Subject: [NEXTEL-1] WiFi Business Model Proves Elusive

From: [email-masked]
Date: Sat, 17 May 2003 22:42:13 -0400

WiFi Business Model Proves Elusive
Sat May 17, 2003 09:18 AM ET

By Bernhard Warner and Braden Reddall

LONDON (Reuters) - Whether it be broadband Internet access, 3G mobile phones or flat
screen monitors, the high-tech industry has turned hyping new technologies into high art.
Cashing in is another matter entirely.

WiFi -- a technology that allows users of laptops and handheld mobile gadgets to surf the
Net
in public places at high speeds -- is the latest favored acronym.

But this time there's a difference: WiFi is already being installed, with 15,000 locations
going
live across Europe by year-end, being championed by an unlikely combination of coffee
shop
owners, mobile phone operators and chip manufacturers.

As with all new technologies, questions abound about how to attract customers and make
money from them. Since WiFi equipment is so cheap to install, operators are launching and
learning.

A "land grab" reminiscent of the dot-com days is underway, with operators big and small
anxious to plant their WiFi transmitters wherever laptop-toting travelers dwell.

In Europe the race to WiFi is led by operators like BT and Swisscom, which do not have
the
billions of euros tied up in third generation (3G) high-speed mobile phone networks. With
much smaller WiFi investments they hope to grab a slice of the mobile data access market.

Equipment costs run as low as several hundred dollars for a small cafe. For operations to
break even, a WiFi operator only needs to cover the cost of the high-speed telecoms line
connecting its "hot spot" to the Net.

Even so, they face challenges.

HOT SPOTS: SURFERS NEEDED

Research shows that a small cafe requires dozens of regular users every month to recoup a
hot spot's running costs.

This means WiFi as a business proposition works better in places where there are more
people, such as an airport, according to Paul Lee of Deloitte Research.

But even at Amsterdam's Schiphol Airport, the number four in Europe with 41 million
passengers a year, only around a dozen people log onto the WiFi network on any given day,
compared with some 600 getting onto the fixed line Internet, said Edward van de Zande,
who
manages the public Web access services at the airport.

"I believe it will be very tough to build a profitable business on WiFi hot spots alone,"
he
said.

Operators agree that revenues will be modest for some time.

BT Group, which has a goal of wiring 400 hot spots by August, aims to earn 30 million
pounds ($48 million) in annual WiFi revenue by 2005. In its sights are main airports,
considered prime Wifi real estate across Europe.

Price is still a big drawback for would-be WiFi users. Surfers, on average, pay seven
euros
($8.10) per hour, according to Pyramid Research. Monthly contracts run as high as 120
euros.

PRICES FALLING

Prices are falling quickly to below $10 a day, and while this could spur demand it becomes

even harder to make a profit. Another bottleneck is lack of roaming agreements between
WiFi
operators. Traveling business professionals may have to sign up to more than one service
to
stay connected on the road.

There are signs of progress here though. BT has struck a deal with Sweden's TeliaSonera
and SwissCom notched a similar deal with SFR, a joint venture between Vivendi and
Vodafone, to operate beyond their home borders.

While that serves international travelers, users moving around a country may be out of
luck,
said Dave Hughes, director of mobility for BT Retail.

"The question is, will there be national roaming coverage?," Hughes said, likening the
current
scenario to the days when a consumer couldn't use the cash machine at a rival bank.

http://reuters.com/financeNewsArticle.jhtml?type=businessNews&storyID=2762300