are providing Internet access as a way to increase demand and/or increase the lease rates for their property. In most cases, this makes the property more attractive for businesses looking for additional services they do not have to handle themselves. The Pie in the Sky Enterprise solution allows the building owner to provide this service at a low overall cost to them, without the need to manage it themselves.

For developers, including wireless capabilities rather than wired ones allows them to better manage and control the real estate investment, by preventing the need for multiple individual lines coming into the building. This is even more of an issue in renovating older buildings.

Additional Commercial Property owners

Truck Stops: The demand for Wi-Fi service is also greatly increasing in the nation’s truck stops. Pie in the Sky Wi-Fi is in a unique position to offer Wi-Fi services to truck stops throughout the US quickly and efficiently. Because of the management team’s prior experience in the trucking industry, we can easily educate and sell to individual truck stops using current contacts. The truck stop business is very competitive and owners are always looking for way to attract drivers. Pie in the Sky Wi-Fi will heavily target this market, as the company already has a sales force in place that visits over 300 individual truck stops on a monthly basis and will provide a solid foundation for the initial launch of wireless service to these locations.

Industrial Parks: In many industrial parks throughout the U.S. there is no fiber or cable available for broadband access. The individual companies in these parks are often required to purchase a dedicated T1 themselves or simply go without broadband altogether. This segment of the market represents a large opportunity for the company as there are limited “wired” options currently available, and the low price of installing wireless for sharing across multiple tenants will create long-term value, both for the industrial park owner and the tenants as well.

Rural Municipalities: The Pie in the Sky Commercial Enterprise solution is a great option for rural municipalities that are in need of wireless Internet access because the costs of updating wired connections are too great or simply unavailable. This is the single largest opportunity not served by the major players in the market. Currently there are 65 million people living in rural America. 62 million of those individuals are not involved in production agriculture. Rural America comprises over 2,300 counties, 80% of the nation’s land mass, and 65 million people. These areas are often looked at last due to the spread-out nature of the group. The rural communities are very difficult and very expensive to reach with traditional wired connectivity. With the Pie in the Sky commercial Enterprise solution, high-speed wireless access can be delivered inexpensively and more effectively.

2. Multi-tenant residential property owners:

The Pie in the Sky Residential Enterprise solution is focused primarily on multi-tenant housing owners and managers looking to improve the technology available to their renters and/or looking for additional revenue sources outside of the normal rent income collected. Broadband connections are commonplace in new construction for commercial buildings, but are still under-utilized on the residential side. Typically, the tenants themselves arrange the installation of their own broadband connection, whether DSL or cable. In either case, it usually involves additional installation in the individual unit, which must be coordinated and managed by the tenant individually.

Installing a private secure wireless network, with minimal structural modification, not only prevents the need for individual installation in each unit but creates economies of scale for the covered area that benefit both the owner and tenants. The tenants can enjoy a less expensive and faster Internet connection, with the added benefit of portability throughout their living area and common areas of the property. The property owner benefits from the additional revenue generated and competitive advantage in offering these services as an amenity.

3. Internet Service Providers (ISPs):

ISPs play an important role within the company. Pie in the Sky Wi-Fi will partner with key ISPs in order to resell the Pie in the Sky Enterprise solution. The benefit to partnering with the ISPs is focus – Pie in the Sky Wi-Fi can focus on what it does best (assess, design, install, and maintain wireless networks) and let the partnered ISPs focus on their core competencies (providing continuous, high-quality, fast Internet access).

The benefit to the ISP is the ability to receive additional revenue as a Pie in the Sky Wi-Fi reseller (resellers receive 10%), while retaining current customers and adding new ones as a result of the new service offering. This also allows them to stay focus on their core competency, which is providing the raw Internet feed.

Since Pie in the Sky Wi-Fi will need a primary connection to the location where the wireless network is requested, the partnership further solidifies the ISP’s role in providing connectivity to the location. In all circumstances, Pie in the Sky Wi-Fi depends on local ISPs to provide the raw feed to any wireless installation, whether it be a T1 direct to the property, or an OC3 powering a larger wireless base station, where Pie in the Sky Wi-Fi can distribute its own T1s wirelessly. We estimate that ISPs will comprise over 50% of the sales generated for the company.

4.2.1 Market Needs

The current market needs for Wi-Fi are infinite as this is a new industry that is already changing the way Internet access and many other services, such as Voice Over IP (VOIP), will eventually be delivered throughout the world. Although there are many traditional wired networks already established and continuing to roll out today, the cost and ease of implementing a new wireless network will soon become obvious to many businesses and individuals alike. As Wi-Fi capacity increases over the next few years, companies such as Pie in the Sky Wi-Fi will be in the unique position to roll out additional wireless locations without the use of any wired line to the new location. This will decrease the installation time and will require minimal installation and wear and tear on the desired location in order to saturate the entire area with high-speed Internet access.

The true opportunity and advantage Pie in the Sky Wi-Fi will enjoy as the market demand for these services expands will actually result in greater gross margins on the primary connection costs. This is the result of greater economies of scale as each geographical location “fills up” with wireless Internet access. Economies of scale are generated when a specific area within reach of a powered Pie in the Sky Wi-Fi base station has a need for a greater amount of bandwidth. Because of the ability to transmit large amounts of bandwidth through the Pie in the Sky Wi-Fi base stations, one base station can be powered by a T3 or OC3 connection and then provide additional Pie in the Sky Wi-Fi base stations with their primary connection, replacing the need to have a landline connection at that location.

The ability to “cut the cord” at locations that were previously dependent on the primary T1 connection increases the margins for each affected location and centralizes the primary connection point, giving Pie in the Sky even greater ability to provide T1 connections quickly and easily to new locations within reach. For example, a primary base station location with a OC3 connection has enough bandwidth to broadcast up to 28 individual T1 connections wirelessly, without any additional landline use. This will allow Pie in the Sky to activate a new location within minutes of installing the necessary hardware without depending on activating a fixed T1 to that particular location.

The cost savings released by the company would be great, as the fixed T1 cost is no longer needed at the affected location. An example of the break-even point is illustrated on the chart below.

For purposes of this example, existing T1 contracts are not figured in to the return on investment equation, although this is a factor to consider as each area is activated. For estimating purposes the example uses as average monthly service fee estimate of $1,500, T1 wired cost of $800 per location and an OC3 connection cost of $9,000. The break-even point on the monthly connection revenue for installing a central OC3 connection is six clients. From a cost standpoint, the break-even point for expansion is reached when 11 clients are added to the Pie in the Sky network.

Although the wired T1 connections to each location in this illustration will no longer be needed, it should not jeopardize any existing relationships with any partner ISPs, as a larger primary connection to power the base station will still be required. This primary connection will be provided by the partner ISP in that area, thus, mitigating any potential displeasure with the switch from multiple broadband connections to a single larger connection. Long-term, as new wireless installations are added from the new primary base station it could potentially lower the overall margin for the ISP, but significantly increase the overall margins for Pie in the Sky Wi-Fi.

4.2.2 Market Trends

The true potential market for Wi-Fi installations is currently unknown, as the industry is expanding at break-neck speeds and companies are employing multiple strategies in order to build a niche within the industry as a whole. The current trend for many Wi-Fi providers is the rapid deployment of public hot spots, which provide Internet connectivity in places like coffee shops, hotels and other public gathering spots. Although this strategy may prove to be a long-term advantage for these larger providers, the time, resources and return on investment are further out than the Pie in the Sky Wi-Fi business model and are speculative in nature.

4.3 Service Business Analysis

Pie in the Sky Wi-Fi is part of the Data Communications Services industry. Our services are similar to those provided by ISPs and cable modem and DSL installers, in that we help our customers obtain access to the Internet in residential and commercial settings. Unlike the majority of these businesses, however, Pie in the Sky Wi-Fi’s wireless Internet access points are less expensive, less invasive of building infrastructure, more portable, and more scalable. At the moment, wireless data communications are largely being driven by customer demand.

With the explosion of cell phone popularity, consumers have become more demanding about wide-ranging, wireless access to data, communications, and the Internet. The initial wave of Wi-Fi “hotspots” in cafes and airports has fed this demand, and the public now wants better, faster, cheaper, and more accessible wireless connections. Many travelers now seek out wireless access as a necessary amenity in their hotels.

As consumers push demand individually, they are also creating a paradigm shift in business workplaces. Employees comfortable with wireless technology more clearly see the disadvantages to hard-wired, immobile data connections in their offices. As businesses and property owners come to see the public’s eagerness for such technologies, wireless is becoming less of a risk to install, and more of a clear necessity.

The current market for Wi-Fi services is wide open. Aside from a few major providers, mainly focused on public hotspots, the industry is mostly comprised on small local or regional providers. In most cases, the Wi-Fi providers are focused on a small geographical region. The first install a network, then try to sell to individual users within the radius of that signal. Not only is this an expensive and speculative proposition, but the lengthy sales cycle and individual effort needed does not lend to a favorable return on the investment.

4.3.1 Competition and Buying Patterns

For the first two target markets (commercial property owners, multi-unit residential property owners, and business owners), we are competing against hard-wired Internet access, often tenant-installed, and against inertia. There are no direct competitors in our area currently offering wireless access installation for these clients.

Our challenge here is to educate potential customers on the advantages of wireless over wired access, and to encourage them to assume the costs of installation for a larger payoff from tenants in the future (or for the benefits of scalability and upgrading, for business owners).

With ISPs, we are competing against established installers of cable and DSL. We will make ourselves competitive by emphasizing management’s expertise, and by convincing them of the public’s demand for wireless access. As a preferred partner for wireless access installation, we will have a first-mover advantage with ISPs by the time larger conglomerates enter the market.