Fixed Wireless Business

No, it Costs $50 to Build a Hotspot

You thought it cost $1,000 to build a hotspot? While big companies are spending big bucks setting up hotspots, ISP pioneer Telerama says that $50 of equipment and $50 of monthly bandwidth is more than enough for a hotspot.

by Alex Goldman ISP-Planet Associate Editor [August 14, 2003]

Doug Luce, founder of Telerama, says that the key to building profitable hotspots is very simple. "It's important to not spend lots of money to get service in."

The Pittsburgh, Pa.-based ISP has 80 hotspots in its local area, and none are used heavily. "Four users would be a busy hotspot for us," says Luce. "We have seen a max of 10 users at one time."

At usage levels like this, a Covad DSL line 728 Kbps download and 128 Kbps upload, is sufficient bandwidth for the hotspot. Telerama sets up its hotspots in coffee shops that will trade their space for bandwidth. The coffee shop gets a free broadband connection, and Telerama gets a free hotspot location.

"Each site has two or three access points to a router/gateway, including one for the venue's private network," explains Luce. The router is cheap. "We use a Linux-based router with gateway. Our average cost with a hard drive, a 1996-era Pentium II processor at 300 MHz, is $39. We tweaked Linux, and use TCPdump and Berkeley packet filter (bpf). We can look at a user's session and tell them, for example, that they misspelled "Yahoo!""

"In addition, and very importantly, these systems let us shape traffic. One link was being hosed by a file trader. We could have cut off the trader, but instead we simply limited it to 64 Kbps. He stuck around for another 6 hours before logging off."

Telerama buys old computers by the pallet-load. At a recent auction by Sprint (which is not the cheapest source available—Luce did not reveal his source), 170 PCs were on offer for $9,010, which is $53 per PC (before shipping). A cheaper source, RetroBox, recently offered PCs in the price range Luce was talking about.

With costs this low, hotspots start paying for themselves fast. "We need at least three users per month per café to break even," says Luce.

It's also important to make sure that users are actually paying, which requires a payment gateway and a network management system. "We needed a captive gateway to force people to go to the signup page," says Luce. "Some people have never heard of us. They just go to the Web browser and when they try to go to CNN they go to our signup page."

Luce says his network management system is particularly innovative. The company uses IRC, the notorious instant messaging protocol made famous by hackers who use it to exchange information and fight wars of control over speech sessions. But what attracted hackers to IRC also attracts legitimate tech-savvy businesses like Telerama.

Luce says that his company has tweaked IRC so that it is secure. He's got telecommuters using the system—even online help staff can support users throughout the U.S. using IRC chat. In a further innovation, each hotspot has an IRC ID, and specially designed bots monitor the performance of each access point.

"We have diagnostic bots who gather data and provide and hourly update of network usage," says Luce. And, if there's a network problem, "the robots and log in and bitch about problems."

Luce's network is growing fast. "We have been adding 15 to 20 hotspots per month, and 100 users per week."

Telerama charges $30 for monthly access, or $4.95 per day. Luce assumes that students have free access on campus, so students can access hotspots for $10 per day. Pittsburgh is home to Carnegie Mellon University, which, in turn, is the home of CERT/CC (Pittsburgh also has the FBI's High Technology Crimes Task Force). It is therefore safe to say that some of the local students are very knowledgeable about the Internet.

An alliance with Covad will allow Luce to extend his hotspot offering across the U.S. That, plus wholesale dialup access, will turn this ISP, which has been a local ISP since its inception in 1994, into a national ISP with a growth plan that makes sense (and dollars).

—End