In my last blog post I laid out a simple 2X2 chart to weigh different opportunities for operators building out their networks:
This table provides direction – determining what to build first based on straightforward criteria.
But how much is enough? The answer to that lies in the various monetization strategies out there. If you’re in the space, you’ve seen some of these outlined in a recent post by my friend, Claus Hetting.
Each opportunity has its own math. In the end, of course, it comes down to money – How much value will each additional user of the expanded Wi-Fi network generate?
The answer to that comes by answering a few fundamental questions:
- What is the investment?
- How much traffic will the network capture?
- What is the value of a user to that network?
For example, let’s say a fictional operator wants to pursue a box 1 opportunity (“Easy” and “Important”). The operator creates a dense Wi-Fi footprint deploying a mix of outdoor access points and indoor, small business access points. Over time, as habits build, it stands to capture an estimated 70% of the nomadic, out-of-home traffic.
For this example, I’ve modeled a small subset of the operator’s network – a small city center. This project will include 53 indoor access points and 18 outdoor APs. Estimated investment is $60,000, excluding network core, backhaul, NOC, etc. I’ve left those out to simplify the discussion; they are sunk costs for an incumbent.
First, the operator has to calculate how much it will cost to expand their Wi-Fi network, and what they will gain for every unique user they capture:
|SP Broadband Share||60%||18,000|
|SP Usage %||70%||12,600 Daily Users|
Within the physical footprint, there are 30,000 unique visitors a day. The operator needs retention because they are the market leader and 60% of consumer visitors (18,000) are their broadband customers.
100% network adoption doesn’t exist today. However, over time and with promotion and convenient authentication, the operator will see 70% adoption. That’s 12,600 users.
I mentioned a $60K capital spend. Even network owners have operating expenses, including Internet backbone. Add $7,500 to maintain it for the 5-year life of the Wi-Fi gear. That brings the 5-year investment to $67.5K.
For that investment, you’ll see $315,000 in value from retention:
|5 Year Investment||($67,500)|
|Network Users x Value Per User||+$315,000…..$25 x 12,600|
|Return on Investment||=$247,500|
In my next post, I’ll discuss that mysterious $25 figure that you see in the second line. In the meantime, if you liked this article, check out these following posts: