Examining Return on Investment for Wireless Broadband Networks

Calculating return on investment (ROI) for capital improvements within an established company
can be difficult because of uncertainties in attributing changes in revenue or reductions
in expenses to any single change in the organization. With a wireless startup the matter is
otherwise because one is simply balancing the total expenditures required to launch and operate
the network against total revenues derived from it.
This being the case, calculating ROI should be fairly straightforward, but it rarely is with
wireless broadband service providers—or with any other competitive carrier for that matter.
One cannot know for a certainty what the take rate for the new service will be, one cannot know
what churn will be, and one cannot know what installation costs will be, though one can make
some fairly informed estimates there.
Consistently, in the past, competitive service providers have grossly underestimated the
cost of doing business and have relied on the capital markets to sustain them while they
attempted to build out their networks. Such a business strategy is entirely untenable today and
should not even be contemplated. Instead of aiming to build a pervasive footprint in one’s designated
markets immediately and then sorting out the details of actually running the network,
one should ensure that each link functions perfectly in the beginning, that customers’ needs
are served in a timely manner, and that cost-containment measures are implemented from
the onset.
Above all, one should avoid costly improvisations serving some ill-defined business objective
that undercuts the principal projects of the network. Unfortunate examples abound
among the first generation of millimeter microwave service providers, most of which spent
huge sums of money leasing T1 lines to provide temporary data services to key customers and
to thereby establish a presence in a targeted market. Such a ploy did nothing to position the
core services of the new service provider or to give the customer any reason to adopt the new
wireless services. All it did was to inflate the customer numbers while ensuring that the wireless
infrastructure would never be completed.
One successful millimeter microwave network operator of my acquaintance told me
that the secret of achieving profitability in wireless broadband was to build a business case for
each major customer or group of customers and to calculate probable ROI on each. That way
nebulous assumptions and meaningless generalizations are avoided, and the operator can
make necessary adjustments in rollout plans on the fly without building up a huge unprofitable
operation and then attempting to set it to rights.