The Internet burst on the scene over two decades a

first_imgThe Internet burst on the scene over two decades ago and has since corralled nearly a third of the world’s population. By the end of this decade, “everyone on Earth will be connected,” declares Google’s Eric Schmidt. Wishful thinking perhaps, but certainly considerable progress will be made toward that objective. Right now, two billion people on the planet want Internet access but don’t yet have it, according to Credit Suisse. Part of the problem has to do the limitations of wired networks. Wired Hits the Wall In the Internet industry, the “last mile” is the metaphorical term used to describe the final leg of the network that connects the Internet service provider (ISP) with the customer. That last mile has always been a challenge, especially out in the back country. That’s because many wired solutions require high initial deployment costs. Those costs can be recouped where the population is dense and subscribers are plentiful, but can’t be justified where the population is sparse and subscribers are few. Wired Internet connectivity is also cost prohibitive in emerging markets because the network infrastructure (i.e., trunk lines and/or bandwidth) does not exist, even in population centers. Consequently, wireless networks are emerging as viable providers of Internet service in underserved and underpenetrated markets, anywhere wired service is impractical. Wireless Alternatives Satellite: Satellite Internet involves three satellite dishes: one at the ISP; one in space; and one in the user’s home or office. The ISP sends the Internet signal to the space dish, which then relays it to the user. Every request the user makes (download, new page, etc.) and every response from the ISP travels through the space dish. Satellite Connection The main problem for WISP is not so much the technology, but rather getting the word out. In a recent State of Broadband Connectivity survey, only 19% of US citizens in rural areas realize this service is an option. WISPs hope to increase awareness with the recent launch of a collaborative nationwide ad and marketing campaign. Some industry observers expect the initiative will help the service reach critical mass. How to Invest Each wireless alternative will play a role in expanding the reach of the Internet. But with higher transmission speeds than satellite, more data-plan capacity than LTE, and better pricing than either satellite or LTE, WISP appears poised to grab more than its fair share of new Internet customers. But don’t expect to find a good investment opportunity in any individual WISP. The market is hotly contested, with thousands of WISPs in the US and tens of thousands globally. Attempts to consolidate the industry have been tried, but have failed miserably. At the moment, American Wireless Broadband is considered the top vendor, yet it only has about 25,000 subscribers and is not publicly traded. American Tower Corporation rents tower space to WISPs. But it’s not a pure play on the trend, nor a bargain at 10 times sales and 60 times earnings. Plus, research firm Muddy Waters alleges the company is cooking the books. We haven’t checked into the matter, but anyone seriously thinking about investing in the company should. What’s left are the companies that provide equipment to WISPs. It’s a crowded space, but BIG TECH found a company that stands out from the pack, and it was the subject of our latest issue, released last week. It isn’t a high-risk startup with few sales, but a relatively low-risk company with a significant revenue stream, exceptional profitability, a solid balance sheet, a unique business model, and superior technology protected by strong intellectual property. Yet, compared to its potential, this company is still in its infancy. One fund manager we spoke to thinks the stock is a potential multi-bagger. That’s exactly the kind of thing we look for at BIG TECH. For access to this recommendation and many more, simply sign up for a 90-day, risk-free trial of BIG TECH. Source: Starband Satellite providers have made some inroads in underserved markets. EchoStar’s Hughes Network has about 700,000 subscribers. ViaSat’s Exede Internet service has over 500,000—enough subscribers to grab the attention of famed investor Seth Klarman, whose firm has a whopping $700 million investment in the company. There are, however, some significant limitations to satellite service, the most important of these being relatively high monthly fees and poor latency—the time delay from one networked point to another—a key consideration for many, especially avid gamers. “We tell people up front if they’re looking for a gaming connection, this isn’t it,” concedes ViaSat CEO Mark Dankberg. LTE: A little over ten years ago, telecommunications companies introduced the third generation (3G) of wireless networks. Utilizing a different radio frequency and different equipment than the old 2G network, 3G achieved much higher data-transfer rates, thereby expanding smartphone capabilities so that email, media streaming and/or downloading, and web browsing became practical mobile functions. In 2010, telecommunications companies began introducing a fourth generation of wireless networks known as Long-Term Evolution (LTE). LTE networks are, on average, ten times faster than 3G networks and are therefore capable of delivering good Internet service. Coverage can be spotty though, especially away from large metropolitan areas. Plus most carriers place very low caps on the amount of data you can transfer over their networks each month… and charge hefty fees if you exceed that amount. WISPs: Wireless Internet Service Providers (WISPs) are typically local entrepreneurs in underserved rural areas who rent space on existing towers or build towers of their own. On these towers (known as base stations), they mount outdoor radios and receivers, which allow them to receive and relay an Internet signal from a “core” provider, such as a telephone company or a public broadband provider. Once a base station is set up, the WISP can sign up subscribers, sell them the in-home or office equipment necessary to receive the wireless Internet signal, and begin collecting monthly service fees. WISP Networklast_img