Subject: [NEXTEL-1] Will Low Per-Hotspot Usage Scale Back Wi-Fi Plans?

From: [email-masked]
Date: Tue, 08 Jul 2003 15:30:44 -0400

Will Low Per-Hotspot Usage Scale Back Wi-Fi Plans?

For a while, with Wi-Fi as the one bright spot in an otherwise bleak telecom
landscape, there was something like a frenzy surrounding the technology. Now,
while Wi-Fi is clearly a huge success, there are hints that cooler heads may be
beginning to prevail over its suitability as a commercial subscriber offering.

A new study from Forward Concepts suggests that Wi-Fi's per-hotspot revenues
are likely to remain relatively low for years. It's already clear that the main
reason
commercial Wi-Fi is on the table at all is because the economies of scale created
by its success as a home networking technology have driven down equipment
costs. It's looking increasingly as though commercial Wi-Fi will survive -- if it
survives at all -- by joining with other technologies and by eking out every
conceivable shred of efficiency.

The best known commercial Wi-Fi offering is, of course, T-Mobile's Hotspot service

which now has some 2,445 locations across the country. T-Mobile's service is
best known for being in Starbucks coffee shops, but the carrier also has hotspots
in Borders bookstores and a handful of airport locations. In April, the carrier
announced a partnership with photocopy and quick print shop Kinkos that will give
it access to an additional 1,000 locations.

However, reports suggest that usage has been very sluggish. T-Mobile has
adjusted its pricing plans twice, once to simplify the offering and then again to
offer
a greatly reduced price to its voice subscribers. Verizon [NYSE: VZ] recently
announced plans for its own hotspot network in New York City, but is building it
on
the foundation of its payphone network and is offering the service free to its
Internet customers. Verizon's justification for the cost of the system would
appear
to have more to do with marketing its ISP and broadband services than with
generating subscriber revenues.

There have been other Wi-Fi setbacks in recent weeks. One that drew attention as
a possible harbinger of things to come was the apparent abandonment of Wi-Fi by
Singapore-based cellular operator MobileOne.

MobileOne had launched a trial in February, offering free access through some 60
hotspots across Singapore. The original plan was to eventually offer Wi-Fi as an
adjunct to MobileOne's other services. CEO Neil Montefiore described plans to
expand the 60 hotspots to as many as 150 by mid-year.

Instead, however, MobileOne pulled the plug on the service in favor of a renewed
focus on 3G. The reasons Montefiore gave were telling. The penetration of laptops
remains miniscule compared to the penetration of mobile phones. Users didn't like
the lack of mobility created by the short range of the hotspots. And, despite
Wi-Fi's usefulness for some applications, he didn't see how the company could
make any money on it.

Forward Concepts' new report, Wi-Fi Hotspot Opportunities: Exploiting the New
Phenomenon, suggests that that's going to be a problem for everyone going
forward. The report projects impressive overall growth for Wi-Fi -- some $8
billion of
revenues in the U.S. by 2007 -- but things aren't nearly as simple, or as rosy, as

that number would suggest. Author Daniel Sweeney notes that it will take a lot of
hotspots to generate that kind of money -- some 530,000 by 2007. That works out
to a yearly revenue per hotspot of a little over $15,000. The report projects an
average of about 20 sessions per day for each hotspot by 2007. That's an
improvement from a truly anemic estimate of 190 sessions per year at present.
But it's still not that high.

Worse, usage and revenues won't be evenly distributed. As long as PDA and
smartphone penetration remains low, Sweeney says, "laptops are where the real
markets are." And that suggests that usage will be disproportionately found in the

hotels and airports that have been the focus of early buildouts. "That's where the

whole thing began," says Sweeney, "in first tier airports and business hotels.
Those are good businesses and I think convention centers will be good
businesses." As for the growing effort to build hotspot networks along retail
chains, like WorkingWild Inc., which has signed an agreement to locate hotspots
in Circle K convenience stores across the Southwest, Sweeney says, "I think it's
a stretch, but it's possible."

Given the overall low usage expectations, Sweeney argues, success will require
the lowest possible infrastructure costs. With that in mind, another look at
Singapore is instructive. In addition to MobileOne's trial network, Singapore
Telecom has also deployed its own 150-hotspot network, and plans to expand it to
more than 200. In effect, both companies were planning to pay the full cost of
deploying island-wide coverage and then splitting the market between them. That
may be the way it works elsewhere in the telecom world, but Sweeney's numbers
suggest that model isn't going to cut it in Wi-Fi.

A better model might be shared infrastructure, an open hotspot available to all
comers. Several recent announcements from Europe suggest providers there are
exploring this model. The Munich airport is installing a provider-agnostic Wi-Fi
service that will give users free access to airport information, and let them
select
an outside provider from a drop-down list.

On a larger scale, French mobile operators SFR, Orange France and Bouygues
Telecom recently agreed to open their Wi-Fi hotspots to each other's customers
by the end of the year, effectively pooling their assets in a shared network.

These tactics may still not be enough to make public Wi-Fi access a paying
proposition. But it's looking more and more like they're necessary, whether
they're
sufficient or not.

http://www.telecomweb.com/broadband/feature.htm

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