Fixed Wireless Business

Two Wi-Fi Rollups in Texas

It pays to learn about the companies that are buying other ISPs—before they call you.

by Alex Goldman ISP-Planet Managing Editor [July 1, 2008]

I'm hearing that there are several Wi-Fi rollups happening in the U.S., most of them in semi-stealth mode. Of course, you cannot be completely secret if you're a public company, as two, both in Texas, are.

League City, Tex.-based ERF Wireless and Houston, Tex.-based Internet America are both public companies. While stealth WISP rollups like to say that they need to remain secret in order to hide their cash hoard and be able to acquire WISPs at reasonable prices, both of these OTC BB-listed stocks (ERFW and GEEK) run at a loss.

The businesses
Although they have raised money from an IPO (hence the stock listing) both are debt-financed. They are of a similar size. According to Google Finance, Internet America has 59 employees and ERF Wireless has 67 employees. In 2007, Internet America had revenues of $7.97 million and a net loss of $350,000, while ERF Wireless had net income of $5.57 million and a net loss of $7.07 million.

During FY 2007 (ending June 30), Internet America acquired three WISPs, and on July 27, 2007, it acquired TeleShare Communications Services, a WISP that still had $3 million of a $4 million RUS loan coming to it, for $1,850,000 in stock and debt.

In FY 2007 (ending December 31), ERF Wireless acquired three Central Texas WISPs with a total of 5,500 customers. On January 27, 2008, it acquired CrossWind Enterprises for $650,000 in cash.

But the businesses are targeting different markets. Internet America (1-800-BE.A.GEEK) delivers dialup, wireless, and DSL to residential and business subscribers. ERF Wireless focuses on business subscribers and has some unusual specializations. In several states, it is building a microwave network for banks, and it has an FTTH project in Mexico at the El Dorado Golf and Beach Club.

Competition
As I mentioned earlier, most of these WISP rollups are secretive, so I was surprised to be contacted by ERF Wireless. Dean Cubley, CEO of ERF Wireless, got his start in telecoms in the paging industry, which, he says, started out as a large number of family owned businesses and consolidated rapidly into just a few national businesses. "I see the WISP industry consolidating in a manner similar to the paging industry," he told me.

"The paging industry had a low barrier to entry. It was small mom and pop shops who built their businesses to the point where it was more than they could manage or finance. Then companies came into the industry and did rollups. Now, the industry has been largely replaced by cellular."

It wasn't easy for the small businesses. "Many independents weren't paying themselves a salary, and equipment costs came out of their savings."

So why did Cubley contact ISP-Planet? "We want to let the WISPs know we have an interest. There are over 750 WISPs in Texas alone."

ERF Wireless, Cubley said, looks at those making $1 million per year in revenue. He has one person working full time on acquisitions, examining the financials of 10 or 20 WISPs at any moment.

These are not the only companies buying WISPs, but the fact that they're located about 40 miles apart, near Houston, and are both public companies, makes them fascinating rivals. Cubley said that often, when he looks at a WISP, he knows that Internet America has been there first, and he suspects that Internet America sometimes looks at a WISP that ERF has already examined.

So what's your chance of being acquired? I don't know the answer, but I do know this: keep an eye on the companies that are acquiring. Learn what they're looking for. Knowledge is power and will help you answer this question, one that nobody can answer for you.

—End