It's all about voice calling plan minutes: Today's announcement of the acquisition of Concourse Communications by Boingo Wireless has a lot to do with cell/Wi-Fi convergence for voice over IP (VoIP), although there's a lot of other ways in which the deal works. Concourse runs the Wi-Fi and often cellular networks in 12 North American airports, including gems like Minneapolis-St. Paul, Newark, and O'Hare (Chicago). Boingo, until now, has operated no locations. The merged company will run Concourse as a mostly-intact unit under Boingo's chief operating officer. Both companies are cash-flow positive, said Boingo chief executive and president Dave Hagan, but no other financial details were provided. The companies collaborated on a failed bid for the Los Angeles airport (LAX)--T-Mobile won that contract--but that led to this deal.
This is a seemingly odd move for Boingo, the second of three companies founded by Sky Dayton that relied on infrastructure built for and maintained by other parties. EarthLink leased time on modem banks run by others. Boingo pays for access to hotspots built by others. And Helio, a cellular company aimed at young adults, is a mobile virtual network operator (MVNO), buying minutes from carriers that run the physical networks. (Because Helio is a joint venture of EarthLink and SK Telecom, Dayton remains on the board of EarthLink but is no longer chairman and is the non-executive chair of Boingo, which may become a Helio provider.)
At second glance, an acquisition of physical infrastructure may be the future of all three firms: EarthLink is now building metropolitan-scale wireless networks in Philadelphia and elsewhere because broadband wired paths via DSL and cable to their users are unavailable. Boingo is moving on from a pure laptops-need-Internet-access approach which will benefit from operational knowledge and operational access. (We will need to wait five to ten years to see if Helio has to follow the same path.)
Boingo's strategy over the last year has to been to figure out how to leverage its now 45,000-strong aggregated network of Wi-Fi hotspots worldwide, which includes nearly 300 airports, for partners and hardware. There's little doubt now that at least MVNOs are eager to have more voice minutes run over cheaper networks.
Boingo's announcement last week that they were turning their Wi-Fi toolkit into an open-source project was part of their effort to encourage handset and handheld device makers to consider baking Boingo into Wi-Fi-only VoIP phones or the more significant cell/Wi-Fi dual-network devices.
I'm not sure that the cell industry would reveal how much people talk in airports, but it may be several billion minutes each year. The U.S. Department of Transportation's Bureau of Transportation Statistics said last month that over 745m passengers traveled on domestic U.S. flights or international flights departing from the U.S. (That's enplanements, not unique one-way trips by passenger.) It only requires one call on average per passenger before getting on a plane to top a billion minutes used.
Boingo's CEO Hagan noted in an interview about their software platform recently that they can resell voice access over Wi-Fi profitably for about a penny a minute versus the several cents a minute that an MVNO pays for wholesale network time. A penny a minute produces modest returns, of course, as a billion minutes turns into just $10m. On the other hand, that's revenue in one kind of venue that can be captured with little additional work beyond the engineering the company has already carried out.
Added to this is Concourse's dual business: they run the cell infrastructure--typically logical access to the physical network, as it were, or routing cell calls to wired backbones--but that gives them an intimate knowledge of cell interchanges. They don't have to ask another firm's permission to install gateway hardware that will offload VoIP from the LAN onto the PSTN or cellular network, one expects, although airport authorities may constrain cell contractors' activities.
The acquisition benefits Boingo's existing retail hotspot business, too, by providing splash pages from which their software can be downloaded at high speed. Hagan said that a lightweight "applet" version of their client software is coming; for Windows users, it's currently a download of over 13 MB, although that's trivial if the download is happening from the airport's wireless LAN.
Boingo has roaming deals in place with AT&T/Cingular, Sprint Nextel, and T-Mobile for at least airport service, and, in some cases, beyond that. Boingo already had a roaming relationship in place with Concourse, so this doesn't expand their access.
Of the top 10 U.S. airports by passenger traffic in 2005, Boingo's acquisition of Concourse gives them facilites ranked No. 2 (Chicago O'Hare), No. 9 (Minneapolis-St. Paul), and No. 10 (Detroit). Boingo has roaming agreements directly or through its acquisition with the other seven or none is needed. 1. Atlanta: Local operator; roaming in place. 4. LAX: T-Mobile is building out, ICOA operates food courts; roaming in place with both. 5. Las Vegas: Free. 6. Denver: AT&T/Cingular; roaming in place. 7. Phoenix: Free. 8. Houston (Bush): Sprint Nextel operates; roaming in place.
The top tier airports are mostly served with Wi-Fi or have plans underway, Hagan said, but the second and third tiers are still being built out. With the financial results released a few weeks ago from ICOA, a hotspot operator specializing in second- and third-tier airports, Boingo might already have a second acquisition target on its radar.
ICOA needs more investment to continue operations, but it has a very sweet North American footprint already in place. Hagan wouldn't comment on future plans or ICOA's financial status, but he did say the company was neither trying to roll up a large footprint nor was it adverse to future airport location acquisitions. He said there were some "interesting" companies in the space. With 15,000 airports in the U.S., and only several hundred with Wi-Fi, there's a lot of room to grow before reaching those terminals with single gates in North Dakota.