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San Francisco MuniFi Economics
San Francisco gave the green light to Google (GOOG) and Earthlink (ELNK) to offer wi-fi throughout the city. You’ll get free 300kb/s ad-supported service from Google, or $20 a month for 1Mb/s ISP service from Earthlink.
Total capex is $15MM to install, though I bet that number will at least double to deliver full coverage. Assuming Earthlink spends $15MM on it’s own, they would need around 8,000 subscribers at $250/year to justify the investment and deliver a 15% return. This seems very, very achievable in a city like San Francisco. If Earthlink can win peering agreements with guys like T-mobile to allow roaming outside of SFO, it looks even better.
San Francisco is always on the vanguard of both good and bad.
Correction I neglected to include any provision for Opex in the above calc. Anyone care to take a guess at what that might be?
Minimum staffing would easily cover that, say 30 people average 50k =1.5m
Triple it for overhead and equipment maintenance = 4.5m. Say they need 30k subscribers.
But don’t ignore the advertising. Say each customer sees 200 ad pages per day at $5cpm (both very reasonable numbers if its their default screen). e.g. 1-2 clicks a day at 50cents to 1 dollar per click. Thats easily enough to cover $20 per user per month on the free advertising sponsored service.
So can they get 30k users for free? Easily.
Yellow Pages directory is a huge book, with mostly free listings, high printing costs, requiring a lot of staff to maintain it, delivered to the door free to everyone and the local advertising (the large ads) pays for it all. Here they have much lower overhead and automated systems so far fewer staff, so they’ll find it trivial to profit on that.
This is a subject I have no small amount of experience with, so let me take a crack:
For each 1000 users, you need about 6 (overworked) people, 2 for support (40k each), 1 for administration (this could be outsourced, though - about 25k maybe?), and 2 field crew types (40k each) to replace physical hardware and that sort of thing, as well as 1 network administrator type (75k in SF). That’s about 260k or so per 1000 users, who are generating 250k of revenue each year in terms of subscriptions. If you add advertising to the mix, the numbers would look a lot different.
This venture has some pretty hard problems. First, your employee cost is pretty high, relative to the wireless industry at large. Do this in Milwaukee, and you’re spending 30-40 percent less on staff. More importantly, you’ve got an extremely varied terrain that makes ubiquitous coverage extremely difficult at 2.4 ghz. People are going to expect 100 percent coverage, or something very close to what their cell phones provide. Count the number of towers in SF from a single provider, and multiply by at least 8 to get roughly the same coverage.
http://www.sprint.com/pcsbusiness/coverage/towermaps2.jsp?cityid=13&city=San%20Francisco
Sprint lets you see their cellular towers, so this