Without going too far out on a limb, it seems a safe bet to claim the wireless industry has gone crazy for most anything associated with the term Wi-Fi.
From wireless operators clamoring to install access points into just about any location where people can meet or drink coffee to telecommunications companies rigging up their old-tech payphones with high-tech Wi-Fi capabilities, it would appear you would be hard pressed to not be within reach of a public Wi-Fi hot spot at nearly every waking minute of the day.
According to a recent report from Tempe, Ariz.-based Forward Concepts, “Wi-Fi Hotspot Opportunities: Exploring the New Phenomenon,” the current “land-grab” frenzy in the public Wi-Fi space will increase the number of hot-spot locations in the United States by an estimated 46,000 access points this year. Following an expected slowdown in 2004 due to an industry search for appropriate applications, content and terminal designs, the public hot-spot market is expected to top 530,000 locations by 2007.
While such growth projections look impressive on paper, the report warns that a number of issues still need to be worked out by the Wi-Fi industry or it could see a similar fate as the wired Internet bubble, whose effects are still being felt by the technology markets today.
“We see the emergence of hot spots as almost a textbook case of effective repurposing of technology, but a closer look reveals some troubling deficits on the market thus far,” noted Daniel Sweeney, the report’s author. “In most cases where re-purposed technology has succeeded in a big way, such as the Internet, it has exhibited a strong grass-roots component in terms of the user base. In hot spots to date, the grass-roots aspect of the phenomenon resides on the service providers themselves, which are often very small, single-location businesses linked in a franchise arrangement with a hot-spot aggregator or platform developer. Unless hot spots inspire a similar degree of enthusiasm among subscribers, the same fate could befall the hot-spot industry as befell e-commerce at the turn of the millennium, where similar vendor enthusiasm far outstripped market acceptance.”
Analysts note one of the main challenges standing in the way of public Wi-Fi adoption is pricing models that range from free to more than $50 per month for unlimited access. Consumers may be hard pressed to argue against free pricing, the business cases for such offerings are limited, and most public hot spots will charge customers for access.
“Wi-Fi is in its infancy and providers are still struggling with figuring out exactly how to price the service,” noted Sam Bhavnani, mobile computing analyst at ARS.
The Forward Concepts report predicts that the average hot-spot location in the United States will host 190 sessions this year, with a disproportionate share going to business hotels and major airports. By 2007, the report predicts approximately 4 billion sessions in the United States, generating approximately $8 billion in revenue or about $15,000 per hot spot per year.
“At such usage levels profitability for the industry as a whole is contingent upon the lowest possible infrastructure costs, a fact that will force telco incumbents to re-evaluate their business plan,” Forward Concepts added.
Balancing out the potential revenue is the cost associated with deploying a public Wi-Fi access point, which includes the cost of equipment, any lease or rent fees a Wi-Fi provider may have to pay to a location and the cost of providing the backhaul connection, which can range from relatively low-cost digital subscriber lines to higher-speed and more expensive T-1 or T-3 connections. Analysts have placed the costs of running a public hot-spot location at anywhere from $2,000 per year for a DSL-equipped access point to more than $15,000 per year for a larger location using a speedier T-1 connection.
The slim potential margin between revenue and expenses is expected to have a dramatic effect on the landscape of the public Wi-Fi market as analysts predict the demise of a number of operators in the space. Pyramid Research analyst John Yunker noted that public Wi-Fi aggregator Boingo Wireless Inc., which was one of the first companies to enter the public Wi-Fi space and claims to have more than 1,100 access points in 43 states, has only a year-and-a-half of cash on hand and is finding increased competition in the marketplace from more established telecom companies.
Even with deeper pockets, many question the financial motives behind wireless operators getting into the public hot-spot business.
“I understand why there is so much hot-spot interest from companies like T-Mobile and AT&T Wireless-it’s based on survival, not investment return and [average revenue per user] growth,” explained Bob Egan, president and founder of Mobile Competency. “But no true value proposition has emerged to guide carriers on how to make money from hot spots.”
Beyond the business model, there is also concern that Wi-Fi’s window of opportunity is limited, and once wireless operators begin offering high-speed wide area network services the appeal for limited-reach Wi-Fi offerings will dwindle.
Most nationwide carriers already offer wireless data services with network speeds of between 20 kilobits per second and 150 kbps. While those speeds do not compare favorably with the more multiple Megabit speeds Wi-Fi networks are capable of offering, analysts note the benefit of mobility plays into the WAN’s favor.
“The more that I use my 1x cards, the more I realize how deficient Wi-Fi is when it comes to public access-with very few exceptions,” explained Egan.
WAN speed is also being addressed as a number of small carriers have already launched wireless data networks that offer speeds in excess of 500 kbps. Nationwide operators are also getting into the act with Verizon Wireless announcing plans to launch cdma2000 1x EV-DO networks later this year in a couple of markets and most of its competitors trialing high-speed technology in some of their markets.
