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Oct312011

Energy Industry Boom Fuels Growth at ERF Wireless

Wireless Provider Taps Vertical Markets

As a wireless communications company boasting a 212% YoY growth in revenue, ERF Wireless stands out as a success story in today's difficult and competitive market. The key to the company's business plan lies in something we've been highlighting for a while: the power of vertical markets. According to ERF founder and ceo Dr. Dean Cubley, the company's strength is its diversified business, which supplies high-capacity wireless services to three main sectors—WISP services for rural business and residential customers, secure wireless communications services for the banking industry, and “nomadic communications solutions” for the energy industry. With this model, Cubley says growth in one sector can counter stagnation in another sector. Right now, ERF's sustained commitment to providing wireless communications services for the energy industry has allowed ERF to be profitable over the last two to three years. When so many other companies are reporting losses and laying off employees, Cubley says ERF is “just having a hard time keeping up with all of the business.”

Cubley founded ERF back in 2004, after decades in the wireless industry. Since then ERF has acquired 16 companies—mostly wireless companies in rural areas and, most recently, in oil and gas producing regions. Now, Cubley says, “anywhere there's oil and gas, we're interested in networks there.” Not only can ERF supply wireless to the energy companies, but as people come into the regions, rural banks and rural customers also look for services, which ERF can supply off of the same networks. “We use a little bit of everything: licensed spectrum, unlicensed spectrum, and what we use depends where we are,” Cubley said. The company uses 6 GHz licensed spectrum on the backbone, typically, but also uses 3.65 GHz in rural areas if there is interference on unlicensed spectrum.

Based in League City, Texas, ERF is well-positioned, geographically, to grow alongside the booming oil and natural gas industry. The nearby Permian Basin spans from west Texas into New Mexico and represents one of the largest oil and natural gas fields in the country. It's a 55-county area where the number of oil rigs has tripled in the last two years, where oil companies have rented hotel rooms a year in advance for their employees, and where the need for manpower seems insatiable. This surge in production and influx of people brings with it the need for wireless connectivity, both for day-to-day business operations and for personal communications. “Our customers operate in very remote areas,” Cubley says, “where it can be a hundred miles or more to the nearest landline, with no towers for wireless connections.” This is where ERF comes in, as a close partner supplying communications services to the oil and gas companies.

ERF operates about 150-200 mobile broadband trailers, each equipped with a 50-foot tower that can be erected by a technician. The trailers can be driven to any remote drilling site and, by connecting back to the company's network, enable powerful high-bandwidth, low-latency wireless broadband in any location. In the past, Cubley says that communications “had been provided by VSATs (satellite), but software designers have developed programs that will not run over VSAT. They [the programs used by oil and gas companies] need high capacity and low latency, and we can provide that kind of system at the same cost as a VSAT.”

Right now, ERF provides this “nomadic solution” in the Southwest and southern Midwest, but Cubley says ERF is opening an office in North Dakota next month. The Williston Basin region of the Dakotas is enjoying a similar (but more recent) energy industry boom, and Cubley said ERF's plan there is to build their own network. “We will be one of the first WISP networks in the area,” Cubley said, “and we chose to build our own network since there are none in the area to buy.”

Cubley said that ERF's business strategy has been to buy and then improve small wireless networks in rural areas—tapping into new sectors of business that can make the networks profitable again. “We can buy a company that is unprofitable and make it profitable almost overnight,” Cubley said. “One of our company's original goals was to set out to acquire wireless in rural areas and use it in ways it hasn't been used before,” with a prime example being wireless networks in oil and gas producing areas.

“We operate as a WISP and have thousands of residential customers scattered throughout the U.S., but that is only 50% of our revenue. For a lot of companies, that is the only thing they're doing. If that is your only service, you have to have extremely large networks, because the margins are so thin. If a company can improve its economies of scale, those margins are much better,” Cubley said. “We're not trying to be the largest network, but use the networks for different purposes to generate more revenue.” According to Cubley, “the margins are 80-90% for the energy industry” and a bit less for the supplying communications services to the banking industry, which ERF also does through its wireless CryptoVue network security system.

Although ERF is sometimes in direct competition with local ILECs and RLECs, Cubley said they do often partner with traditional telcos and small wireless companies. “If we can't buy it or build it, we'll contract for it,” he said. In most cases, ERF will buy wholesale broadband bandwidth and re-sell it to the energy industry. “The problem is,” Cubley said, “sometimes the energy industry has higher standards for capacity and latency, so in some cases we have to pay to upgrade existing carriers' networks.” Right now, ERF has 14 such contracts in the U.S. and Canada, with more likely in the future.

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