Boingo Wireless' CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Boingo Wireless (WIFI)

Boingo Wireless, Inc. (NASDAQ:WIFI)

Q1 2013 Earnings Call

May 9, 2013 4:30 PM ET

Executives

Kimberly Orlando – IR

David Hagan – President and CEO

Peter Hovenier – CFO

Analysts

Phil Boyer – Credit Suisse

Jim Breen – William Blair

James Faucette – Pacific Crest Securities

Kunal Madhukar – Jefferies

Jon Hickman – Ladenburg

Operator

Greetings and welcome to the Boingo Wireless First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kimberly Orlando of Addo Communications. Thank you, Ms. Orlando. You may begin.

Kimberly Orlando

Thank you and welcome to Boingo Wireless’ first quarter 2013 earnings conference call. By now, everyone should have access to the earnings release, which was issued today at approximately 4:00 PM Eastern Time. If you have yet to receive the release, it is available on the Investor Relations portion of Boingo’s website at www.boingo.com by clicking on the Investor tab. This call is being webcast and it is available for replay.

In our remarks today, we will include statements that are considered forward-looking within the meanings of Securities Laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management’s current knowledge and expectations as of today, May 9, 2013, and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements.

A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-K, which was filed with the SEC on March 18, 2012. The company undertakes no obligation to update any forward-looking statements.

On this call, we will refer to non-GAAP measures that when used in combination with GAAP results, provide us with additional analytical tools to understand our operations. We have provided reconciliations of non-GAAP to GAAP measures in our earnings release.

And with that, I’ll hand the call over to Boingo’s CEO, David Hagan.

David Hagan

Good afternoon, everyone and thank you for joining us today to discuss our financial results for the first quarter of 2013. We’re pleased with the start of the year having shown positive momentum on our strategic initiatives, including the launch of roaming access for a major carrier, the addition of an important advertising service agreement and the ongoing growth of our managed and aggregated Wi-Fi networks, which for the first time surpassed more than 1 million hotspots combined.

As the telecommunication industry continues to evolve to include Wi-Fi and DAS as fundamental parts of the small cell ecosystem, we continue to lay the groundwork for Boingo to become the leading small cell technology company.

By focusing on the fundamentals and gaining traction against our strategic initiatives, we delivered first quarter financial results in line with the outlook provided in February. We generated $23.1 million in revenue, which exceeded the high end of our range. Adjusted EBITDA of $3.6 million fell within our range despite significant transaction costs, year-end audit, network upgrade investments and one-time costs associated with SoC implementation.

Overall, we’re very well positioned financially. We have a strong balance sheet that allows us to continue to invest in growth opportunities such as our recent Endeka and Cloud Nine, while maximizing shareholder value.

Our confidence in the company’s long-term business prospects remained high. And as such, we’re pleased to have announced a $10 million stock repurchase program. The strength of our balance sheet combined with our cash flow from operations will allow us to continue to execute our strategic growth initiatives in addition to pursuing the share buyback program.

With respect to our strategic initiatives, carrier offload is a significant driver of our current and anticipated investments. Today, we’ve upgraded many of our top airports to state of the art wireless network equipment and have commenced circuit upgrades to double or triple the available backhaul to ensure the networks are able to handle growing volumes of users and high bandwidth user activities.

These upgrades were started in the fourth quarter of 2012 and will continue throughout 2013. The upgrades include Passpoint-certified hardware that will enable us to support carrier offload to the Hotspot 2.0 specification which will help carriers to ease congestion and/or mitigate roaming class.

We are also currently participating in next generation Hotspot trials organized by the Wireless Broadband Alliance to test these standards and ensure we’re among the first to enable our network for seamless access.

The new hardware and increased backhaul will help us better serve wholesale customers like AT&T which recently launched the first phase of roaming onto our M&O network leveraging our international airports for the power users traveling abroad.

AT&T will pay Boingo on per megabyte consumed basis. As we’ve stated previously, it will take time for AT&T user volumes to ramp up and we anticipate higher volumes of traffic will not be realized until late 2013 and into 2014. But we’re pleased to have completed the initial deployment and we’re now working on the domestic portion.

As we move forward with this relationship, and other carrier offload relationships like KT, LG U+ and NTT DOCOMO, the ability to support seamless connection and authentication becomes increasingly important to provide the quality user experience and network control that carriers are looking for.

To better serve both our wholesale and retail customers, we continue to expand the reach of our managed and operated network. In the first quarter, we announced addition of three airports in Germany and five airports in Japan serving a combined 160 million passengers per year. All eight airports are now fully operational for retail and wholesale customer access.

This past week, we also announced the addition of three major airports in China, serving more than 110 million additional passengers per year. This addition gives Boingo a presence at four of the five largest airports in China. Aggregate to a traffic in all the point of Boingo’s M&O locations from airport to around the world to shopping malls, restaurants and stadiums exceeds 1.5 billion people per year.

As more carriers around the world look to seamlessly offer a traffic to Wi-Fi, our extended networks have managed and operate in locations becomes an increasingly valuable asset.

During the first quarter, we deployed an advanced carrier grade, 802.11 end network as part of the Dallas Love Field North Concourse terminal modernization project. This managed and operated venue now showcases a modern Wi-Fi network design from the ground up and optimized to support a heavier concentration of devices and data use than most legacy networks.

The Dallas Love Field deployment also includes a new multi-carrier DAS network that provides 3G and 4G coverage for our carrier partners. In many ways, this reflects the majority of our current DAS work in the progress with expansion and upgrades comprising the lion’s share of projects.

In the first quarter, DAS efforts involved the LTE upgrades in several of our largest airports as well as expansion of network coverage to include new terminals and previously uncovered land side and air side areas of the airports.

Expansions and upgrades will continue to play a prominent role in our DAS initiatives but we also have new installations that were moved from design to deployment as we head towards the third quarter. As such, our DAS pipeline remains strong and presents further opportunity for growth as a small cell provider with carriers and venues alike, increasingly realizing the value of in-building wireless.

In short, we continue to make significant progress in expanding our managed Wi-Fi and DAS networks, enhancing them to support increased usage and engaging wholesale partners to maximize the monetization of the networks. Likewise, we are focusing on growing our roaming network with more than 100,000 new hotspots added during the first quarter, bringing us to a total of more than 700,000 commercial hotspots.

Among the partner networks added recently was present, which specialized in metropolitan hot zones and public transportation in more than 50 cities in Spain, France, Ireland and Belgium. When combined with the more than 300,000 crowds-sourced three hotspots collected by our Wi-Finder app, there are over 1 million hotspots that Boingo can help users get connected to.

In the spirit of helping more users connect to more places we acquired Cloud Nine Media a company with a leading Wi-Fi sponsorship platform in the industry in August of last year. That investment continues to drive growth as evidence by the recent agreement with Starbucks. Starbucks has chosen Boingo as the exclusive provider of digital advertising and sponsorship for its three Wi-Fi networks in more than 7,000 company on stores at the United States and Canada.

This agreement in which we share advertising revenue with Starbucks expands the number and types of ad shown to in-store guest, increasing network monetization options with an eye toward maintaining the best possible user experience. The strength of Boingo’s media platform allows us to segment ad delivery and sponsorships by location, device and day park so advertisers can fine tune their campaigns to best meet their needs.

Our new media platform and ad sales team also helps us better control sponsorship and advertising inventory within our managed and operated networks and affiliated partner networks that employ free-to-the-consumer access model. Key networks such as the New York subways provide attractive venues for advertisers who want to reach a wide range of customers on the go.

The subway network which recently expanded from 6 to 36 total stations including Time Square, Rockefeller Center and Columbus Circle stations also provide future benefit for carrier offload traffic as one of the largest concentrations of underground commuters can be migrated to Wi-Fi in the subway stations during peak usage periods.

While the growth in wholesale connects from the shift to free-to-consumer in many of our airports had a negative impact on our retail business in 2012, we’re happy to report that we believe the segment is stabilizing and we saw renewed growth in our subscription base during the first quarter of the year. The initial impact of conversions to the hybrid model appears to be mostly behind us and enhanced efforts in promotions and conversions has reinvigorated the retail segment.

While the long term trends still point to more wholesale access for mobile devices via carrier offload and more sponsored access in many free-to-the-consumer retail channels, we believe the need to support non-carrier controlled devices such as tablets and notebooks in premium locations, local power users, will keep our retail business stable.

Also contributing to future retail growth will be the deployment of our broadband and IPTV services for military barracks and common areas enabled by our Endeka acquisition.

We continue to deploy new networks across some of the largest military bases like Camp Pendleton, the existing contracts with the Marine Corps Installations West, Vandenberg Air Force Base, the Department of Homeland Security and the FBI Training Academy. This business provides greenfield opportunities for an entirely new market serving military bases both the United States and abroad.

We remain optimistic on our growth opportunities for the remainder of 2013 while recognizing that our continued network investments will tamper near term growth and profitability to a degree. However, we remain well positioned to capitalize our continued data and device growth in both licensed and unlicensed spectrum due to our significant network holdings in both Wi-Fi and DAS.

And because of the diversity of our monetization platform, we can extract value from each network in multiple ways, whether retail, wholesale, sponsorship or location-based services and analytics.

To that end, we recently appointed Nick Hulse as President of Boingo Wireless with the primary purpose of driving revenue across our monetization platform through the sales, marketing, product and business development teams. Nick is a seasoned veteran with deep experience in Wi-Fi, telecom and digital media, who has a history of scaling revenue and maximizing growth at prior companies.

As the industry evolves further, we will continue to invest in the business to ensure our networks keep pace with growing demand in the pending data tsunami that will accompany true carrier offload. We maintain a strong pipeline of new opportunities to expand our network holdings, maximize network growing traffic and increase our advertising reach.

With that, I’ll turn it over to Pete Hovenier, Boingo’s Chief Financial Officer, so he can walk you through the specifics for the quarter. Pete?

Peter Hovenier

Thank you, Dave. Today, I’ll begin by reviewing our financial results and key operating metrics for the first quarter ended March 31, 2013 and will then conclude with our financial outlook for the second quarter and full year of 2013.

Total revenue for the first quarter was $23.1 million, representing a 4.4% decline over the prior year period. The decrease reflects the decline in wholesale and single-use revenue, partially offset by growth in advertising and the retail subscription revenue.

Across our diversified revenue streams, wholesale represented a 50% of first quarter revenues, retail represents 46%, and advertising accounted for the remaining 4%.

Wholesale revenue totaled $11.6 million, representing a 4.4% decline from the comparable period last year. Year-over-year comparability in wholesale revenues, impacted by a 1.4 million one-time DAS build-out project in the first quarter of 2012. The decline also reflects decreased partner usage base fees, partially offset by increases in new DAS build-out projects and service provider fees.

Retail subscription revenue was $8.1 million, representing a 2.8% increase over the prior year period. This increase was due to a 12% growth in our subscription base, partially offset by a decrease in average monthly revenue per subscriber from promotional offers and the growing mix of lower priced smartphone or tablet-only subscriptions.

Retail single-use revenue was $2.6 million, representing a 28.5% decline in the first quarter of 2012. Decline reflects the transition of certain paid managed and operated locations from a tiered or free pricing model to an increase in customers opting for our subscription plans.

Advertising and other revenues was $0.9 million, representing a 44.5% increase over the prior year period. The increase was primarily due to sponsorship revenue coming from our advertising business built from the assets acquired from Cloud Nine Media in August of 2012.

Now, turning to our first quarter cost and operating expenses. Network access cost totaled $9.7 million, representing 1.9% decline from the first quarter of 2011. Decline was attributable to a decrease in cost from the previously mentioned one-time DAS build-out project in the prior period as well as the decrease in customer usage of partner venues. Partially offsetting these decreases were increased costs related to the sale of equipment for venue build-out and increased revenue share paid through our venues in managed and operated locations.

As a result, gross margin, which is defined as revenue less network access costs, was 58.2%, down 110 basis points from 59.3% in the prior year period. Network operations expenses totaled $4 million, an increase of 14.4% from the comparable 2012 quarter, primarily due to increased personnel-related expenses, depreciation, and Internet connectivity expenses. Development and technology expenses were $3.1 million, up 18% from the comparable quarter last year due to primarily to increased depreciation, maintenance and consulting expenses.

Selling and marketing expenses were $3 million, a 32.8% increase from the comparable 2012 quarter due primarily to increased personnel-related expenses due to the Cloud Nine acquisition and the related investment in our advertising sales team, plus increased promotional expenses.

General and administrative expenses were $4.5 million, a 35% increase from the comparable 2012 quarter due to primarily to increased professional fees and recruiting expenses, partially offset by decreased personnel expenses.

Of note, our general and administrative expenses for the quarter included approximately $800,000 of one-time fees associated with our initial SoC implementation and the related increase in our annual audit fees, as well as expenses from the acquisition of Endeka.

Turning to our profitability measures. Net loss attributable to common stockholders was $1.1 million or $0.03 per diluted shares versus net income of $1.7 million or $0.05 per diluted share from the prior year quarter.

Adjusted EBITDA was $3.6 million comparable to $8.2 million in the comparable 2012 quarter. The year-over-year decline in adjusted EBITDA reflects decreased revenues coupled with increased costs and operating expenses. Excluded in the previously mentioned one-time expenses associated with SoC implementation, annual audit and acquisition incurred during the quarter, adjusted EBITDA would have been $4.4 million. Please refer to our earnings release for the definition and reconciliation of this non-GAAP measure.

In terms of our operating metrics, we ended the quarter with Connex with paid users on a worldwide network of approximately $6.3 million up 74.7% from the prior-year period and down 24.4% from the fourth quarter of 2012. The increase versus prior year quarter is primarily due to increased Connex from advertising sponsorships. Compared to last quarter, the decline was primarily from the anticipated seasonal decrease in advertising and sponsorship Connex during the first quarter of 2013.

Our retail subscriber base was 296,000 at the end of the first quarter, which is up 12.1% from the prior-year period and up 4.2% from the fourth quarter of 2012. As compared to the prior-year period and versus last year our subscriber base continue to benefit from the growth in the installed base smartphone to tablets and from the continued improvements in the conversion of single-use customers to one of our retail subscription plan.

Our monthly churn rate for the first quarter was 9.9% versus 10% in the comparable 2012 quarter and 10.6% last quarter. Moving on to discuss our balance sheet, at March 31, 2013 cash, cash equivalents and marketable securities totaled $91.9 million, or $2.58 per diluted share outstanding, and we remain essentially debt free. Capital expenditures for the quarter were $5.2 million, which included $2 million utilized for DAS infrastructure build-out projects that are reimbursed by our telecom operator partners.

Our non-reimbursed capital expenditures were driven primarily by new network builds and network upgrades in preparation for the increased traffic from carrier offloading. I will now turn to outlook to the second quarter and the full year of 2013.

For the second quarter, we’re initiating our guidance as follows: we expect revenue to be in the range of $23.5 million to $25.5 million, adjusted EBITDA to be in the range of $4.5 million to $6 million and net loss attributable to common stockholders to be in the range of $1.5 million to $0.5 million or a loss of $0.04 to breakeven per diluted share.

For the full year of 2013, we are reiterating our guidance as follows. We expect total revenue to be in the range of $106 million to $110 million, adjusted EBITDA to be in the range of $28.5 million to $31.5 million and net income attributable to common stockholders to be in the range of $1 million to $3 million or $0.03 to $0.08 per diluted share. In addition, we continue to expect our full year tax rate of approximately 35% and fully diluted shares outstanding with $38.5 million.

That concludes my prepared comments. I’ll now hand it back over to Dave. Dave?

David Hagan

Thanks, Pete. For the sum of our call today, we’re pleased with the momentum we’ve achieved in the first quarter. While 2013 continues to be an investment year for Boingo, we believe that we’re on track to meet our financial and operational objectives.

Our strategic initiatives remain the same. We will expand our network holdings either through M&O contracts, roaming agreements or advertising services wins. We will invest in our managed and operated networks to prepare for exponential traffic growth driven by wholesale carrier offload and sponsored free access models, and we will leverage our unique monetization platform to drive revenue from all of our network holding.

We believe Boingo remains well positioned to become the leading, small cell service provider as the market continues to evolve by long-term growth opportunities for the company.

Thanks for listening today. Operator, we’ll now open the call for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Phil Boyer with Credit Suisse. Please proceed with your question.

Phil Boyer – Credit Suisse

Hi, guys. I’m in for Stephen Ju. My question is on the offered agreement with AT&T. So I realize you’re starting with providing international roaming. Will you also eventually offer your domestic hotspots under the agreement? And then also can you just give us a little bit more color on how the partnership will work like you have access to AT&T’s hotspots domestically, so are you going to be paying them on a megabyte basis as well for their hotspots?

David Hagan

Thanks, Phil. This is Dave. So the AT&T agreement is bilateral. So while AT&T traffic comes on to the Boingo network, Boingo traffic also goes on for the AT&T network. That’s the bilateral piece.

It is also global. So it is all of Boingo’s M&O hotspots in the current agreement. So we’ve launched with them on international, so their international users or travelers who have international data plan are now getting access to the Boingo M&O network outside of the U.S.

The next phase, there will be a series of phases as we talked about in the past. But next phase is we’re working on the domestic portion. So, yes, to answer your question, we do anticipate that there’ll be roaming onto the U.S. Boingo network and hopefully we’ll get that up and running yet this year.

Peter Hovenier

Hey, Phil, to answer your question also about the megabytes and the pricing in both ways, yes, we’re paying the same. We’re paying them megabytes and they’re paying us per megabytes of transfer.

Phil Boyer – Credit Suisse

Got it. Thank you. And also quickly, so we’re expecting likely later this year, maybe mid to late this year, for some impact from that, given the switch to – also including domestic, your domestic hotspots later on, will that likely hit 2014 with a greater impact?

David Hagan

It is in our 2013 forecast very modestly. So we’re expecting a more significant impact in 2014.

Phil Boyer – Credit Suisse

Got it. Thanks, guys.

David Hagan

Thank you.

Peter Hovenier

Thank you.

Operator

Thank you. Our next question comes from the line of James Breen with William Blair. Please proceed with your question.

Jim Breen – William Blair

Thanks. Just a couple of questions, one with Starbucks, is that any way sort of tied in AT&T roaming agreement because I think they have been providing the service there? So there’s some sort of bigger relationship building.

And then, secondly, just on the guidance, when I look at the revenue for this quarter and EBITDA and then think about the buildup for the rest of the year, given the guidance for the second quarter, it seems like we’re going to see a pretty good ramp in terms of EBITDA margins in the back half. Is that something just tied into these deals or something that’s more seasonal? Thanks.

David Hagan

Thanks, James. I’ll start with – I’ll talk to the Starbucks and AT&T part of the question. Then, I’ll hand it over to Pete on guidance.

On the Starbucks deal, it actually is unrelated to AT&T. AT&T is their Wi-Fi network provider but they’ve separated the advertising part of the business that AT&T never had. They put it out for bid and we were able to win that business. So even though it might look like it’s related to this, it’s entirely unrelated.

Peter Hovenier

Yes, James. And talking about our guidance, so, you’re right. We definitely have more versus the second half of the year as we ramp up some of our deals, and the Starbucks deal, it is an important deal for us. So we do expect these deals to contribute more meaningful margins and translates to additional EBITDA in the second half of the year.

Jim Breen – William Blair

And so I guess the follow-up to that is then in the Starbucks deal isn’t as – you talked a little bit about this but isn’t as much of a traditional deal as you’d seen in the past where you’re putting all this equipment and stuff. You’re sort of managing more the front-end and this may tie into the acquisition that you made last year, is that correct?

David Hagan

That’s correct. So the way to think about it is when we acquired Cloud Nine, it had a great technology platform and ad serving platform that was focused on Wi-Fi locations. And so we’ve now brought that platform into Boingo and integrate into our platform. And so the deal with Starbucks is where they’re advertising partner. So we’re serving all the ads that consumers will see and we’re selling all of that inventory. So from a technology and operational perspective, where they’re advertising partner, ad serving partner, the Wi-Fi network is still with AT&T and I would expect it to remain as such.

Jim Breen – William Blair

Okay, great. Thank you.

David Hagan

Thank you.

Peter Hovenier

Thanks.

Operator

Thank you. Our next question comes from the line of James Faucette with Pacific Crest Securities. Please proceed with your question.

James Faucette – Pacific Crest Securities

Thank you very much. I had a couple of questions. First, as it relates to AT&T and the data tsunami and trying to handle that, is it – have you reached a conclusion in terms of what types of situations they would look to offload to the Wi-Fi network versus not? And is there more technical work that needs to be done either from your end or from theirs in order to really start to fully implement roaming here in the U.S.?

David Hagan

James, let me answer it in two parts. So the first part, the data tsunami and the accepted traffic and impact to our network, that’s a lot of the investments that we’re making. And so we’re moving to the latest 802.11 gear which is N today and then quickly will be upgradeable to AC. And that’s important because it allows a significant increase in the number of devices that can get off any case onto each access point.

So if you think about density, the network and density of users, you’ll see that in an airport, as an example, in the old laptop world, there weren’t that many people at a gate using their laptops that were associated to each access point. But when you talk about smartphones, literally almost everyone, right, or certainly a large percentage of people potentially will have a smartphone and potentially is trying to access the Wi-Fi network. So moving to N and an AC gear, we’ll make sure that there’s no congestion at the access point level.

Now the other thing we’re doing is on the backhaul is we’re increasing the size of the pipes. So once you – it’s a little bit like chasing a mouse through the snake, right. So once we make sure that we don’t have congestion at the access point layer and we have to make sure that we don’t have it in the backhaul as well. So we’ve been adding capacity in most of our large venues to be prepared for it.

On the second part of your question, in which situations, I can’t answer that really specifically, but I can tell you this. Our engineers are working with their engineers. They’re very interested in high density locations, and if you think about our footprint, most of our networks are very high density locations, so those are attractive to them.

And that’s the way they think about it. Where they have congestion on a cell tower, generally in high density areas, the metropolitan areas and that’s typically where we also have our large Wi-Fi networks.

So, there’s a pretty good overlap, if you will, of where they want to get traffic off their network and on to Wi-Fi.

James Faucette – Pacific Crest Securities

Great. And then, I guess, as part of that, how important is it going to be in some of these auto authentication technologies in protocols like Hotspot 2.0, et cetera, to kind of realizing the vision in offload objectives that you and AT&T have?

David Hagan

A great question and the answer is it’ll be a very high impact. So what we’re doing now is because of the technology in place, both networks and at the device levels, the smartphone level or tablet level, do not have the embedded capability to make authentication on to a Wi-Fi network seamless.

Hotspot 2.0, Passpoint, those are certifications and standard that are being developed and were participating in the trials that will make these all a lot easier. Right now, we have to do it with a software layer, which generally means that the consumer, the user is going to have to download an app or the carrier will have to push some kind of a firmware update to the phone, so all of that just adds logistical steps to getting traffic on the network.

In the future world, which is we’re probably 18 months away, future world is, it gets embedded into the – so when we deployed our 802.11n and AC gear, that means it’ll be in our network. And then as the new phones rollout with AC transmitters and receivers, they’ll also be ready. It’ll be embedded in the phone. So, all of the heavy-lifting work that we have to do in today’s world goes away and it just becomes part of the network fabric.

James Faucette – Pacific Crest Securities

Great. And then, I’m wondering just from my last question here, if you can compare and contrast your agreement with AT&T, with some of your other carrier roaming agreements, with the likes of DOCOMO LG and how we should we think about their structure vis-à-vis AT&T and their potential contribution?

David Hagan

So, because AT&T is a domestic partner, I think you can expect that to be a larger impact than an international carrier where they are probably not using as much for their own domestic market but using us for roaming onto outside of their country, so non-domestic from their perspective. So it’s less about network traffic concentration in offload and it’s more about how do we save customer’s money based on extremely high international data roaming rates. So that’s more of a rate management issue and a customer relationship issue versus AT&T is more of a through carrier offload deal.

James Faucette – Pacific Crest Securities

Great. Thank you very much.

David Hagan

Thank you.

Operator

Thank you. Our next question comes from the line of Kunal Madhukar with Jefferies. Please proceed with your question.

Kunal Madhukar – Jefferies

Hi. Thanks for letting me ask a question. Two quick ones, one on the small cells and the small cell deployment on all the U.S. carriers especially AT&T and Verizon have been talking about small cells. What activity are you seeing on the other P side from the venues and are you seeing any activity from the carrier side on small cell deployment?

David Hagan

Yes. So, Kunal, I’m going to include DAS in small cells. It sort of depends on who you talk to and how they characterize things. So, the carriers and we have – in our DAS business, we have AT&T and Verizon on most, if not all of our DAS deployments, and then we have Sprint and T-Mobile on a subset of those and we have some of the sort of second tier, largest second tier carriers in a handful. So, AT&T and Verizon obviously have been very active in DAS as part of small cell ecosystem.

There’s also increasing discussion about femtocell and other small cell technologies getting deployed. We’re involved in those conversations and we’re pretty small cell technology agnostic, right? We’re obviously big in the Wi-Fi stage. We’re big in the DAS stage. And if we think the opportunity to partner with carriers, as well as other types of small cell technologies like femtocell we’ll certainly take that on and we’ve been having some of those conversations.

Kunal Madhukar – Jefferies

Thanks. And a quick one, following on the Passpoint. When do you expect Passpoint to be actually deployed in the routers so that they are capable of doing the seamless transition and in the U.S. as well as across your 600,000-plus hotspot network globally?

David Hagan

Yes. So the trials are going on currently, in fact – I think I said earlier 18 months, I think that’s a reasonable sort of benchmark tool when commercialization begins, and it’ll take a while to roll it out and larger networks like us and like the carriers will move to it quickly. Smaller operators will take some more time. But I think 18 months we’ll start seeing the technology rolling out.

Kunal Madhukar – Jefferies

Great. Thank you.

David Hagan

Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Jon Hickman with Ladenburg. Please proceed with question.

Jon Hickman – Ladenburg

Hi, good afternoon. Could you just go over a couple of numbers for me? You said you have a million hotspots now globally?

David Hagan

Jon, yes, we do. There are three components. So, about 700,000 commercial hotspots, so those are both managed and operated locations where we deployed the capital and operate the network. And that also includes our aggregated networks where we partner with an existing Wi-Fi operator.

And then we also crowdsource through our Wi-Finder app, so we find out where people are connecting to network, we know that they’re getting connected there then we bring those into our directory and re-publish. We call that the crowdsourcing piece and that’s about 300,000 today. So in combination of the three categories M&O, aggregate and crowdsource who just crossed over a million locations.

Jon Hickman – Ladenburg

Okay. And then could you comment – it’s seems to me that AT&T relationship of yours is really the first kind of pure offload agreement in the industry. So, what happens now? Like Verizon, all these other carriers are going to get in the game in here?

David Hagan

The way I think about it, Jon, is every carrier literally globally has their own strategy with regard to small cell and Wi-Fi offload. And AT&T would be, if you think about that as a continuum of how aggressive carriers are, I’d say AT&T is on the more aggressive side and you’ll see other carriers that are – will move less aggressively for a whole set of different reasons. But I think the safe thing to say is most experts, most analysts within the telecom space believe that all carriers eventually will get into offloading traffic on the Wi-Fi, it’s just inevitable physics of licensed spectrum.

But they’re going to move at different paces and so AT&T, I think, will be the leader and you’ll see others that will hopefully follow quickly and some will be laggard like most markets.

Jon Hickman – Ladenburg

And one more question. The three airports in China, are those like advertising, like are they free networks, advertising based or are they subscription retail network?

Peter Hovenier

So they are pay networks and their networks in which we are serving the international traveling community. I mean a lot of our Asian airports there’s an incumbent operator that has the Wi-Fi network and their own customers get access to that network as part of their cellular plan.

And so, we’re certain – but if you’re an international traveler, it’s hard to get access to those networks because you need a cellular number to authenticate on to that network. So we go in and partner with the airport operators and deploy a Boingo hotspot network signal or SSID, as it’s known in the industry. So, non-locals or non-domestic customers in that country can use a Boingo access message and they can subscribe or they could do a transactional service, but it’s our retail model within those airports.

Jon Hickman – Ladenburg

Great. Thank you. My other questions were answered.

Peter Hovenier

Thanks, Jon.

David Hagan

Thank you, Jon.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.

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