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April 21, 2006

The Costs of Running a Hotspot Network: ICOA's Filing

By Glenn Fleishman

Airport Wi-Fi operator ICOA released its latest securities filing, and it’s interesting reading: The pink-sheet-traded firm’s 10-KSB form shows that their revenue is way up—but they have enormous accrued debt and liability, too. The largest hotspot operators in North America are either private (cf., Wayport, Surf and Sip, Fatport) or part of larger entities that don’t break out hotspot revenue, expense, and funding (cf., SBC-aka-AT&T, T-Mobile). ICOA is thus the largest firm which provides primarily hotspot access for which I have seen actual financial filings. (Please note that this post doesn’t constitute financial or investing advice of any kind.)

The company’s fiscal 2005 revenue was up 111 percent over FY2004, from $1.2m to $2.5m, which is a significant uptick, representing the continued maturity of the airport Wi-Fi market and the partnerships they have with aggregators for resale. However, the firm reported a net loss of $9.2m, although that includes $5.3m in one-time costs and accounting charges.

Their statement shows a total of $19m in capital inflow but due to -$23.4m in accumulated deficits, the stockholders’ deficit is -$4.2m. Their current liabilities also far outweigh current assets. A statement on the viability of the firm as a going concern notes, “The Company needs to raise a minimum of $2,200,000 through public or private debt or sale of equity to continue expanding communications services, voice, facsimile, data and electronic publishing network and the service operation center, and to develop and implement additional contracts at airports, hotels and retail locations in order to continue placing terminals in high traffic locations.”

While these statements and numbers are interesting, I’d have to say that revenue and growth are the most fascinating part of this story. ICOA has grown through partnerships with 2nd and 3rd tier airports around North America that have significant enough traffic and yet small enough operations that it’s likely both the capital investment and operational costs are much lower and the margins higher than at the 1st tier airports. They’ve also purchased a number of firms in the same or related businesses, expanding their ability to leverage fixed costs across a larger footprint and array of services.

While the deficits and liabilities are large relative to current earnings, their upside on earnings with current locations is much, much higher than they’re seeing now based on passenger numbers and other factors. This note in the report shows that level of growth: “As of January 27, 2006, our airport footprint has expanded by 258% compared to the same time last year, from 7 to 25 facilities with a related 205% increase in annual passenger coverage from 20 million to over 61 million.”

There’s no way to predict the success of a firm that is leveraged so highly on execution—keeping the Wi-Fi going, keeping partnerships working, keeping technical infrastructure intact, handling billing and complaints. But these numbers at least provide some guidance for those wondering how much it costs to build Wi-Fi networks, anyway.

Posted by Glennf at April 21, 2006 12:15 PM

Categories: Air Travel, Financial, Hot Spot

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