Executives
Joseph P. Hernon - Chief Financial Officer, Principal Accounting Officer and Secretary
Jeffrey M. Thompson - Co-Founder, Chief Executive Officer, President and Director
Analysts
Sanford Lee - Canaccord Genuity, Research Division
Scott Searle
Richard O’Leary - Lacuna, LLC
Daniel H. Gallancy - BeaconLight Capital, LLC
Jeb Terry
Towerstream (TWER) Q2 2012 Earnings Call August 9, 2012 5:00 PM ET
Operator
Good day, ladies and gentlemen, and welcome to your Towerstream Reports Second Quarter 2012 Financial Results Conference. [Operator Instructions] As a reminder, today's conference is being recorded.
And now I would like to turn the conference over to your host, Joe Hernon, Chief Financial Officer. Joe, please go ahead.
Joseph P. Hernon
Thank you, operator. During the course of this call, we may discuss some of the estimates, assumptions and other factors that our management currently anticipates may influence our business and results going forward. These forward-looking statements include expressed or implied statements regarding our business, including, without limitation, our future operating results and business developments based on limited information currently available to us. This information is subject to change, and all forward-looking statements are inherently speculative and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in forward-looking statements.
Such statements are subject to risks and uncertainties, including the risks described in the press release announcing this call and the risks discussed in the Risk Factors section of our periodic filings and other reports with the SEC. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. We undertake no obligation to publish, update or revise any forward-looking statement as a result of new information, future events or otherwise.
I'll now turn the call over to Jeff Thompson, our President and CEO.
Jeffrey M. Thompson
Thanks, Joseph. And thanks for joining us on the call today. Let me first touch on some of the recent events. We are happy to announce that we have reached an agreement to acquire a fixed wireless broadband company in Houston called Delos Internet. In this acquisition, we acquire 15 points of presence in the fourth largest city in the United States. It gives us new zip codes and a fresh market for our sales force. And most importantly, it gives us a platform in a large market to build our Wi-Fi and rooftop assets. Joseph will give you more details on -- later in the call.
Let me now talk about new carrier activity. Towerstream has recently signed a trial agreement with our third national wireless carrier. We hope that this trial agreement will turn into a long-term contract, but there are no guarantees at this time. Our network engineers are working diligently to get through this trial quickly and to turn this into traditional antenna leases.
We have also recently started a trial with a national news media company. Although we have been more focused on carriers and MSOs than the location-based services and media-advertised-based Wi-Fi, we have learned that having a strong brand drives much better initial results, and we've had better results than any other advertiser we've had on our network thus far. As we finish this trial, we will update you on the progress.
I would now like to talk about our progress on our nodes and rooftop assets. In Q2, we have installed approximately 600 nodes. We are on schedule to install approximately 900 nodes in Q3. This pace puts us on track to reach our 5,000 goal node sometime in Q1 2013. We think this is very important to reach this milestone. The more nodes we have built, the more revenue we can generate. This is our focus, and we are on plan.
Now I'd like to update you, as much as I'm able to, on the carrier integration process. New since our last call, we now understand what it will take to get each carrier on our Wi-Fi offload network systems. Our teams are working very well together and making important progress. Much of the integration process includes software on specific smartphones being adjusted to seamlessly and automatically log on to our carrier class Wi-Fi network. For example, the iPhone has a different client than the Samsung Galaxy, and we're going through, phone by phone. This process, although tedious, will result in a seamless, quality user experience, which we believe will be very sticky in long term.
Some other developments that can streamline this process are the automatic log-on standard called Passpoint. Certifications have started, and we expect most phones coming out next year will support this standardized log-on procedure. Our technology partner, Ruckus Wireless is one of the first to get Passpoint-certified. This can do 3 things for us in the future: one, it makes the amount of SSIDs irrelevant; and two, it will make future handset integration simpler; three, it can enable our customers to charge for Wi-Fi usage because of the seamless interaction between Wi-Fi, 3G and 4G.
I would now like to talk about the macro environment of the tower industry. The tower industry has entered a new phase of sustained and long-term growth. Never before have so many carriers been actively building at the same time. The carriers are also adopting a new way of building their networks, atypical to the traditional tower model, what we call small cell. Verizon has recently stated that, "Even if Verizon were to stumble onto a spectrum bonanza, the increasing pressure to address growing, mobile data demand and to effectively offer cheap capacity would drive Verizon to implement small cell architectures in those new bands as well." Sprint and AT&T have made similar comments on aggressive small cell build-out.
The carriers' capacity challenges require Wi-Fi, small cell, metro cell build-outs in dense urban environments. One of the largest carrier companies recently said that 20% to 25% of their growth going forward will be from DAS and small cell. The largest tower company recently said that 95% of their towers are not in dense urban environments. That is where a majority of the data is being generated. Towerstream serves exclusively those dense urban environments, making our rooftop assets very unique, and we believe, very valuable to the carriers as the simple, quick, flexible way to deploy their small cell strategies.
In summary, we are progressing with our integration with our first 2 customers. We hope to convert our third carrier soon. We are on track to hit our 5,000-node goal, and we are very excited about our position in the mobile Internet revolution.
And with that, I'll hand the call back to Joseph.
Joseph P. Hernon
Thanks, Jeff. I will now provide some highlights on our second quarter operating performance. Revenues of $8.1 million beat the high end of our guidance, increasing 4% sequentially and 23% compared to the second quarter of 2011.
New customer ARPU was lower than recent quarters, as new customers proceeded cautiously with purchases given the continued uncertainties in the U.S. economy. However, total customer ARPU increased slightly as bandwidth upgrades by existing customers reached a record level in the second quarter. We believe that the strength in customer upgrade activities reflects both the high level of customer satisfaction with our services, as well as a clear indication that businesses continue to leverage the Internet to improve operational efficiencies and increase profitability.
Point-to-point installations match the record number recorded during the first quarter. And Q2 was the third consecutive quarter of very strong point-to-point installations. Point-to-point installations are for customers needing more than 10 megabits of bandwidth. Customer churn of 1.65% remained within our targeted range of 1.4% to 1.7% for the 11th consecutive quarter and well below industry averages of approximately 2%.
Adjusted EBITDA profitability, excluding operating expenses related to the small cell rooftop platform, decreased slightly to $1.3 million in Q2, as compared to $1.4 million in Q1. Capital spending on the small cell rooftop asset platform totaled $4 million in Q2, as compared to approximately $2 million in Q1. During the second quarter, we accelerated construction of our small cell network and installed approximately 600 nodes, which represented a quarterly high so far to date. Capital spending on our core network remained stable at $3.8 million in Q2, as compared to the same amount in Q1.
We ended the second quarter on a strong financial position, with cash balances of approximately $31 million. In response to increasing interest in our small cell network, we plan to continue to accelerate the construction of additional nodes over the balance of the year. We have begun to explore opportunities to supplement our existing cash resources with debt capital, so that we are well positioned financially if we receive any request to expand our small cell rooftop asset platform into multiple additional markets.
We are very excited about the pending acquisition of Delos Internet. Houston has been one of the fastest-growing cities throughout the Great Recession and is the fourth largest city in the country. The Delos team has built a great network across the city of Houston. The flat topography of the city and very relaxed zoning standards make it an ideal market for fixed wireless broadband services and our small cell rooftop asset platform. We believe that our seasoned sales and marketing organization can be very successful in growing the acquired customer base.
The Delos transaction will be our fifth since April 2010. It will bring our national presence to 13 markets, including 9 of the top 10 markets in the country. All of our past acquisitions have been integrated in a seamless and efficient manner, and we expect the same at Delos. We continue to see opportunities across the country to acquire strong regional operators and hope to report additional transactions in the future. We will continue to focus on opportunities where there -- where we believe there will be demand for our small cell rooftop asset platform.
With that, I'll turn the call back to the operator for questions.
Question-and-Answer Session
Operator
[Operator Instructions] We'll take our first question from Sanford Lee from Canaccord Genuity.
Sanford Lee - Canaccord Genuity, Research Division
So I have a few questions on the retail SMB side and then a few on the Wi-Fi side. So first off, starting at the retail SMB, and I know I've harped on you, again, in the past, about customer growth and focusing on organic growth. You're reporting, I guess, 2,600 customers, which is the same as what you had at the end of the last quarter. Would you say then, is that, again, because you're taking the accelerator off organic growth and into -- in favor of M&A, like the Delos transaction? Or would you say the economy has been playing a part in that, with customers churning off and that sort of thing?
Jeffrey M. Thompson
No. Thanks for the question, Sanford. As you can see, our churn is very stable even in these kind of bumpy economic times. Our focus is, right now, is to take advantage of the large revenue opportunity that as all these carriers have to build out their networks to meet mobile demand. So we haven't grown our sales force on the organic side for over a year. It doesn't mean that we didn't still have the second and fifth best months in the first 6 months of this year with that smaller group that we've had over the last year. So they're being more productive as an organic team. They're doing a great job. But right now, we're laser-focused on growing the nodes so that we can meet the demands from the existing contracts that we have and some of the possible future contracts. So, and if you actually just go organic growth against organic churn, you have some pretty decent numbers on the organic side when you look at that. So I don't think there's any issue there with the economy. It's -- and as we have also proven many times, this could be our fifth time proving it, that it's much less expensive for us to buy customers than it is to build a large sales force and grind it out.
Sanford Lee - Canaccord Genuity, Research Division
Right, right. Kind of keeping in line with that, with the increased turn-offs, you're still within your targets. Is that more a function of increase of maybe more customers leaving? Or is it more of a function of downsizing or particularly maybe a larger customer leaving? Because it's a revenue churn number, right? So you could have one large customer causing that spike or a whole bunch of little customers?
Jeffrey M. Thompson
Yes, there's nothing alarming. It's up -- we're in our range. That could bounce back even lower next quarter. There's nothing -- we look at the churn every single day. There's nothing odd or there's no weird anomalies in there. It's in our 1.4% to 1.7% that we model for many, many years now. There's nothing in there that's going to set off any alarms.
Sanford Lee - Canaccord Genuity, Research Division
Right, okay. And then I would like to finish up, maybe another one on the retail side. The ARPU of new customers, you stated, also may have a function to do with the higher percentage of your customers taking lower bandwidth service. I'm trying to reconcile that, though, with your comment that the point-to-point customers were -- are up to 39% of your customer base. So if you're having such high ARPU customers growing, why does the overall ARPU -- I'm just looking at the overall ARPU total growth -- slowing down? So it's 0.7% this quarter; 2.6% last quarter; 4.1%, Q4 '11; 6%...
Jeffrey M. Thompson
Yes, we've had this in the past -- yes, it's -- I don't know if you remember a couple of years ago when the economy was in a recession, the new customers came on with smaller connections. What happens is in the future, you see an upgrade cycle like we saw here to try to use productivity by using the Internet. So again, this is something that we've seen in the past. And both sides of the coin are one, they might have come on with a lower-priced product this quarter for just new installs, but yet we might get that upgrade cycle like we also saw in the quarter. So those 2 things actually go together.
Sanford Lee - Canaccord Genuity, Research Division
Okay, great. Now If we can just split to -- just a little over to the Delos, I think. How many customers are you going to be acquiring? Can you divulge that?
Joseph P. Hernon
It's a pretty small acquisition relatively speaking, Sanford. The good news is it represents some really fertile ground for the sales and marketing organization. But it is one of the smaller deals we've done so far.
Sanford Lee - Canaccord Genuity, Research Division
Okay. And I know you're not disclosing financial metrics right now, but is it safe to say it's within your 1.5, 2x revenue type of multiples?
Joseph P. Hernon
Well, similar to past acquisitions, I think we're going to conclude and we'll report next quarter or when we close the deal, from a valuation perspective. But we believe, as we have always said in the past, that we're going to either get the customer base or the network for free, so we think there's some great value here.
Sanford Lee - Canaccord Genuity, Research Division
Right. And the ARPU characteristics of the deal, just wondering if there's going to be any significant drag, just like you've been having with the Color Broadband and One Velocity, with these things.
Joseph P. Hernon
Yes, their ARPU is in the same range as ours.
Sanford Lee - Canaccord Genuity, Research Division
Historic range?
Joseph P. Hernon
Yes.
Sanford Lee - Canaccord Genuity, Research Division
Okay, great. Okay. And then last thing, turning to Wi-Fi. Thanks for the update. Third carrier sounds like it's very close to that. How long is the third carrier trial going to last? Is it a number of months? Or is it going to be into 2013?
Jeffrey M. Thompson
Yes, it's a relatively short trial, and that was their choice. And we're already off to the races. So this is not going be -- we don't think it's going to be a lengthy process.
Sanford Lee - Canaccord Genuity, Research Division
Okay, great. And then as far as the noncarrier deals that you have signed, any update on how Boingo, [indiscernible], Skype, how that's progressing and when we might see some Wi-Fi? Or has there been any Wi-Fi contribution at all in your...?
Jeffrey M. Thompson
Well, if you listened to my comments, we've been focused on -- I mean, we built this network for the carriers and MSOs to do offload because that's worth a significant revenue opportunity. And we've focused our sales force on that in the same way, to go after the Wi-Fi offload teams in the carriers and to go after the small cell teams of the carriers. What's interesting is this trial that we've done with a large brand is the first time that we've actually seen any real positive start to a traditional Wi-Fi-like advertising, like you just mentioned, that if we get through this, we might see some revenue that would be worth talking about. The other programs have not been significant and has not been our focus as it has been with the carriers and MSOs.
Sanford Lee - Canaccord Genuity, Research Division
Understood. And can you clarify one thing, a comment made, I think, it was Joseph. You mentioned -- I think it was the Wi-Fi COGS, did you say, went down quarter-over-quarter? Because I didn't see that.
Joseph P. Hernon
No, we didn't say that.
Sanford Lee - Canaccord Genuity, Research Division
I heard something went down, $1.3 million versus $1.4 million?
Joseph P. Hernon
The adjusted EBITDA profitability from our traditional business.
Sanford Lee - Canaccord Genuity, Research Division
Right, okay. Not to worry. Then as far as signing, it sounds like you said you are close to signing 3. On the last call, you said you were optimistic of potentially signing 2 more of the carriers. Any outlook change as far as your optimism on that?
Jeffrey M. Thompson
Yes, we're still -- we're talking to all of them. And eventually, all this disclosure [ph] will be -- you'll know that we have most of them, and then things will change. So what we're really setting up for, as we said on the last call, is that we have to get all these nodes built as quickly as possible. And the quicker we get them built, the more revenue we can generate. Now we're going through the integration process, and we're going to have a lot of devices ready for that large node count that we'll have in Q1. So everything's setting up for a nice Q1, and that's what we're focused on.
Sanford Lee - Canaccord Genuity, Research Division
Right, right. And then maybe just one last one. On the CapEx target, initially you had targeted about $14 million or so for that, but I thought that was for only 4,500 nodes. So are you increasing the CapEx guidance for that?
Jeffrey M. Thompson
No, the CapEx is staying right where we said before. This is -- the node count is a little under 5,000 by the end of Q1. Nothing has changed whatsoever.
Sanford Lee - Canaccord Genuity, Research Division
Right. And then just interpreting a comment you just made, if you could sign a fourth -- well, third and fourth national carrier, basically, in my view, that is basically the Wi-Fi offload or at least in your 95% of the Wi-Fi offload opportunity. At that point, you may be able to potentially disclose more information on the opportunity, the size and magnitude, timing, without interrupting your nondisclosure agreements?
Jeffrey M. Thompson
Well, eventually, we're going to -- we think, once we start loading these guys onto our network, we're going to have to report them because of the rules of the revenue. But on top of that, we're -- even if we -- getting the first Big 4 guys on doesn't mean anything. You've got all -- the carriers, I don't know if you've looked at cable Wi-Fi's map at all, but the MSOs have huge gaps in their Wi-Fi coverage. There's also a lot of MVNOs that we haven't gone after yet that are -- by using Wi-Fi offload, they bring their margins way up, and those are some of the fastest-growing companies in the U.S. in the mobile world. So we've got a lot more opportunity. We're focused on the major carriers first. But after that, we're not -- I don't think we're 95% done.
Sanford Lee - Canaccord Genuity, Research Division
Right, right. And one last one because I know I've been monopolizing the time. You mentioned it yourself, M&A activity, heightened interest in tower sort of locations, growing need for Wi-Fi and tower sites, DAS, small cell. Your thoughts on Towerstream as a potential takeout candidate? Why does...
Jeffrey M. Thompson
We're not going to comment on someone taking out Towerstream. We're going to keep our head down. We want as many nodes built as possible to build a large revenue stream. Companies are bought, they're not sold. So we're going to keep our head down and work really hard.
Operator
And we'll take our next question coming from Scott Searle from Unterberg Capital.
Scott Searle
Just a couple of quick clarifications. In terms of the guidance, does that include Delos, assuming that, that closes? And how -- are you expecting 1 month, 6 weeks? What are we assuming as part of that? And Jeff, I heard the number of nodes for the June quarter, anticipated for the September quarter, but did you give an absolute number in terms of the number of nodes that you finished out the June quarter?
Jeffrey M. Thompson
We didn't do an absolute number on that. I don't have that with -- I can get that after. I can give you some of that detail, and I think I'm seeing you next week at the Canaccord conference, but we're clipping along.
Joseph P. Hernon
And Scott, the guidance does not include anything for Delos.
Scott Searle
Okay, got you. And then just on the node build-out, it sounds like things are going very fast, very quick for you. Can you talk a little bit about just how you're facilitating and priming the pump, if you will, in terms of securing roof rights? Otherwise, the number of markets that we're talking about right now, I don't know if you directly addressed that. Are you expanding that geographic footprint that I think we've talked about in the past? And are you seeing competition now, more so, particularly when you listen to the comments, whether it's from Crown Castle or American Tower, in talking about small cell? Are other guys getting more active in the market?
Jeffrey M. Thompson
Yes. I even said in my prepared remarks that most of the tower industry are not in the dense urban congested areas, where all of these small cell deployments must go. So we have not seen any pressure. There's not been any competition yet. I get asked that question quite a bit. The way we're priming the pump, because of that question, I don't want to tell you how we're doing it. We are -- I mean, putting in 900 nodes this quarter is something that's pretty impressive, and would probably make one of the fastest build-outs that I've seen, even faster than the guys at NextG, which were masters at speed, in getting their DAS nodes out there. So we don't want to reveal any secrets, but we are on track to do 900 and then a little bit bigger number probably in fourth quarter. They're all still in 5 markets. We haven't added any new additional markets. We probably -- once we get to this first milestone, which was based on the first 2 contracts, the third contract, if we get it, we'll probably need some additional markets. We're glad that we have Houston, that will help. So we haven't expanded from the 5 markets yet, and we won't, until actually, if we sign a new deal and we need to do it, we will. Or until we get through that first milestone of 5,000. But then we'll probably -- the next milestone will be 10,000 nodes.
Scott Searle
And maybe to follow up, there's a lot of talk in the marketplace, and you've articulated as well, the opportunity for small cells. And so once you've got the roof rights, once you've got the backhaul set up, you're perfectly ideal for co-location capabilities, you've mentioned it, but could you talk us through the process a little bit? Are you getting engaged with the carriers on that front? When will we expect to see the first relationship on that front? Is that something that takes more into 2013? Or is the interest level going to push something forward into 2012? Because the carriers certainly talk about it enough. What are your thoughts on that front?
Jeffrey M. Thompson
Yes, I don't know if -- you're probably following it just as close as we are. Our sales force is -- we're pretty far down the road with most carriers on the Wi-Fi side. So we have actually refocused our sales guys, because there's a completely different world, to also get embedded with the small cell teams because they are different groups. And I don't know if you've followed it, but most of the majors are preparing to get some RFIs and some RFPs out there for the small cell deployments. We hope to be embedded in those as quickly as possible. But most of the small cell deployments will start next year. Some sooner in the year and then some in the second half. But again, that's kind of -- we are the ideal candidate. The small cell devices that we're looking at right now can fit on our rooftop seamlessly. They also need power over Ethernet, which we already have for our Wi-Fi devices, a power over Ethernet. And then they all need at least a 50-megabit channel for backhaul. So we think that we'll get some portion of backhaul from each small cell antenna that co-locates on our rooftop.
Scott Searle
Got you. And maybe, if I could, just 2 other quick ones. The integration process with the existing carriers, are there any big milestones that we should be paying attention to over the next quarter or so? And in terms of some of the handset software issues that you alluded to, does this mean most phones, maybe beginning in the fourth quarter and beyond, are going to come pre-installed then with these capabilities on the phone?
Jeffrey M. Thompson
I don't want to speak for the software developers at these large carriers. I would assume that all the work that we're doing to make sure that they have a nice experience on our phones, that the phones are handing off properly from access point to access point, and they're -- that handoff technology is being fine-tuned right now. I would imagine that once that's done and we have those close to 5,000 nodes, that we'd be in that software. That's my guess, but I can't promise that.
Scott Searle
Okay. And last item, you referenced, in terms of the existing carrier customers under contract, they're currently not disclosed, but that you would have to disclose them maybe in the not-too-distant future. As you turn on the networks and start generating revenue with them, I guess, should I take the implication from that, that the revenue is going to ramp up pretty quickly, pretty significantly once we get into the first quarter of next year? Or should we not be anticipating something of that magnitude?
Jeffrey M. Thompson
Yes, it's hard for me to put an exact number on that, Scott. We hope that it ramps that quickly just because of the amount -- getting the right software on the right devices, where's there's -- if you back up and look at the carriers, AT&T is just going to get rid of their 2G network in 2017. All the iPhones that are out there are on a 3G network right now, and they're still selling millions of them right now. So that's going to have to be there for a long, long time. So there's millions of handsets that we hope that will have a client that works well with our network. How that converts, because we don't control how they deploy that, is up to them. So it's -- that shifts one thing that could be there. And then the -- we just can't put a number on something that we don't control.
Operator
And we'll take our next question coming from Rich O'Leary from Lacuna.
Richard O’Leary - Lacuna, LLC
So just a couple of quick ones on the follow-up on Sky, on the integration. It sounds like it's going well, but it's pretty tedious. But I'm curious, are there -- are you learning something with the first 2 carriers that you think, from a synergy standpoint, going to your next third and then fourth carrier that you're going to be able to integrate faster? I know you're talking about software for each phone. But are there any things that you learned that you think you're going to be able to really accelerate the next integration processes?
Jeffrey M. Thompson
Yes, that's a great question. Just like when we're building the first Wi-Fi system in a major market like Manhattan, the way we're building a year ago is probably not the same way we're building now with all experience that we have in an environment like that. So what we can bring to the table, as most of the carriers are not focused on their own Wi-Fi networks, they prefer not to run their own network, we can offer the experience that we've had with our other clients to them. So we think that we're pretty good at this now. We know all the things that it takes to get these things logged on and logged off properly. So I think that yes, that's a strong possibility that our experience in the first 2 will help with the next few.
Richard O’Leary - Lacuna, LLC
Okay, great. And then I know you're hesitant to be specific on revenue guidance for Wi-Fi offload, and I understand why. But I'll just ask it this way. Is it possible that we could see some revenues from Wi-Fi offload in Q4?
Jeffrey M. Thompson
It's a good question. It is very possible. The integration teams are working very quick now, once we get the people up above out of the way. The engineers are a smart group, with the people that we're working with, and it is progressing at a fairly better pace than it did as we were getting the contracts. Yes, so there's an opportunity you could see a little bit of revenue in Q4. We can't guarantee that though.
Operator
And we'll take our next question from Daniel Gallancy from BeaconLight.
Daniel H. Gallancy - BeaconLight Capital, LLC
It's Daniel Gallancy from BeaconLight. Just a quick question in terms of the integration process here with the carriers. What is the work that needs to be done in order for your Wi-Fi nodes to be integrated with the carriers' networks? And, I guess, the sense that I'm getting from you guys is that, that work will continue through Q4 before you flip the on switch, so to speak. I'm kind of wondering what that work consists of and whether or not it's a flipping of a switch at the end of the work being done or whether or not it's a gradual process that involves sort of lighting up pieces of the network, piece to piece.
Jeffrey M. Thompson
It's just like if a brand new handset is being made, they all go through some sort of certification on a carrier's network. Most of the stuff that's going on is not on our side. It's them adjusting their clients to make sure it works seamlessly with our network and those capabilities. So if they had all of their stuff ready on their side and wanted to flip the switch, we'd be ready in certain markets. Again, that -- it brings us back to, the more nodes that we have installed, the more revenue we can generate. So as they're going through this process, we're going as fast as we can on the other side to build as many nodes to have more nodes ready once they're ready. So it's not something that we have to gradually do and put on piece by piece on our side. Once the client is working properly on our network, it will work anywhere in the U.S. on our network.
Daniel H. Gallancy - BeaconLight Capital, LLC
So they flip the switch and once they flip the switch, things light up as they light up?
Jeffrey M. Thompson
Yes. Our network's ready to go, yes.
Daniel H. Gallancy - BeaconLight Capital, LLC
So, okay. And then you had mentioned about software on handsets and the ability for seamless transmissions from hotspot to hotspot. Just -- I'm trying to understand properly. Without any software whatsoever -- I have a -- if we take my phone for example. I have an iPhone through AT&T, and it should recognize all Wi-Fi hotspots, that say, AT&T WiFi. So if I walk into like a Starbucks, I'm automatically on their Wi-Fi network. Whatever carriers you happen to be dealing with, I would assume that without any software whatsoever, phones that are attached to those carriers would have a similar functionality. Is there anything I'm missing there?
Jeffrey M. Thompson
No, it's very simple but that client has to be able to seamlessly -- lots of times, not lots of times, most of these network carriers have not used an outside network besides their own networks as an offload technology. So it's -- we're kind of the first to do this. So they're going through a facilities-based network that's not their network. So you're going to have to go through the process of getting tested by everything that they're going to put on that network, whether it's iPad, Droid tablets, iPhones. Whatever it is, they're going to put it through a process to make sure it fits our testing capabilities.
Daniel H. Gallancy - BeaconLight Capital, LLC
Right. No, no, I certainly understand that. But what I mean is that, from what I had understood, there should be a seamless integration of devices with your Wi-Fi hotspots, based purely on the SSID. So to the extent that you're advertising a particular SSID, and the handset, my handset...
Jeffrey M. Thompson
It could. Yes, it could automatically log on to an SSID that they have preprogrammed into the phones already. Yes.
Daniel H. Gallancy - BeaconLight Capital, LLC
Okay. And then the other thing that I'm getting -- the sense that I'm getting from you guys is that you intend to have some sort of a handoff capability, which, from what I understood in the past, is not really standard for Wi-Fi. It's actually -- that goes beyond the standard Wi-Fi. It's not meant to necessarily hand off, that's why it's not within the cellphone service. So am I to understand that the Ruckus equipment that you guys have, in conjunction with whatever software implementation you guys are planning, will indeed enable Wi-Fi hotspot-to-hotspot hand-off for a handset?
Jeffrey M. Thompson
Yes, you could, depending if you're in Europe or San -- I don't know whether it's -- in San Francisco, you could walk down the Wharf and you could put a Netflix movie on and you'll hand off Wi-Fi access point to Wi-Fi access point. If you're on Ninth, you can go pretty far down the road in Manhattan and stay on our network the entire time. So we do have hand-off capabilities base station to base station.
Daniel H. Gallancy - BeaconLight Capital, LLC
That's great. Okay. And then 2 last things. First is, just to make sure I understand, in the past, you guys had talked about, broadly speaking, sort of revenue per carrier, per SSID, in the $1 million to $3 million range per city. Is that still the same? Is that still the case?
Jeffrey M. Thompson
Yes, the modeling that we've done a long time ago -- I would just say this, that if you look at the modeling that we've done a long time ago, it's amazing, as we're this far down the road, is it's still accurate.
Daniel H. Gallancy - BeaconLight Capital, LLC
Okay. So it's still approximately that. And in terms of the small cell opportunity, that's something that you hadn't even talked about when we had discussed where you model your business. How do you guys think about -- broadly speaking, how do you guys think about the modeling for that?
Jeffrey M. Thompson
It's very simple. It's a traditional tower co-location on one of our rooftops, and we happen to have backhaul capabilities, which the traditional co-lo in the tower world did not have. The tower industry has been brought into running systems, kind of kicking and screaming. They're all now looking at ways to get into services and network services and DAS and small cells. Our Wi-Fi platform is a seamless way to get their small cell devices into a place that keeps it hidden from the macro cell and can come with backhaul. So we -- I do have to admit, we did not plan on small cell coming up so quickly. We feel pretty lucky that our rooftop sites are going to be ideal for small cells. And what's also pretty exciting is the backhaul capabilities that we'll have for small cell deployments, which if you look at any analysis -- go to Ericsson's website, Lucent, Alcatel, the 2 issues that you'll see for small cell deployments are low-to-the-ground site acquisition and backhaul. And we think that we're solving all of those.
Operator
And we'll have time for one more question coming from Jeb Terry from Aberdeen Investments.
Jeb Terry
Got a question for you. You made a comment that really piqued my interest and said that new technology could make SSIDs irrelevant. Does that imply then that you could just carry more capacity on your Wi-Fi nodes, whereas before, we thought maybe there were 9 SSIDs to define capacity of the node?
Jeffrey M. Thompson
Yes, Jeb, great question, because this is -- I didn't want to have a technology call, but this is a really exciting thing that's happened because of Passpoint and all the certifications that are happening. Without trying to get too technical, but even -- there's 2 things that are happening. One is we're finding from our vendor that they're going to have a lot more SSID capabilities, which is pretty exciting for us now that we're seeing some good results with the strong brand on our network. But more importantly, without depending on SSIDs, if a phone is just automatically going to log onto our Wi-Fi offload device, it doesn't even have to have an SSID. It could just be a number, because the user will never know how it's logging on. When you have multiple SSIDs, there's actually overhead associated with SSIDs, which takes away from the capacity of the Wi-Fi device. So without having the SSID overhead, a, we gain back more capacity on that Wi-Fi offload device, and we have a seamless integration and could have 10 carriers on that same node, and not have to worry about the limitations because it's an automatic log-on process. So it's very exciting technology-wise for us, the subtlety that's really good for Towerstream.
Jeb Terry
So then in that case, it sounds like you've got all the capacity you need for the carrier business, and then you've mentioned MSOs, MVNOs and then a national brand. So you wouldn't have to make those trade-offs, whereas before you were saying you're going to reserve 6 SSIDs in New York for carriers and you're going to have 3 for noncarriers?
Jeffrey M. Thompson
You're exactly correct.
Jeb Terry
That's pretty exciting. And so the -- and then who's driving the software for that? Is that coming from the vendors in conjunction with the carriers, or...?
Jeffrey M. Thompson
No, the Wi-Fi Alliance, it's a traditional certification process. QUALCOMM's chipset recently got certified. And there's -- if you go to the Wi-Fi Alliance, you'll see a whole bunch of companies that have already been certified. So we think you'll start seeing these, all these chipsets sprinkling into the handsets going forward. Our equipment is capable of it, so this could make Wi-Fi offload a very seamless experience for users going forward. I'm also waiting for this.
Jeb Terry
That's -- and then a gentleman asked before about the software for the hand-offs, and you said most of that's going on at the carriers. So the bottleneck, if you will, would be or the driver for the software, for the hand-offs, for seamless log-on, log-offs, et cetera, migration on off cell versus Wi-Fi is still a process controlled by and resident at the carriers, as opposed to...
Jeffrey M. Thompson
Yes, still -- right now, even with the new trial, it's mostly proprietary clients that are on the handsets. So having this standardized way of doing it, just like the traditional GSM and LTE log-ons is going to be great for the entire industry. It's going to be great for the carriers because the carriers are going to be able to implement Wi-Fi into the radio access network, into the RAN, which means you can be seamlessly put back and forth to the strongest signal or the biggest pipe. And with their usage-based billing, they could actually start charging for Wi-Fi, which would make us a huge asset to them.
Jeb Terry
I see, I didn't understand how that worked. Okay, I got you. And one last thing. So you mentioned it's not a -- is it all or none or it's a scale-up? Or you're saying you're ready to go as soon as they give you the go-ahead in city A, B or C, you can light up city A, B or C, or all A, B, C, D, E, F, G for that matter. Is that...
Jeffrey M. Thompson
Yes, we're ready to go. We have been for quite some time. But more importantly, it wouldn't -- you couldn't have significant revenue if you only had one market. That's why we're going as quick as we can to get these 5,000 nodes lit up and then we'll continue from there. So the most important thing for us is to -- because when they do say, "Here you go," we want to make sure we have the most nodes possible so we can have the biggest revenue opportunity possible.
Jeb Terry
Okay. And those -- so the 5 cities handle carriers 1 and 2. And if 3 comes along, there may be city 6 or 7. And then at some point in 2013, you decide, next stop, 10,000. When would you make that choice of next stop, 10,000?
Jeffrey M. Thompson
You'd probably start seeing -- well, we're already projecting Phase 2. I mean Phase 1 is on the books. And we're -- we just don't want to build too far ahead of our CapEx requirements, so what we'll be doing is monitoring that build-out. But if we get a contract, if we get this next contract over the hump and we need more markets, we will work on that right away.
Operator
I would like to turn the conference back to your host for any concluding remarks.
Jeffrey M. Thompson
Well, thanks, everybody, for joining the call. We got a lot of questions today. The network engineers and our team here at Towerstream are doing a fantastic job building out. Our sales force is still one of the most productive in the industry. So we're pretty excited of where we are right now. I'm also going to be at the Canaccord conference next week. I know I'm going to see a lot of you there. We got a couple of full days, and we're going to be on the road in September. So we hope to see a bunch of you folks over the next few weeks. Thanks for being on the call.
Operator
Ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.
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