Finally a Use for LMDS

Satellite_dish_(Television)Vivint provides a range of security and home monitoring products and has recently also become a wireless ISP in a few markets such as San Antonio, El Paso, and a few towns in northern Utah. What I found interesting is that they are using the LMDS spectrum.

LMDS stands for Local Multipoint Distribution Service and is a licensed spectrum operating between 27.5 GHz to 31.3 GHz, close to the range of various microwave frequencies. The LMDS spectrum was sold in a very robust A band that was an 1150 MHz swath of bandwidth and a B band of 150 MHz of bandwidth.

This was auctioned to the public in 1998. I know a number of companies that bought the spectrum then and I know a few who created business plans using LMDS that all failed. There were two problems with using LMDS. The first was the chicken and egg issue that all spectrum faces. A spectrum can’t really be used commercially until somebody develops cheap gear to use it and the vendors won’t develop cheap gear until they get a large buyer who will buy enough gear to finance the R&D. After the spectrum hit the market there were a few beta tests of equipment that didn’t work well, but no big user and the market died.

The other issue is the practical application of using the spectrum. In 1998 this was touted as being able to deliver a wireless DS3 which is about 45 Mbps. That was a lot of bandwidth in 1998, but over time that is no longer particularly great. And the spectrum has real-life limitations. On a point-to-point basis it can go, at best, about 5 miles and on a point-to-multipoint basis it can go, at best, about a mile and a half. The spectrum can achieve those distances in areas without a lot of humidity (which is why Vivint is deploying it in the dry southwest). It also is easily deflected by trees and buildings, another reason to go to west Texas and Utah.

So this spectrum has basically gone mostly unused for a decade and a half. A lot of license holders have a few point-to-point links working on it just to preserve their license, but I am sure there are license holder who just let it go. Vivint is buying rights to the spectrum in these markets from XO Communications and Straight Path Communications.

It looks like Vivint has found a strategy for monetizing the equipment. They obviously found radios that will work on the spectrum, which is not that unusual today now that we have software tunable radios that can work on a wide range of spectrums (something we didn’t have in 1998).

Vivint is also dealing with the distance and bandwidth limitations in a very creative way. They are selling in urban/suburban areas giving them a decent density within the range of a given transmitter. They are then using point-to-point radios to bring bandwidth to what they call hub homes. They are giving these homes free Internet connectivity for housing and powering their equipment. From each of these homes they will serve up to 24 other homes. That small number of subscribers is what allows them to offer the 100 Mbps bandwidth. If they serve more homes the effective bandwidth would quickly drop.

Vivint prices 100 Mbps bandwidth at $59.95 per month. For the wireless customers they are also offering VoIP plus cloud storage. Plus Vivint has a wide range of security and other products they can sell to a household. It’s not a standard bundle, but it’s a pretty good one.

This doesn’t look like a bad business plan. With the range of services they sell they are probably averaging more than $85 per customer per month on average, and maybe more. And they are gaining some economy of scale and report having over 15,000 customers.

This business plan certainly isn’t for everybody. It wouldn’t work well in places like humid Florida or Louisiana. It also wouldn’t work well in towns that are solid trees. This business plan takes a lot of discipline to be successful. Once they have established a hub home the business plan is only going to work if they can find other customers in the same local area, within 1.5 miles. I figure that they knock on doors to find customers around every hub home. The math would be terrible if they only got a few homes per hub.

They also have to find licensed LMDS spectrum holders and they obviously have in these markets. But that might not be possible in other markets. This business plan must be urban in order to have enough density, and this looks totally infeasible in rural areas.

I have to credit Vivint with finally finding a market use for this spectrum. In today’s marketplace it sounds like they have put together a very marketable suite of products including bandwidth at an affordable price. This is what competition looks like. While LMDS spectrum is only going to work this well in arid places, the idea of a non-traditional bundle is one that others ought to consider.

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