The birth of the wholesale mobile offload operator

Towerstream (NASDAQ:TWER) may be known for its WiMax access business, but over the last six months it’s been quietly setting up a WiFi business on the side, one that’s proven popular with consumers and it hopes will prove popular with a new type of customer: wireless operators.

Rather than build a commercial hotspot network, Towerstream has devised a wholesale mobile offload network throughout the streets of Manhattan. And rather than target the consumer, it is targeting mobile operators that want to remove ever increasing burden of smartphones and laptop from their mobile broadband networks onto WiFi, said Jeff Thompson, co-founder and CEO of Towerstream.

Last year, Towerstream set up WiFi access points in 200 busy New York locations in a trial to determine what the demand for WiFi offload might be. Without any fanfare or notice, Towerstream turned on the APs as open networks requiring no authentication or registration. The results were shocking, Thompson said.

“We had 20 million connections in the first quarter,” Thompson said. “It wasn’t a situation of a ‘build it and they will come.’ We built it, but they were already there. … It only took four days before we saw more traffic over WiFi than we have on our entire business network—terrabytes of data in just days. That’s when I developed an appreciation for A&T and what these high-volume smartphone networks are doing every day.”

Thompson doesn’t just want to appreciate AT&T; he wants AT&T for a customer. Now that the trial is over, the access points are closed off to the general public. Towerstream is adding another 800 hotspots to its footprint, and it’s shopping the network around to wireless operators looking to relieve their congested Manhattan cell sites. With 1000 sites, Towerstream will have a good deal of Manhattan covered, Thompson said. Using Ruckus gear, Towerstream can extend WiFi coverage as far as 1000 feet with a clear line of site. There’s not WiFi coverage at every street corner, by any means, but all of the heavily trafficked intersections and pedestrian zones will get a signal, Thompson said.

“We’re not saying WiFi will be the end-all in Manhattan,” Thompson said. “We can’t replace the mobile network. But we can provide WiFi oases.”

As for backhaul, that was the easy part, Thompson said. Towerstream’s primary business is enterprise fixed wireless access, utilizing an extensive network of rooftop WiMax base stations and microwave radios to link nearly every building of note on the island and the surrounding boroughs. Getting those links down to the street level was the easy part. Once backhauled to a base station, the WiFi connections traverse Towerstream’s Sonet ring in the sky to a point-of-presence, from where they hook into the operator’s network. “We’re just two hops from their core networks,” Thompson said.

Several operators have been investigating WiFi offload, the most aggressive of which is AT&T (NYSE:T). AT&T has invested in a nationwide hotspot network, covering airports, restaurants and cafes all of which are open to its smartphone, mobile broadband and residential broadband customers for free.

AT&T has also been building special hotzones in high-traffic areas like New York’s Times Square devoted solely to mobile data offload. Other operators such as T-Mobile (NYSE:DT) rely heavily on WiFi to offload both voice and data. But T-Mobile has built no infrastructure of its own relying instead on public open WiFi hotspots to handle the load. Companies like Towerstream hope both those types of operators will see the value in its network. An customer like AT&T might seek to augment its own hotzones with a wholesale WiFi footprint, while an operator such as T-Mobile might want to ensure it has dedicated offload access points in high-traffic areas rather than leave it to chance.

Several vendors have begun targeting just this particular niche, providing carrier-class WiFi solutions that build intelligence into the access point and networks. Their aim is to make WiFi part of the operator’s network, rather than an outlier into which they have little or no visibility. At Mobile World Congress Nokia Siemens Networks (NYSE:NOK, NYSE:SI) and Cisco Systems (NASDAQ:CSCO) unveiled new carrier WiFi platforms, while BelAir Networks racked up key WiFi offload network wins with operators like O2.

Cisco’s solution builds intelligence into the access point, while NSN’s has designed an access-point agnostic platform. Meanwhile Ruckus, which also officially launched its carrier WiFi platform at MWC, is combining both approaches, developing highly intelligent and powerful access points and coupling them with a WiFi services gateway that functions much like a radio network controller on the operator’s network. According to Ruckus vice president of marketing David Callisch, the mobile and WiFi networks become so tightly integrated over the Ruckus platform that the only fundamental difference between them is the radio used to connect. The access points authenticate to the phone’s SIM card not a separate media access control (MAC) address, all services network functions are extended to the access point and they even support mobility, passing off connections between access points as well as to the macro network, Callisch said.

The architecture allows Ruckus to support wholesale networks like Towerstream’s, which would allow customers to lease offload capacity but remain control over the device as if it was over their own network, Callisch said. Still, Callisch believes networks like Towerstream’s will be the exception to the rule. While operators will always be looking for more capacity in dense congested areas like Manhattan they’re keen on owning their own networks if possible, not leasing them.

“We’ve seen a couple of wholesale players emerge, but I think the mobile operators will be the biggest players in this space,” Callisch said. “They have a vested interest in expanding their capacity, and they have the footprint to build it in.”