The Banker Reviews 2010

by Alex Goldman
Bill MacNamara started Agility Ventures to provide loans to WISPs in 2004. When I spoke to him then, he thought that the business would soon be crowded, but that he’d have the advantage of being the first mover and another advantage in having run a WISP.
Six years later, tough times have ensured that the competition is scarce — and the banking industry itself is not very healthy. MacNamara feels that it’s an indication of the quality of his due diligence that he’s had only one forclosure this year.
MacNamara says that lending to WISPs isn’t easy. “The collateral for a loan to a WISP is the equipment and the service, and the equipment has no value. The value of a WISP is in the business itself.”
“The second the upstream provider turns off a WISP, its value drops to zero.” Of course, lightning can strike, but if a customer calls up a WISP, the difference between explaining that lightning struck a tower and explaining that the upstream provider did not receive a payment is vast.
Traditional bankers won’t see any collateral at all because they don’t know the business. “A banker wants to lend against a warehouse full of widgets. A WISP has equipment spread out throughout a community, and the equipment only generates revenue when it’s connected to a service.”
“The collateral for the loan is the business, not the equipment. The business has to function in order for the loan to be serviced.”
On the other hand, the cash flow of the business is predictable. There’s fixed Average Revenue Per Use (ARPU) and the business’ ability to pay its way — and to make payments on a loan — flows from that. “I solve for cash flow. If the ISP gets $300 per subscriber per year, a certain amount of that goes to equipment, a small amount to marketing, and some to overhead. I can see from the cost equation whether or not there’s the cash to fund the debt service.”
MacNamara says that he’s seen some companies try to add overhead too quickly, and recommends that WISPA members avoid this issue. “They grow a little and add a VP of marketing and a VP of sales and suddenly they’re in the red. They need to keep an eye on costs versus revenues.”
Of course, most WISPs run on a very small number of staff. They also need to know how and when to add people. Many use contractors. “I would not hire a full time installer if I can 1099 an installer.”
MacNamara also recommends that WISPs avoid charging install fees. “I was charging a $150 install fee and $50 for the first month and someone said to me that they could not pay the install fee but they could pay a higher monthly fee. Now, my enterprise value increases, my cash flow improves over the long term, and I open my market to good customers who are in a lower income bracket.”
The broadband stimulus
In addition to the recession, MacNamara feels his business and the WISP industry have, so far, not been helped by the stimulus. “I have not seen the benefits that the government said the stimulus was going to bring.”
In Canada, the government managed to allocate the money in its Broadband Canada stimulus ($225 million) in just a few months. In contrast, the process, MacNamara notes, has been long and the rules have changed.
(Of course, this assessment could change tomorrow. The U.S. government might allocate the rest of the money tomorrow, might wait until September 30, 2010, or might even ask Congress for permission to take longer. The administration might even want more of the stimulus money back. The House has already taken back a little less than 10 percent of it.)
“Let’s see what happens,” MacNamara says.
The delays and uncertainties have harmed WISPs and the equipment companies that serve them. They have harmed customers too, as projects were put on hold, waiting for the government.
Meanwhile, the government seems to prefer fiber to wireless, MacNamara says.
“I’ve written Obama and the FCC asking about the economics of delivering fiber to the home. I’m not arguing that anyone has no right to fiber, but I don’t have fiber in my home in Prescott, Arizona. I think that the government could deliver wireless to more homes at a cost of about $500 per home, or fiber to just a few homes at a cost of $5,000 per home. Why are they picking the projects and companies that they’re picking?”
And fiber doesn’t bring new jobs. “Fiber just delivers temporary construction jobs. Wireless delivers jobs long term, in the area served (even if those jobs are contractor jobs rather than staff).”