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Boingo Wireless (NASDAQ:WIFI)

Deutsche Bank Media, Internet & Telecommunications Conference

March 5, 2013 04:05 pm ET

Executives

David Hagan – Chief Executive Officer

Peter Hovenier – Chief Financial Officer

Analysts

Brett Feldman – Deutsche Bank

Brett Feldman – Deutsche Bank

Alright, we’re going to go ahead and get started with our last session. For those of you who have been with us in this room this afternoon, you know we’ve had an infrastructure theme going. We started off with some of the traditional tower companies and the guys who operate the macro cells. The last session was with Towerstream who’s very involved in small cells and WiFi. Now we’re very happy to welcome back to the conference Boingo, one of the original operators of WiFi systems, so a pioneer in the space.

We have Dave Hagan, the CEO, and Pete Hovenier, the Chief Financial Officer who are here with us today. It’s going to be our usual Q&A session although I am going to go ahead and ask David if he can start off just with a brief overview of the company, what you’re focused on right now for the benefit of people here and on the webcast who are getting up to speed.

David Hagan

Thanks, Brett. Good afternoon, everyone. So to think about Boingo, think about us in three categories. The first is what we call managed and operated locations or networks, so M&O, and those are WiFi and distributed antenna systems or DAS networks. So that means we go out and secure venue rights, we build out a WiFi and/or DAS network in those venues and then we monetize those networks in various ways. I’m going to come back to our monetization engine at the end.

The second thing we do is we aggregate or negotiate roaming agreements with WiFi operators around the world. We have 140 of those relationships in place, brings us to about 600,000 locations. I should mention on the M&O side, the managed and operated side we’ve got about 2000 locations. So on the aggregated networks side we’ve got about 600,000 locations on a global basis – just about anybody that you can name we have a roaming relationship with them.

And then the third thing that we do, the third bucket is the software and billing platform. So the software is both end user apps, so it makes it easy to move from one network to another whether it’s a Boingo managed and operated location or a partner network, like a T Mobile, like an iBomb, like a British Telecom, etc., etc. around the world. So you can move from one network to another in a much easier way. And then the billing platform is if you think about what we do, we have traffic going onto our network, we have traffic going onto roaming networks, partner networks. We have retail customers, end users coming onto our network and we have wholesale partners’ traffic coming onto our network.

So we have to manage all these transactions and do the right thing with it, right? So whether it’s retail/wholesale, inbound/outbound, we manage all of that through our billing system. So three buckets – managed and operated, the aggregated network, and then the billing and software platform. And Brett asked me to talk about monetization – I’m actually going to pull up a slide that talks about monetization. So the way that we are unique in the market, and literally unique in that no one else does the business this way.

So we go out and win the venue rights to build a wireless network, again WiFi and/or DAS. We have a multi-faceted monetization approach, so we sell advertising. So if the venue wants to be free to the consumer we’ll monetize it through advertising and sponsorship, we’ll monetize it through that venue paying us service provider fees – sort of the middle block on the screen. We’ll get carriers to pay for access to that network. Traditionally we’ve called that wholesale or private services, private label services where a Skype or a Verizon, and many other private label solutions get their customers to use our network; or we can do that, or increasingly that’ll become carrier offload.

So instead of a laptop-driven world where we’ll do a private label solution with someone like Skype, the real future of this business is carrier offload. And on our last call we talked about we signed a tier one carrier and the way that that’ll work is when you walk into one of our venues or that carrier’s customer walks into one of our venues we’ll automatically authenticate or associate that device to our network and that carrier will pay us on a per megabyte basis for all traffic that they put on the network free to the consumer. So that’s that wholesale carrier offload piece that you see.

And then the final way is when we win the wireless rights, traditionally we have only been a WiFi oriented company. We have built DAS networks where we won the wireless rights for WiFi and then we pull through the DAS if you will. Fundamentally the way we’re going after the business today is whether it’s a WiFi RFP or a venue or a DAS RFP for a venue we’re going to be in there trying to win that business, and we recently on our last call announced that we’ve won three DAS-first or DAS-only network deals in the university space. So we’re making good progress there; you’re going to see us be a larger and larger builder of DAS networks.

So there’s no one else in the market whether you are a carrier, whether you are a tower co, or whether you’re a DAS company that has a monetization engine like we do. And why that’s important is that if you’re a venue owner, if you run a shopping mall or a stadium or a restaurant or an airport or a retailer – you want to have the opportunity to monetize that network in various ways. And Boingo’s uniquely positioned to do that.

Brett Feldman – Deutsche Bank

So when you secure venues, when you deploy your own capital, you’re building a network, is it always under an exclusive arrangement with the venue?

David Hagan

Yes, so that would be the managed and operated, the M&O bucket – the first one I talked about. So we go in and we negotiate exclusive wireless rights, sometimes that’s WiFi only, sometimes that’s DAS only, sometimes it’s both.

Brett Feldman – Deutsche Bank

And it’s typically a revenue share, correct? That’s what gives you the exclusivity and three- to five-year deals are kind of the average? Am I remembering this correctly?

David Hagan

So yeah, revenue shares are cost of goods and what we have to pay to that venue for all traffic however we monetize it. Like in looking at this slide, they get a revenue share of all of those revenues. If it’s a WiFi only venue they tend to be five-year deals; if it’s a DAS deal they tend to be five plus five- or ten-year deals.

Brett Feldman – Deutsche Bank

Got it. One of the reasons I was asking that is if we go back to sort of the way you’ve generated most of your revenue historically it has come from retail sources and I’ll bet you a lot if not every person in this room is or has been a customer because they’ve gone to an airport; you have the exclusive, the only WiFi signal there. You see the signal, you want to log in, you ask for the credit card – you pick up a new customer, that’s a retail business. It could be pay by the drink, it could be on a recurring basis and that has historically been about half of your revenues.

What we have seen and what you’ve been noticing and even participating in is that more and more venues want to make that signal available for free to their patrons in order to sort of make it a better experience for whoever’s going through the venue. Can you talk about how that’s impacting your model and what you’ve done in order to position your business to continue to grow and generate revenue in a “free” WiFi environment?

David Hagan

And that’s a great question of the fundamental transition that the business is going through. So first off, we have a heritage business of being in airports, and that’s probably – for those of you that have been Boingo customers or are Boingo customers that’s probably where you came across us. We’re the largest WiFi provider in the airport space and so that’s where we’ve generated our retail subscription business. When an airport goes free or goes hybrid with tiered pricing, some free, some pay that negatively impacts our retail business, and you’ve seen that in our more recent results and you’ve seen it in the guidance we provided for 2013.

On a go forward basis, in the new venues that we’ve been pursuing outside of the airport space and including the airport space outside of North America, there’s a mix of business models. Most new venues are free so shopping malls, stadiums and arenas, quick service restaurants, retailers – those are generally free to the consumer. And so we monetize those through service provider fees – the venue pays us generally per venue, per month. We can monetize with advertising and sponsorship and we can monetize by layering on additional services like building a DAS network where we have WiFi rights.

So sort of the headwind that we’ve been having is in this heritage North American pay airport business. It has not impacted the new venues that we’re going after because those are already free; those are incremental and upside revenue opportunities for us.

Brett Feldman – Deutsche Bank

So that transition that you started to see in a few airports when they determined they wanted to be able to offer free service, under the original agreement they were collecting a revenue share. What does the new model look like? Are they typically paying you as a vendor or are you using your advertising platform to create revenue, maybe less revenue but you’re still giving them something on the backend as a result of it?

David Hagan

Are you talking about a new venue?

Brett Feldman – Deutsche Bank

I’m talking about one that transitions over. In other words, the venue was getting revenue from you, right? So do they continue to get much less revenue because you’re maybe only monetizing it through advertising? Or do you say “No, no, no – you’re paying me now?”

David Hagan

It sort of depends. But if we’re in an existing venue and they want to go free, and generally it’s not the people running the network in the airport that want to go free – it’s typically a political decision. It could be the mayor, it could be city council – they’re not necessarily economic beasts, they are political beasts.

So when the word comes that we need to offer free WiFi within our airport what we end up doing in negotiating is typically a longer venue contract, so “Okay, we’ll go to a hybrid model or free – we need a longer contract as a result because we’ve deployed capital and we still need to get that return on capital” and/or “We now want to pay you less of a revenue share.” They’re going to get less revenue anyway because when you go from full pay to some hybrid or full free there’s going to be less revenue per venue, but we also want to reduce the revenue share that we pay them so that our cost structure goes down.

So those are typically the levers we use in a negotiation. In a new venue, so…

Brett Feldman – Deutsche Bank

Can you just explain what hybrid is, for the sake of all-

David Hagan

Hybrid, think of that tiered pricing you’ve probably seen. You can go into typically an airport; you can go into an airport and you can get onto that network for free. It may be time-limited, it may be bandwidth-limited, it may be both. So it probably doesn’t run a VPN, so if you’re trying to VPN back to your corporate office that element probably won’t support that. If you’re a power user you’ll pay to get on it, so we call that hybrid or tiered pricing – an element of free but also paid premium service.

Brett Feldman – Deutsche Bank

Got it. So in other words, even when a venue converts over to free there’s still a recurring revenue model, it may be a different one but there is still revenue for you. And to your point before, your cost of goods is variable; in other words, if you’re giving a revenue share, if the revenue goes down and you pay them less your margin effectively stays the same – it’s just off of lower dollars.

David Hagan

That’s correct.

Brett Feldman – Deutsche Bank

Got it. Where do you think you are in this transition, especially with regards to where some of your contracts are with your biggest venues? And then just as a follow-up to your previous statement, have you found that as some venues convert over and you’re asking for a little more from the venue are you ate least being able to cultivate batch relationships and maybe create new revenue that you didn’t have anyway?

David Hagan

Yeah, we have. And in terms of where we are in this transition, if you’ve seen our last two quarters it’s been tough and you see that turbulence in our results. And we haven’t lived up to our own expectations or the market expectations. We think we’re most of the way through it. Most of the venues that we have under contract, again, this is a legacy issue, not new venues that we’re doing. So most of the legacy venues are now on a hybrid or tiered pricing structure and you see that, right, and you’ll see that kind of roll through our quarters in 2013. It’s embedded in the guidance that we’ve given for the year.

In terms of new venues it’s what we’ve been presenting to new venues all along. So you can again, back to the slide – we can manage your business however you would like to. It really depends on the business’ strategy for their consumers, their constituencies, and we can do advertising, we can do service provider fees. Hopefully we try and build a DAS network. I think I mentioned in my opening remarks we now lead with DAS so if there’s a DAS RFP in the past we didn’t bid on it if there wasn’t WiFi – today we do. And we’ve been very successful in winning some of those. I may have missed part of your question.

Brett Feldman – Deutsche Bank

I think we got a lot of that and I have follow-ups in here, so don’t worry about it. I want to come back – you’ve actually had a lot of announcements. You’ve been pretty busy trying to think of new ways to monetize your WiFi experience here. Let’s start with Cloud Nine as a small one. Help us understand how Cloud Nine’s going to help you improve revenues you generate from advertising and sponsorship. Historically you’ve kind of got 5% of your revenues from advertising; I think a lot of it’s been from your login pages. But if you’re moving to a free model you’re going to have to do it a bit differently. Can you help us understand what you’ve got there?

David Hagan

Yeah, so traditionally or I should say historically we’ve outsourced the advertising function. So we outsourced both the serving capabilities, so the technology, and the sales force to a company called Jiwire. As we saw the market trend toward free or hybrid pricing venues we realized that advertising sponsorship was going to become strategic to us. Where in the past it had been less than 5% of revenue we see over the next several years that’ll become a growing percentage of our business because we’re signing up more and more venues that have this free to the consumer model.

So we felt it was strategically important to bring it in-house, so we scanned the market side and talked to a lot of companies in that space and settled in on Cloud Nine. They had a fantastic technology platform. It was more of a technology platform acquisition, not a real operating business acquisition so we call that a plug-in technology acquisition.

We fully integrated them into our platform and so what that means now is the advertising technology platforms, so the serving functionality is now in-house – we do that ourselves. We now have the in-house sales force. We’ve hired a VP of Sales to head up that group; we’ve got a team of six now, we’ll continue to augment that, out selling advertising and sponsorship.

Now let me take a moment and describe sponsorship versus advertising. In our terminology, advertising is display advertising. It’s on a walled garden page. You go into a venue, you want to get into that network – you see a walled garden page and advertising is just a simple tile, it’s display. The majority of what we do is sponsorship; it’s about three quarters, maybe a bit more of our advertising revenue in sponsorship. And the way we define sponsorship is it’s engaging in advertising.

So the consumer needs to engage with an advertiser in some way to get online, and so that “in some way” can be watch a video, it can be look at an ad, it can be type in a slogan – in other words, the advertiser is advertising something and want their slogan to be known; the user types in that slogan and gets online, so very high engagement. It can be capture of email. So all sorts of ways that we engage the customer, and it’s really designed based on what the advertiser is trying to achieve. Do they want to build their brand? Do they want to build a database of customers?

So we’ve got this great platform now that we can do all of those types of things, and we call that sponsorship advertising. The final sort of piece of our advertising business and it’ll be a growing piece is location-based services and data analytics. So what do I mean by that? Anytime a consumer is walking through one of our venues with a smartphone or any device, but typically a smartphone, that smartphone is beeping into the WiFi network so it’s talking to the WiFi network.

So we know where consumers are walking through our venues. We know how long they’re in our venues, we know where they go in the venue, we know their total dwell time. We know people who pass by in front of the venue and don’t go in. We have an amazing amount of information and this is a growing opportunity. And so when I say location-based advertising and location-based services, it’s twofold: one, providing to the consumer some benefit based on where they are – that can be a simple “where you are” function like in an airport to find out what’s around them in terms of restaurants and shopping opportunities. It can be couponing based on where they are.

It can be providing them a product offering based on where they just searched, so we’ve done this with a retailer, are doing this with a retailer. So based on the web search that someone is doing within the retailer, we see they’re searching for shoes, they’re in the shoe business, we can offer them that product on the spot instead of-

Brett Feldman – Deutsche Bank

That’s the showrooming idea. Someone’s looking up the price of TVs online, they’re like “Where’s that guy in the store selling the TV?”

David Hagan

Right, it’s in defense of the showrooming phenomenon that all physical retailers are dealing with. So that’s on the consumer side, and then on the business-to-business side it’s taking this information and packaging it for the venue. And we’ve done this for airports, for retailers, and for QSR to give them this information and better insight into their customers. And they love it and they’re willing to pay for it. And typically it’s a fixed fee on a monthly basis so it’s a recurring revenue stream, so we put that all under the advertising and sponsorship bucket.

Brett Feldman – Deutsche Bank

So I would assume one of the benefits of being able to enable free WiFi in venues is that it opens up a lot more venues you can potentially be in, because you’re going to them and saying “Hey, would you like to give people something for free?” Do you anticipate that you’re going to see a more meaningful ramp in the number of venues you’re in? I guess you’ve launched deals like Wendy’s which is going to bring a lot on, but are you finding that you’re able to scale that out more now?

David Hagan

Certainly, selling something that’s free to a venue is certainly easier than selling something that’s pay, and that’s just where the business is going. And that’s being driven by new types of venues that make sense given smartphone penetration. No one carried a laptop, or very few people carry a laptop into a stadium or an arena. Very few people carry a laptop into a restaurant, well, some do for lunch but typically those aren’t venues that got built out in the first decade of WiFi because the first decade of WiFi was driven by where people are congregating with laptops – hotels, airports.

So now it’s being driven by smartphone penetration – where people are congregating with a smartphone and want to get online, and where there’s congested cellular networks. So yeah, it’s certainly easier to sell a venue on free. I think you’ve already seen a ramp up in the number of venues we have in the M&O bucket; I think a year ago we probably would have said we have 60 to 80 M&O, now we’re over 2000. And again, a venue is not a venue – an airport’s a lot larger than one QSR restaurant and we call each of those a hotspot, we have to be a little bit careful. But in the M&O bucket we’re going to have thousands upon thousands of locations in the not too distant future.

Brett Feldman – Deutsche Bank

Okay. Can we also talk about what you alluded to before which was your tier one deal? This is actually a pretty big contract that you signed as you alluded to, a national wire carrier – you haven’t said who it is – is going to be making your hotspots, your 2000 subsets or maybe some subset of that available to their users. Can you give us a little more detail on exactly what that is, how it works, what you have to do to operationalize it and when we should start to see some of the financial benefits?

David Hagan

Sure, so the way to think about this is if anybody is a customer of AT&T with an iPhone, when you walk into Starbucks that phone will automatically connect you onto that Starbucks network, right? So anything that you do, data-

Brett Feldman – Deutsche Bank

Because AT&T runs that network.

David Hagan

It’s an AT&T network, just as an example. So Starbucks is an AT&T WiFi network. So if you’re at AT&T customer with an iPhone and you walk into that Starbucks it auto-connects onto the AT&T network. That kind of functionality is how the whole market is going to operate over the next few years, not just Boingo – anybody, any WiFi operator with a location will end up doing carrier deals so that carrier handsets will automatically authenticate associate onto that network; and then the operator of the network will get paid per megabyte for traffic that passes on that network.

So it’s better for the consumer because they’re getting more bandwidth. They’re also going off their data plan in most cases, so they’re not running the meter on their per-minute data plan or per-megabyte data plan. And it’s good for the venue because the venue can communicate to that consumer, have a digital relationship; and it’s good for the carrier because they’re getting traffic off their congested networks.

So the whole industry is talking about it. We’ve been talking about it for a number of years – it is slower in coming than any of us would like but it’s happening. We signed a tier one deal. We’re implementing international (inaudible) so when their customers travel outside of the US – that’s going into market as we speak. The next phase is actually domestic traffic. You’re seeing the tier one carriers start moving more and more in that direction. The international carriers are also moving in that direction. We have recently announced a deal with NTT Docomo.

So there’s a lot of activity, and probably the most important thing in addition to the deal that we’ve already signed is that the industry is now working together to come up with standards to make this more seamless, to make it easier. So this is hotspot 2.0, it’s pass point, and so for an example, in the WBA which we’re a member of, we’re in the Hotspot 2.0 Trial which is AT&T, China Mobile, British Telecom, and a series of other global cellular carriers and Boingo. We’re the one non-cellular carrier if you will that’s in that trial. And the significance of that is that this is now the carriers pushing the agenda to get the seamless and standardization around seamless handoff happening.

In the past it was coming by Boingo and other more entrepreneurial companies in the WiFi space trying to get it to happen. It’s hard to push that rope. Now we’ve got the carriers engaged, doing the trial, and what that means is that this implementation plan that we’re going through with the tier one carrier – which is rather painful and slow – it becomes embedded in the technology. It becomes embedded in the handsets, it becomes embedded in the network gear, and so the engineering work that has to get done to get traffic on the network goes almost to zero. What you need is the commercial relationship.

Today we need a commercial relationship and then the heavy lifting of all the engineering work. Most of that engineering though work goes away.

Brett Feldman – Deutsche Bank

So I’m going to follow up a little bit more to understand. I know you haven’t said who the carrier is but we’re eventually going to find out. Regardless of that, there’s tens of millions of potential customers, whichever one it is, and so that means all of a sudden tens of millions of people who have WiFi-enabled devices who presumably go through airports and shopping malls and a lot of places you have networks are going to find, as a result of the deal that there’s a WiFi signal that was not previously available to them.

I am just trying to understand what is it that’s happening behind the scenes to get to the point where that just happens? Because that’s when the gusher of traffic can come onto your network and because you’re getting paid on a usage basis, that’s when your revenue opportunity can get really interesting.

David Hagan

And that is what hotspot 2.0 and pass point – those are standards…

Brett Feldman – Deutsche Bank

Are you waiting for the standards or are you doing-

David Hagan

We have to do the engineering work now. So we do software development and network development to allow that carrier’s customers to authenticate onto our network in an automated way. And so what’s hard about that? What’s hard about that is in the device today there’s nothing that really makes that happen. AT&T was able to work with Apple, from my Starbucks example – they were able to work with Apple to make that happen. Apple has not been doing that with any other carrier on a global basis and they’ve been asked to.

And so this work that’s going on is to replicate that but in a cleaner, more network-wide, system-wide approach. It’s setting the standards on how to make this work without doing a lot of engineering integration work.

Brett Feldman – Deutsche Bank

I guess not to dumb it down, but it sounds like something’s going to have to be downloaded onto the end user’s device in order to make this happen – is that correct? Are you doing the work around this, is it firmware? These are kind of engineering phrases here, but…

David Hagan

In today’s world, and it’s not completely clear because we’re still working on are there some creative solutions to this, but in today’s world it is largely that you’re going to need to download an app to then make the automatic authentication happen. In a hotspot 2.0 pass point world you don’t have to do that anymore. It’s in the operating system, it’s in the hardware, it’s in the network. The user isn’t going to have to do something to enable that.

Brett Feldman – Deutsche Bank

So I would guess that the existing inventory of devices that this carrier has out there, those customers may need to do something. They’ll be alerted that you should do this, there’s free WiFi if you do this. Once they start selling pass point-enabled or these other enabled devices, they’ll come preloaded in a sense with the ability and so that’s when you can really start to see a [skip]. There’s going to be a phasing of this.

David Hagan

Correct.

Brett Feldman – Deutsche Bank

Alright, so commercially I think the goal was the middle of the year you’re going to launch this and so that’s when people are having the opportunity to download the application. And so the second half, I guess you’re as curious as anyone about how big this could be and that’s when you might start seeing something.

David Hagan

Yeah, and we’ve been, in our guidance this year and in our plan this year we’re modest with our carrier offload revenue. I’ve got twelve years at Boingo working with carriers and I was at Sprint for 15 years in a prior life – carriers don’t necessarily move as quickly as any of us would like, and it’s complicated. In today’s world it’s complicated and that’s the beauty of the standards that are going on.

All that said, so we would like to be in market maybe in Q2 but certainly in the second half of the year for domestic offload with this tier one carrier. But it’s still going to be a slow ramp because if you think about what the consumer then has to do… So we have to do all this work in the background to get it ready and then the consumer has to do something, right? They’re going to have to download an app to come onto that, most likely to come onto their phone to get this automatic authentication happening.

And so those are just roadblocks or speed bumps to getting it to mass scale. That’s what’s so exciting about hotspot 2.0 and pass point. Those will take all that away.

Brett Feldman – Deutsche Bank

What’s your visibility around signing additional carriers?

David Hagan

Obviously we’ll announce them as we can, but we’re engaged with a significant amount of the tier one carriers domestically. We’re engaged with operators around the world, having those conversations. You can sort of feel it coming to what we’re talking about, coming our way if you will, so we’re engaged. We also have a deal with the Competitive Care Association, the CCA, so we can market a packaged deal to their members – those are sort of the tier two cellular operators in North America, so there’s a lot of activity on that front.

Brett Feldman – Deutsche Bank

So earlier we were talking about how there is a transition around your traditional retail business going on. We did see some of that impact in Q4. You lost customers. About a third of your revenue is from people who have subscriptions and that’s what your customer base represents, that one third of the revenue, so your net adds were negative. Can you just talk about what was behind it? You seem comfortable that you’re going to see growth in Q1 – why do you guys have confidence that you’re going to achieve that?

David Hagan

Well, I’ll start but you can chime in, Pete. So the loss in retail customers was tied into this venue transition to hybrid and/or free service, and so what do I mean by that? If you live in a city and you fly out of an airport that’s a Boingo M&O airport, that’s typically where you’ve signed up for your subscription service because you fly out of that airport more than any other airport, right? That’s your origination and destination city.

When that airport goes to a hybrid or a free service the value of your subscription has declined. You certainly aren’t necessarily going to need it every time you’re flying out of that airport. You may still need it in other locations but again, at your home airport you’ve lost that need. So that’s the reason we had… We had an increase in churn and then we lost some of our retail subscribers, so that’s all packaged into this sort of revenue headwind that we have with locations going to a hybrid or free model.

And the second part of your question, that we expect to…

Brett Feldman – Deutsche Bank

You sounded more confident there’d actually be some growth in Q1. I’m just wondering how you’re able to get that visibility?

David Hagan

Yeah, so we think we’ve sort of worked this through our system if you will, through the company’s system, so we are feeling good about it. I think on our call I think we said we’ve had growth year-to-date in the sub base I think we [set] for January and still growing. So we feel like we’ve sort of hit that bottoming out point and we’ve gotten this transition to free through our system.

Brett Feldman – Deutsche Bank

Got it. Does anyone have any questions? We still have a few minutes left so if you… Just wait one second for the microphone, thanks.

Analyst

I had a question on the WiFi spectrum band. There’s some people out there talking about how congested it’s become and trying to free up some additional spectrum that’s used for satellites. What are your thoughts on that?

David Hagan

So actually let me comment in two ways. First, the macro question on spectrum availability, the FCC is trying to get some spectrum freed up. Some of it will be cellular for-pay spectrum and some of it will be free that we can augment with WiFi which is great and we love that. But I don’t think that’s the real network congestion issue that you’ve seen on WiFi – that issue is more if you’re in an airport or a venue that has older technology that was built for a laptop-driven world where you have a relatively small percentage of people getting onto that network, in a smartphone/tablet-driven world you now have an overloaded number of people actually trying to get authenticated onto the access point.

It’s not really a backhaul issue, it’s not really a spectrum issue. It’s actually the ability to associate so many devices at once. So what solves that? Upgrading to 802.11-N which is what we’re in the midst of which is also AC, 802.11-AC compatible by mid-year. So we’ve gone through most of our large venues, there’s still a little bit of that going on in this quarter but for the most part we’ve done that upgrade and so those new technologies, the N technology can handle more device associations per access point.

The other thing we’re doing is in certain locations you have to add more access points. There’s just such a density of people you just need to add more access points, and so we’ve gone through that process. Not everyone has done that yet but we feel it’s important. And again, we talk about we’ve got to become truly carrier grade as we get ready for carrier offload we need the high-density networks with the latest gear. So it hasn’t really been a spectrum problem in WiFi; it’s been more legacy gear with an escalating number of devices and amount of bandwidth being consumed.

Brett Feldman – Deutsche Bank

We only have a little time left but I do want to ask a question about your DAS business. Standalone DAS assets have been valued at 15x to 20x cash flow. Is there anything particularly different about the way you build and manage your DAS networks versus a NexiNet or an [SG]?

David Hagan

So two things: we have done it a little bit differently. We’re a little more carrier friendly, and what I mean by that is the carriers have a lot of CAPEX to spend. They tend to be a little more OPEX sensitive, and our model has been we win the venue rights for WiFi and DAS and then we get the carriers to participate before we actually build that network and get them to pay for that network build. So they actually fund the capital even though it is capital on our balance sheet and we make a margin on that build, and then we amortize that build over the life of the contract.

Typically in the tower model, the DAS model, they’ve deployed the capital; they’ve taken the risk of the capital, generally raised a lot of debt to be able to fund it and not had the carriers pay for it. So we’ve taken a little bit different approach.

Brett Feldman – Deutsche Bank

Are you charging them less money on an ongoing basis? Is that where…

David Hagan

So typically we charge them a little bit less ongoing.

Brett Feldman – Deutsche Bank

But it still is multi-year… Do you have escalators baked in?

David Hagan

Typically we have escalators built in.

Brett Feldman – Deutsche Bank

How many systems do you have and what’s the average number of tenants?

David Hagan

So we’ve got 16 DAS networks, just under 6000 nodes. We have just under 3.0 tenants per DAS network which is really high if you know the tower and the DAS business, that’s actually very high but it’s the nature of how we’ve done it, right? We get their participation before we build. Now going forward, we’ve got a strong balance sheet, $100 million in cash and we’re going to pursue DAS business more aggressively and proactively as I mentioned earlier. And in some cases we may deploy the capital so those DAS builds are more traditional to the market.

Question-and-Answer Session

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