The Seattle Times today breaks a story about hometown telecom/wireless company T-Mobile and their growth in the hot spot business. For the first time ever, the company has broken ranks and actually discussed numbers.
The two important numbers are 450,000 active paying customers, and one million sessions per month. I’m going to go out on a limb and presume that a number like that does not mean subscribers, but also day pass users who pay once, but over time convert. Even at 330,000 monthly customers paying on average $30.00 a month, that’s still a 10 million dollar a month business, before the 1.7 million in day pass revenue. Overall that means T-Mobile’s gross revenue is north of $130 million per year for the hot spot business.
Since they use their own ATM backbone (the same network that their cellular calls travel over, instead of paying for T-1’s in every location at full boat, they are able to mostly pay for local loop charges which has to reduce the cost of the T-1 from $500 down to say $250, they are able to effectively run the access side of the business for under $2 million a month. Factor in another 2 million a month to cover service support (i.e. access points, routers, software control, location repairs, etc) and on top of that overhead, T-Mobile has a business that is likely generating 3 million to 4 million a month of free flow cash to the bottom line.
Their agreements with Starbucks, by far their runaway leader in number of locations is also reportedly very unique, as it combines both landlord aspects as well as marketing partner. While Starbucks receives very little revenue directly from T-Mobile, what they get is a solid network backbone that reports daily store sales, inventory and workforce related data back to HQ. That data allows Starbucks to optimize every location, determine where to add stores and how to effectively operate their roasting plant operation using JIT (Just In Time) management of production facilities almost the same way WalMart uses their EDI system to maintain shelf level inventories.
Lastly, for the most part T-Mobile HotSpot markets only on premise and on the web, or via their own customer mailings. They do very little mass marketing, and if money is spent anywhere it’s online, as what sense is their in reaching the disconnected who don’t need to be connected.
About the only area they haven’t expanded their marketing efforts is into the realm of cross promotion with companies like Linskys, Netgear, Zyxel and SMC. While they have done a thirty day trial offer with Apple targeting .Mac users, for the most part the growth of their WiFi business has been largely organic, lending itself to possibly grow even bigger over time.
As T-Mobile rolls out more partnerships their value proposition to their own cellular customers of a $19.95 month access becomes almost a no brainer. Especially for those people like me, who use Starbucks as an office or conference room to meet with designers, colleagues and even as just a way to get out of the house for an hour or so in the middle of the work day. These new and expanded partnerships for both domestic and international roaming will only add to monthly and one time user revenues. Even with revenue sharing, T-Mobile wins because of the old retailer adage, location, location, location. How this impacts Boingo is also a good guess, as T-Mobile intimates it would like to partner with Wayport, the runaway leader inside hotels with access.
As someone who uses T-Mobile Hotspots at least 15 days a month or more, and once to twice a day sometimes, even with EvDO available, I feel that the hotspot subscriptions are really a good business investment for road warriors, just like it seems to be for T-Mobile.
The adding roaming agreements with iBahn (formally STSN) and into European countries like France and Switzerland means almost ubiquitous like coverage for people like me. With bi-lateral agreements in affect that means pay one bill and jump online. Since I’m a big user of Hilton’s and Marriott’s family of hotels I just saved some coin each month that I used to pay when I’m on the road. Business Week also has coverage.
Investors Business Daily has more on this story that obviously was leaked to key media after the data was announced on Friday which why I’m adding the official announcement here that was released today.