Managed Wi-Fi's Day of Reckoning

Managed Wi-Fi has emerged as one of the most interesting—and lucrative—technology segments for multifamily owners over the past five years. In a world where proptech solutions often overpromise and underdeliver, managed Wi-Fi has grown into a reliable source of incremental revenue; the most recent 20for20 survey of multifamily owners identified managed Wi-Fi as one of the leading technology trends of 2024 with a significant majority of owners either actively rolling it out or giving it serious consideration.

In theory, managed Wi-Fi makes tremendous sense for apartment owners and tenants alike. Internet, after all, has become an essential utility much like power and water. Apartment operators don’t force tenants to install their own breaker boxes, so why should tenants be expected to futz with their own modems and Wi-Fi routers?

Unfortunately, the FCC does not agree. In early March, the commission announced their intent to ban "bulk billing" arrangements for internet in multi-tenant spaces—such as multifamily and retail—a proposal that threatens to transform how managed Wi-Fi operates today and return the industry to the era of retail service and tenants fumbling with personal routers.

Today’s letter dives into in the crisis facing managed Wi-Fi, exploring:

• The history and evolution of internet in multifamily buildings;

• The FCC’s proposal and process;

• The battle lines and what’s at stake;

• The future of the managed Wi-Fi sector and where things might go from here.

Read on for more…

A Brief History of Internet in Apartments

For most of the past two decades, tenants in multifamily buildings got internet much the same way as residents of single-family homes: via retail relationships with cable providers and telecom companies, with internet service often packaged alongside cable TV and landline phone service.

Where do Americans get their internet? From a 2018 NCTA survey. Source.

In most cases, a consumer’s choice of internet provider is limited to one or perhaps two or three possible providers. A 2020 report showed that 70 million Americans have only one broadband internet option, with Comcast and Charter alone capturing 47 million of them.

However, broadband-only ISPs—which offer internet alone without cable TV and landline phone options—began to make inroads against these local monopolies over the past decade. These ISPs benefitted from the growing trend of "cord cutters," consumers who choose internet-only service over the traditional "triple play" that includes cable television and phone service. Many of these broadband-only ISPs have focused on urban areas and multifamily buildings to justify the cost of building local teams and infrastructure.

Live Pay TV’s declining penetration has corresponded with the rise of "broadband only" ISPs

Historically, most multifamily owners have put the choice of internet provider—to the extent one exists—in the hands of tenants themselves. In this "retail" model, tenants are presented with whatever choices exist in the building and work directly with an ISP to turn on the internet in their unit. Tenants generally rent equipment (e.g., the modem) directly from the provider or perhaps purchase a retail Wi-Fi router.

There are a few problems with this approach. One, consumers hate dealing with ISPs. Internet service providers have the lowest Net Promoter Scores of any industry—below health insurance companies, banks, and airlines. And ISPs have historically seen apartment dwellers as a captive and vulnerable audience, a prime target for weird, overpriced equipment rental deals, hidden price escalations, and other fees.

Net Promoter Score benchmarks by industry, 2023

Two, almost all apartments are sufficiently dense that retail Wi-Fi routers run into inevitable interference, with too many routers sharing a small space. "There’s simply not enough spectrum," said one industry expert specializing in multifamily technology. "No matter where you live now, you can open up [your Wi-Fi settings] and see multiple networks. If you do it in an apartment building, you’re going to see dozens of them. But you can’t have that many wireless networks and have any quality of service."

As Wi-Fi gained popularity in the late 2000s, apartment owners began stepping into the middle. Rather than ISPs marketing internet service directly to tenants, apartment owners would buy "bulk" internet from the ISP and then resell it to their tenants. While the ISP would make less per unit in a bulk deal, they’d have guaranteed sales. Owners loved it, as they could generate additional revenue by marking up the internet service when reselling it to tenants. In theory, tenants would also see some savings, although apartment managers varied on how much of the savings they’d actually pass along.

The Rise of Managed Wi-Fi

Of course, simply buying internet in bulk doesn’t fully solve the tenant’s problem. While they’re no longer working directly with the ISP, tenants still have the hassle of setting up and managing their own internet connection. In some cases, building managers clumsily attempted to install and manage their own tenant-facing Wi-Fi systems, usually generating more maintenance cost—and headaches—than it was worth.

Soon, niche providers and ISPs began providing a service that tackled the entire problem: managed Wi-Fi. In a managed Wi-Fi service, the ISP provides end-to-end delivery of internet to the end user, the tenant. In this scenario, the ISP is responsible for not just ensuring the building is connected to the internet but actually providing wireless internet to every single tenant and to the building’s common spaces. And as implied by the "Managed" part of "Managed Wi-Fi", the ISP is also responsible for maintaining and troubleshooting that connectivity.

This solved the largest problem of early bulk internet arrangements, as on-site property management teams—more comfortable fixing toilets than internet routers—no longer found themselves responsible for Wi-Fi outages, while owners could still benefit from the incremental revenue. In many cases, apartment managers would even bundle the cost of internet connectivity into a tenant’s monthly payment—a mandatory amenity fee.

Bulk Wi-Fi adoption among surveyed large multifamily owners. Source: 2024 20for20 white paper.

Adoption of managed Wi-Fi has accelerated among owners in recent years. As soft rent growth and high interest rates put multifamily owners under increasing pressure, many are eager to find new sources of incremental revenue. For owners, managed Wi-Fi checks a lot of boxes: it offers a meaningful source of new asset-level income that is unlikely to run afoul of existing relationships or put a burden on on-site managers.

The rise of IoT and connected devices also accelerated the growth of managed Wi-Fi. Suddenly, owners needed wireless connectivity across entire properties—not just within occupied units—to support an ecosystem of connected devices ranging from smart locks to sensors to EV chargers to thermostats. "The majority of apartments don’t have persistent internet in vacant units," explains Ned Murphy, General Manager for Level M, a smart building technology provider. And without reliable, building-wide internet, owners can’t take full advantage of smart devices.

"Connectivity is the fundamental thing you must figure out in the smart tech world," Murphy continued. "It's not just about providing an amenity to a resident. It's about providing infrastructure in the building to make it work better. Managed WiFi is one of a few ways of getting smart tech connectivity."

But if the building was already going to have Wi-Fi throughout, many owners reasoned, why not offer internet service to tenants as well and generate additional revenue? "Consumers now want ubiquitous Wi-Fi across the property," says John Helm, Managing Partner at RET Ventures, an investment firm focused on the multifamily sector. "Especially post-COVID, a lot of people are working from common areas. And a lot of the newer buildings have very large tenant common areas where people can hang out and work."

Of course, installing a robust Wi-Fi system across an entire multifamily property comes at a cost: one industry insider estimates that multifamily owners will spend at least $2,000 per apartment unit installing a managed Wi-Fi system using enterprise-grade hardware such as Ruckus R650 access points, which provide a mesh network that avoids interference and conflicts while "following" a tenant around the property. Moreover, every five to seven years a community will likely need to invest an additional $750 per unit replacing the Wi-Fi equipment. "Multifamily owners can’t use consumer equipment and ensure everyone has good internet connectivity," one expert noted.

As multifamily owners gained interest in managed Wi-Fi over the past decade, a dizzying array of service providers and tech companies have emerged to help them.

Of the ten "Platinum"-level sponsors of NMHC OpTech 2023, half offer managed Wi-Fi services. Source: NMHC.

Managed Wi-Fi service providers run the gamut from legacy MSOs to new upstarts. As you can see from the list of platinum sponsors of NMHC OpTech—the largest annual multifamily technology trade show—traditional MSOs like Comcast, Cox, and Spectrum are putting substantial resources behind their bulk and managed Wi-Fi services. But selling bulk internet into multifamily buildings is still a small part of these companies’ businesses; niche ISPs like Pavlov Media have been serving bulk customers since their inception in 1994.

"We started with an off-campus student housing focus," explained Bryan Rader, President of MDU (multifamily) at Pavlov Media. In student housing, managed internet is a necessity, not a nice-to-have—so many of the ISPs with the most experience in managed Wi-Fi got their start there. From there, Pavlov expanded into multifamily as demand for managed Wi-Fi services grew. Today, the company serves over 1,700 apartment communities nationwide.

But the growing demand for managed Wi-Fi inspired dozens, if not hundreds, of new service providers to jump in to the fray. "Over the past decade, there has been an explosion of providers and heavy competition," said Rader. "Incumbent [MSO] providers have been offering a version of managed Wi-Fi since 2014. But they haven’t done a great job, which opened the door to ‘specialists’ that do managed Wi-Fi specifically for multifamily."

The benefits of geographic concentration have meant that no dominant player has emerged in in the managed Wi-Fi market. "The expertise of getting fiber circuit into a building favors people with relationships in local markets," notes 20for20 author Dom Beveridge. "There are very few national players, and the ones that exist have relationships with local players."

Differences in technology—and the limitations thereof—have also contributed to fragmentation. Managed Wi-Fi service providers like Honest Internet, for instance, can connect buildings through fixed wireless transmitters on roofs. This avoids the need to connect physical line to every building, but it imposes some natural geographic limits on the company’s reach.

In addition to Pavlov Media, companies like Aerwave and Gigstreem have seen success marketing broadband-only services—delivered through managed Wi-Fi networks—to multifamily communities. Gigstreem, backed by RET Ventures, raised $59 million last year to continue expanding its managed Wi-Fi offering.

Those companies have made inroads against established telecom companies by offering a leaner, internet-only option—as well as more hand-holding to multifamily developers. "Property owners would prefer to work with a BAI, an Aerwave, or a Gigstreem so they can be on the phone with the CEO and talk about how they want to deploy [the network]," said Andrew Kusminsky, CEO of Gigstreem.

The rise of managed Wi-Fi mirrors the emergence of ISPs focused on marketing to multifamily owners rather than tenants. "Traditional telecom is focused on resident only," explains Jeffrey Kok, CEO of Aerwave. "It was ‘Let me get internet into resident units, maybe throw a bone to the owner with a common area solution.’ But me and our peer group, we think ‘let’s create better resident experience across the whole property at a more affordable rate by enabling the owner, everything the owner needs to do to make the building more efficient for the owner and resident. Access control, self-guided tours, et cetera.’"

When done correctly, managed Wi-Fi can be a win-win for tenants and owners alike. Tenants don’t need to wrestle with setting up their own internet or deal directly with (often predatory) ISPs, while owners are able to add a meaningful new source of revenue. "On average, an owner is paying $20 [per unit]" to a managed Wi-Fi provider, explains one technology expert we interviewed. "They’ll charge $55 to $60 to the tenant. The $40 difference pays for the $2,000 investment plus some ROI." By pocketing the spread between the bulk and retail rates, the owner is able to pay for the deployment of a managed Wi-Fi system throughout the property—with some left over.

I’m From the Government and I’m Here to Help

Unfortunately for the emerging managed Wi-Fi sector, the FCC—which has broad regulatory authority over all things internet-related—is skeptical. In early March, the FCC announced that they were "banning bulk billing"; that is, tenants—including those in commercial and retail spaces—must be given a choice between internet providers. From the announcement:

"Everyone deserves to have a choice of broadband provider," said Chairwoman Rosenworcel. "That is why it is not right when your building or apartment complex chooses that service for you, saddling you with unwanted costs, and preventing you from signing up for the plan and provider you really want. This proposal shuts down these practices."

Specifically, the Notice of Proposed Rulemaking would propose banning bulk billing arrangements by which tenants are required to pay for broadband, cable, and satellite service provided by a specific communications provider, even if they do not wish to take the service or would prefer to use another provider. It proposes allowing tenants to opt out of bulk billing arrangements.

There is still much uncertainty regarding what exactly the FCC intends to do. "Nobody except the FCC’s five voting members have seen the actual proposition," says Kok. While the multifamily industry has little more than a press release to analyze, the proposed regulation could go in a few possible directions, from most to least dire for the managed Wi-Fi sector:

• Prohibiting Bulk Arrangement Entirely: In this scenario, the FCC would prohibit owners from negotiating any "bulk billing" arrangements (to offer to tenants) with internet providers entirely.

• Opt-In: Owners could offer bulk internet from a specific provider, but it would need to be presented to tenants alongside other connectivity options in the building, and tenants would need to "opt in" to the owner-negotiated service.

• Opt-Out: Owners could negotiate a bulk arrangement with an internet provider and include that with a tenant’s lease; however, a tenant must have the right to "opt out" of such an arrangement and have the cost of the service removed from their rent.

Each scenario has different implications for managed Wi-Fi providers and multifamily owners. In the first scenario, bulk and managed Wi-Fi would disappear entirely as a business. Owners could still create their own Wi-Fi networks to power connected devices—such as what Level M is doing—but would be forbidden from offering that service to tenants. An entire category of proptech would go away, and multifamily owners who have invested in building-wide Wi-Fi would see that investment lost.

The second two scenarios limit owners’ exclusivity with their chosen internet providers to varying degrees, and experts differ on the potential impact of opt-in and opt-out requirements.

"If you spent money putting in the equipment, you have to return your capital," said one industry insider we interviewed. The risk of tenants opting out of (or failing to opt into) the bulk plan may convince some developers to forgo installing a managed Wi-Fi system entirely. "The developer is making a $2,000 investment [per unit]," explained one insider. "They have to make a certain amount of money to return that investment."

Today, managed Wi-Fi providers charge owners a flat, per-unit fee regardless of how many units are actually using the service. "Our fees are flat rate," explains Kok. "The owner can decide if we’re exclusive or not. But they’re the one paying for this large capital investment. They care about driving value for the resident, but they also need to repay their investment."

While the opt-out scenario seemed palatable to most industry insiders interviewed, but there were concerns that costs would rise for participating tenants. "The community essentially pays a flat rate each month. If 10% opt out, the other 90% likely pay more," said another managed Wi-Fi insider.

This isn’t the first legal shot across the bow at managed Wi-Fi. In 2023, the state of Colorado set strict caps on "third-party fee passthroughs" in multifamily dwellings. This effectively banned managed Wi-Fi services, as the amounts typically charged for managed Wi-Fi greatly exceed the bill’s $10 cap. "$10 doesn’t even cover the capital cost," said one industry insider. "That’s what happens when you have people who don’t understand the industry are trying to regulate it. When somebody does the simple math—buy for X, sell for Y—they don’t consider the installation cost."

Even in the absence of FCC intervention, individual state and location action threatens to force multifamily operators and the telecom industry into a patchwork of local models and approaches. "What am I supposed to do, have a blue state and a red state operating model?" asked Beveridge.

The Battle Lines

Unsurprisingly, the multifamily industry has come out in force against the FCC’s proposed bulk billing ban. "We are pushing the commission to rethink its approach," says Kevin Donnelly, VP at the National Multifamily Housing Council (NMHC), the largest multifamily industry trade association. "It’s a very well-intentioned attempt to get more competition, but the rule changes we’re seeing thrown about could disincentivize providers from entering the multifamily space at all."

For internet providers, however, the situation is a bit murkier. The NCTA, the trade group representing the largest internet providers, came out against the new regulations. WISPA, which represents smaller providers, had a mixed message, touting the potential benefits of bulk billing arrangements while endorsing a tenant opt-out option. A third telecom trade group, INCOMPAS, applauded the FCC’s proposed regulations.

Considering the incentives, it’s not surprising that the telecom industry is mixed on the issue. The new regulations offer a combination of problems and benefits for a large MSO like Comcast, for example. While Comcast has a managed Wi-Fi offering, that business line still pales in comparison to the company’s retail operation. And retail service offers far higher revenue per user as well as opportunities to up-sell higher margin products (e.g., the "triple play").

And ISPs that primarily rely upon retail business—generally represented by INCOMPAS—are celebrating the new proposed rules. "It’s a group that has demanded access for its members into multifamily or multi-tenant environments," explains Donnelly. Unlike managed Wi-Fi providers attempting to negotiate deals with owners, retail providers market their service directly to tenants. "From their perspective, it eliminates us as competition," says Kok.

In general, smaller broadband providers tend to be more skeptical of the proposed rules. "Bulk broadband is a lynchpin of success for small providers, especially as it relates to multifamily," says Donnelly. "[Multifamily] owners will go out and try to lure broadband providers in to upgrade existing infrastructure. They often have to go to competitive providers, which are independents. But the only way small, local firms are able to get financing is to demonstrate a guaranteed rate of return."

On Physics

The fact that managed Wi-Fi is not already tightly regulated is a bit of a historical quirk. Two years ago, the FCC tightened regulations limiting exclusive marketing and revenue share agreements between multifamily owners and cable companies. But broadband-only providers weren’t included in that regulatory crackdown, allowing owners a freer hand in negotiating bulk internet deals with companies like Aerwave, Gigstreem, and Pavlov. This has been described as a "loophole" in prior commentary to the FCC—by venture-backed retail Wi-Fi provider and INCOMPAS member Starry, funny enough—and the Commission appears to agree.

But physics also has a vote in the matter: while nothing prevents dozens of broadband and cable providers from running internet to a property, a building simply cannot have more than one managed Wi-Fi provider at a given time. "All Wi-Fi providers have to be the exclusive managed Wi-Fi provider in the building," says Gigstreem’s Kusminsky. "If I’m there and Aerwave is also there, there will be a tremendous amount of interference."

So when it comes to building-wide Wi-Fi, comparisons to traditional internet service break down, as it’s not physically possible for a tenant to choose between different managed Wi-Fi providers. The owner must choose, and the only questions remaining are (a) how much that service will cost the tenant and (b) whether the tenant can opt-out of the managed Wi-Fi service and instead set up a retail contract with another internet provider in the building. "There’s a big difference between [an owner] agreeing with Comcast or Google to put a modem in each unit versus something community-wide and managed," explains another industry insider.

The Path Forward

Today, the FCC’s proposed regulation is little more than a press release. That will change in late April when the Commission is likely to announce a more detailed recommendation. "The FCC has an open meeting on [April] 25th," explains Kok. "Maybe in that meeting [the proposition] will actually be shared and won’t just be a press release and hearsay. Once that’s released we’ll have 30 days to make comment on it. It’ll be quick turnaround once it does come to light."

While some foresee an "opt-out" option being the Commission’s most likely approach, it’s unclear that this intervention will achieve the FCC’s stated goals. Instead, opt-outs may introduce enough risk to throttle investment in managed Wi-Fi while not actually producing enough retail customers to incentivize competitive providers to offer service to a building. "We’ll make opt-out work, but who will be the competitive options other than 5G or Starlink that have antennas or receivers on apartment balconies?" asked an industry insider.

"[The FCC] is trying to lower cost and increase choice," says Level’s Murphy. "But I’d be skeptical that the way they’re thinking about this is going to solve the cost issue."

This battle reflects an existential issue with the FCC’s stated goal of consumer choice of internet provider. In a world where internet service is increasingly a commodity—and the actual content is delivered by "Over the Top" (OTT) providers like Netflix, Disney, and Amazon—do customers even care about provider choice?

For the past decade, FCC Chair Rosenworcel has fought for net neutrality protections by having broadband internet classified as a "utility" as defined by Title II of the Communications Act of 1934—in their own words, "on par with water and power." If internet is indeed a utility, provider choice shouldn’t matter; regulatory authority should be focused on service reliability, price, and penetration rather than whether renters are able to pick between Comcast and Spectrum. Of course, utility-like regulation would likely mean stricter pricing controls and more federal oversight of other aspects of service such as speed and access. "It’s a utility," says Aerwave’s Kok. "As long as that utility works and is an affordable rate, you’re happy and satisfied."

If the FCC continues to prioritize competition, subsidies and incentives may be needed to achieve greater broadband access, especially in lower-income communities. "The idea that there are competitive providers looking to rush into properties and provide service—they don’t really exist," said one person with knowledge of the multifamily connectivity sector. "Over the past decade, owners have borne more of the responsibility for wiring. Still, no provider will build out to a community unless they can get a significant penetration to offset their investment."

Multifamily insiders are hoping to use the next month to convince regulators that managed Wi-Fi does more good than harm. "We’re connecting the dots for property owners and broadband providers, issuing a rallying cry," said NMHC’s Donnelly. "We’re telling our story about the positive role of these technologies in our space."

"If the goal is to provide good, cost-effective service in a dense environment, what the FCC proposes appears counterproductive," notes one insider. "In a world where most devices are connected to Wi-Fi, I am confused by the emphasis on competition for every unit over the quality of service for the entire community—and inside each unit."

In the meantime, multifamily owners are faced with the tough decision of how much to invest in internet connectivity in their buildings. "Bad decisions like that have a long half life in a property," explained Beveridge. "And there are a very small pool of people who actually understand how any of this stuff works."

—Brad Hargreaves