Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
(This is the second installment of a two-part article series on the technical, operational and revenue impacts of deploying Wi-Fi offload to meet mobile data demand.)
As discussed in part one of this article series, Wi-Fi offload has emerged as an attractive alternative to more expensive solutions for adding much needed mobile bandwidth capacity as operators seek to meet surging data demands. But even value-based technologies come at a cost and operators still need to be able to justify deploying the technology from a financial perspective. Many of the strategies for offsetting these costs can be leveraged by both mobile operators aiming to serve existing customers and wireline operators that want to create a new mobile offering.
The Economics of Deploying Wi-Fi
In most cases, operators will look to Wi-Fi as a new revenue opportunity or strategy for reducing operational costs. Operators are often surprised when they learn about the significant efficiency gains that can be achieved by strategically deploying Wi-Fi in the network. This is especially true for congested areas that can’t be cost-effectively served with licensed macro networks, such as indoor malls, large convention centers and subway systems.
A key challenge associated with deploying any micro network is ensuring backhaul and power availability throughout the target footprint. Without proper planning, the costs related to these challenges can become prohibitive. There is also the potential for the Wi-Fi network to cannibalize regular wireless traffic, making it important for the wireless operators to consider how they’ll offer and charge for such services. Sometimes, new revenue models will need to be introduced. In other cases, the strategic importance of that location demands a high capacity microcell wireless solution, such as Wi-Fi, to ensure satisfactory user experience
Due to real estate availability and interference management limitations associated with macro networks, certain minimum distances need to be maintained between those types of cell sites. Micro cell networks like Wi-Fi, however, are smaller and don’t transmit as much power, allowing them to be packed closer together. Even estimating conservatively, the result is the ability to serve the same size area with 10-15 times more capacity for around the same cost as a new macro cell deployment. This is assuming that proper backhaul and power solutions are available.
Wi-Fi Revenue Models
When it comes to covering the cost of Wi-Fi deployments (and even profiting from them), there is no shortage of revenue models that can be wrapped around a service:
1. Retail
JiWire estimates that worldwide, 78% of Wi-Fi hotspots require that users pay a fee in order to access. Compare that with only 21% of hotspots in the US requiring that users pay for access. The US market has been generally conditioned toward free Wi-Fi access in local establishments or from their cable operator, for instance. However, there remains opportunity to offer plans to users in areas where Wi-Fi is newly introduced, premium locations such as sporting venues, and locations where existing Wi-Fi services are slow or overcrowded, to name a few. Boingo is an example of a Wi-Fi aggregator that is offering paid Wi-Fi access.
2. Serving the competition’s customers
Microcell solutions like picocells that sometimes compete with Wi-Fi offload can typically be used by a wireless operator to serve their existing subscribers only, due to band and technology limitations. Delivering services via Wi-Fi enables an operator to serve anyone with a Wi-Fi-enabled device, creating the opportunity to earn revenue from the competition’s customers. These types of deployments are more likely in locations where there is one operator sponsor, such as a sporting venue. They are also typically accompanied by extended, exclusive agreements for access to the venue, creating long-term competitive advantage opportunities.
3. Advertising
Requiring that a user view ads in advance of connecting to the Internet or placing a rolling banner in the browser windows are examples of advertising opportunities. These types of agreements are typically based on the concept of CPM, which calculates fees based on the number of estimated views. In most cases, operators can work with an ad aggregator to line up advertisers in exchange for a fee or revenue share.
4. Sponsorship
In these arrangements, a corporate entity will fund access and typically require that the user visit their web destination before connecting to the Internet. In sponsorship arrangements, fees can be calculated based on the number of clicks to the sponsor’s website, with the value of those clicks in the US typically varying between a few cents to around a dollar based on the nature of the content. A variation of this sponsorship model includes free access to a predefined set of e-commerce websites, with the Wi-Fi network provider receiving a commission for every purchase that is made. Boingo recently made headlines for its new corporate-sponsored hotspots in popular New York City subway stations.
5. M2M
Also known as the “Internet of things,” the opportunity around connected devices like asset monitors, security systems, thermostats, etc. is expected to open additional doors for Wi-Fi network monetization. In these cases, a limited data plan can be sold for use by M2M devices, which typically exchange limited amounts of data (e.g. temperature information or alarms). In fact, IEEE is in the early stages of developing the 802.11ah standard focused around M2M devices that will operate below 1 GHz and have lower bandwidth but longer range.
6. Offload and wholesale
Due to backhaul and power supply limitations, it won’t always be feasible for mobile operators to deploy their own Wi-Fi networks. This creates a key revenue opportunity for wireline operators that can more cost-effectively handle the capacity. At IBB Consulting, we believe that the introduction of Next Generation Hotspot (NGH) (discussed in part 1) will provide a significant boost to Wi-Fi offload business opportunities due to improved discoverability and security that will enable it to command a higher premium compared to current wholesale rates.
Down the road, as high capacity Wi-Fi networks like 802.11ac roll out in parallel with backend improvements around NGH, the opportunity will emerge to serve a wider variety of users through various evolving revenue models.
Hillol Roy is a fellow with IBB Consulting and an accomplished wireless industry veteran with over 18 years of wireless business and technology leadership experience. He has guided Wi-Fi business and technology planning for several leading North American cable operators and other Wi-Fi operators. Hillol will moderate a panel about monetizing Wi-Fi at the WBA Wi-Fi Global Congress event being held June 10-13 in London.
