TeraGo snags first cellular backhaul deal

A Toronto-based enterprise wireless broadband provider has become the latest beneficiary of Ottawa’s push to license new wireless operators.

TeraGo Networks said this week it has won a small contract to provide some backhaul service to an unnamed new entrant, its first such deal.

“It’s a foot in the door,” president and CEO Bryan Boyd said in an interview.

TeraGo will provide “a small number of [wireless] sites” within an unnamed city, using its 2.4Ghz spectrum to connect to the operator’s network. The goal is to gain credibility with the operator in the hopes that TeraGo will be able to secure a longer term contract.

Due to a confidentiality agreement, Boyd couldn’t give more details than that. However, in a conference call with financial analysts, the company suggested its capital investment on equipment for the operator isn’t great: TeraGo is looking to get its money back within months after the operator goes into service.

Contracting third parties for backhaul is one way the new operators aim to save money instead of building their own networks after having spent millions of dollars last spring buying licences.

Wind Mobile (formerly called Globalive Wireless), DAVE Wireless, Public Mobile and the new mobile service of Quebec cableco Videotron will launch service in selected cities over the next five months. Over the next two years they will build out their networks.

TeraGo sellss wireless Internet and data networking connectivity to businesses in 42 cities in five provinces.

The announcement was part of TeraGo’s second quarter financial report. The company had a net loss of $1.287 million in the quarter, slightly lower than the $1.5 million in lost in Q1. Revenue was stable in each of the last two quarters at $8.6 million.

TeraGo is still trying to make it into the red. Last year it lost $12.4 million. The company has made great efforts to improve its finances after recording a loss of $940,000 earnings before interest, taxes and depreciation (EBITDA) in the first half of 2008. In Q2 it recorded positive EBITDA of $1.2 million, the highest in company history and the fourth consecutive quarter of positive EBITDA.

Due to the recession, the rate at which the company is adding new customers has slowed, Boyd told financial analysts in a conference call, in part due to “slow decision-making” by customers.

Average monthly revenue per customer location, or ARPU, was $614 in the second quarter of 2009, an increase of 2 per cent from $604 in Q2 2008. TeraGo said the increase in ARPU was driven primarily by existing customers upgrading the capacity of their services and an increase in the number of new customers requiring higher capacity services.

The average monthly churn rate, which measures customer loss, was 1.35 per cent for the second quarter of 2009, compared to 1.43 per cent in Q1 2009. Boyd told the analysts he belives the economy is stabilizing.

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