Going Large

Over the last couple of years, Wireless Fidelity or WiFi (also referred to as “802.11b”, “802.11g” and “802.11a” after the IEEE standards) has quickly grown to become the dominant wireless LAN standard. Because it operates in unlicensed frequency bands, anyone can set up a WiFi network and cover an area of typically 100-500 feet with high speed wireless access to a LAN, and hence to the Internet. Unlike other wireless technologies like GSM or CDMA, WiFi has also become a universal standard. As a result, WiFi components are now on a rapid cost reduction curve as volumes increase.

Recently, many companies  - both new and established – have begun to set up WiFi access points in public places such as cafes, airport lounges, book stores and railway stations. Known as ‘hotspots’, these provide suitably-equipped laptop PCs and PDAs with the ability to connect wirelessly to high speed Internet services, and hence to corporate networks and other services.

In April, BT and airports operator BAA announced the availability of a hotspot service at Heathrow as part of BT’s planned Openzone service, to be rolled out at four airports, 51 hotels and 27 service stations over the next few months. BT aims to have 400 sites working this year and 4,000 by June 2005. Also in April, French mobile operator SFR and French infrastructure provider Telecom Developpment launched a hotspot service at Paris’ Gare du Nord. Orange France announced its own extensive plans for hotspots a couple of months ago. So too did Swisscom, announcing pan-European aspirations in March with its acquisition of London-based Megabeam Networks and Germany’s WLAN AG. The new company – called Swisscom Europort – is aiming to have hotspot coverage in eight countries with roaming agreements for a further four. Through Megabeam , it already has the network rights for 12 UK railway stations, 14 European airports and over 100 business hotels.

In the US there are already many hotspot providers, some big like T-Mobile and AT&T Wireless, many much smaller like Wayport, Airpath, Pronto, Deep Blue and Gatespeed. T-Mobile, who already provides the service for Starbucks outlets throughout the US, announced deals in April to cover 145 branches of Borders Books and Music chain in several states. Meanwhile McDonald’s is also getting in on the act, announcing a pilot scheme in April covering 10 New York outlets. And their price? Free of charge for an hour so long as you buy a meal. Even New York City’s Downtown Alliance is launching hotspots in City Hall Park, Bowling Green Park and Rector Park, with more to follow. 

So who will win out? Or are we seeing a latter-day Internet boom chasing a zero revenue model that will ultimately end in tears for everyone?

What users want

Some shaky signs seemed to appear in April. It was reported that Starbucks outlets in the US are finding that, of the roughly 22 million people visiting its outlets in North America in an average week, only around 25,000 are using the WiFi service. T-Mobile, who runs the service, recently cut charges to 10 cents from 25 cents per minute or $30 per month for unlimited access.

Yet this concern may be a little premature.  At present, under 6% of notebook PCs sold last year had built-in WiFi access. However in March, Intel launched its Centrino chipset for wireless PC working. PC makers Hewlett-Packard, Dell, Toshiba, IBM and Sony all promptly said they would be including the chipset in their new notebooks. As a result of this and other activities, an estimated 35% of PCs sold this year are expected to have WiFi access and this will continue to rise quickly – to an expected 90% by 2005. On top of that, WiFi capability will become increasingly available in PDAs and even some cell phones. Motorola for example plans to launch such a cell phone later this year. At that rate, virtually everyone with a notebook and those with many other devices too will be able to access hotspot services. But will they?

Research suggests that there are about two million potential hot spot locations in the US alone – and a similar amount again in Europe. The trouble is, they will not all be owned or operated by the same hotspot provider. Not by a long way.

So, if you go to your favourite café and find it’s signed up with a provider you don’t have an account with, do you take your business down the road to another that has – assuming there is one? If you turn up at a railway station or airport to find your provider not catered for, what then? You could end up with multiple accounts, and therefore multiple bills, together with multiple security passwords in multiple access software packages. 

This is clearly not what users want. It needs to be simple. Anywhere there is a hotspot, you want to be able to use it with the one access method and password, with an easy way to pay.

Making the case

WiFi aggregator Boingo Wireless shows some interesting figures to illustrate a profitable business case. For an average café with 300 daily visitors and only 2% of these using WiFi – in other words 6 users a day – coupled with an average 10 sign-ups per month, Boingo reckons on the hotspot business making $306 per month profit. That’s for charging $1.50 for connections and $20 for each sign-up. The case for an airport is similar but with much larger numbers. With 2 million visitors per month and 1% of these using WiFi, the monthly profit goes to $23,111.

However, this is not the whole story. It doesn’t take into account the most important aspect – generating additional income from the business’ main product, such as selling more coffee or pastries. Starbucks has a number of other not-so-obvious reasons for getting into WiFi. For example, the overwhelming majority of Starbucks’ store revenues are generated before 9am in the US. Although there are some spikes in customer traffic during lunch and mid-afternoon, for most of the day the stores don’t get many customers. WiFi might be a way to take up some of this ‘empty time’. Another reason is for internal communication. Starbucks regional managers are responsible for multiple stores yet, when they are visiting the stores they manage, they have problems accessing e-mail and corporate information required in the stores. WiFi can help with this. Then there is the possibility of reducing overall fixed line communication costs. It might even be possible to introduce new services, like ordering your coffee online rather than having to queue for it!

Easy access

But the real nut to crack is the potentially multiple sign-ons and multiple bills from wanting to use hotspots wherever it’s convenient for you.

One approach that mobile operators are now exploring is integrating hotspot use with GPRS, so that when you’re not in range of one of their hotspots you can still use their GPRS service. All hotspot and GPRS use is then charged for on the same bill. However, GPRS is not a standard fitting on PCs and it might be a while before it is. There is also a world of difference between hotspot speeds and GPRS ones. Rather like Eurostar speeding through France before slowing to a crawl on the UK rail network!

Also, there is no way that each mobile operator is going to be able to provide anything more than patchy hotspot service to its customer base. There are simply too many possible locations and too many vested interests. It is already highly unlikely that mobile operators will dominate the hotspot business so the equivalent of mobile roaming agreements may not provide a universal answer.

Getting connected is also not a trivial process. Users are expected to know things like ‘SSIDs’ (Service Set Identifiers, for identifying WiFi networks), how to turn on and off security settings and how to program configuration software. Different SSIDs for different hotspots, different passwords, different log-in screens and a variety of different ways to pay . . . unless it’s free with a meal, in which case you may be logged out unexpectedly when your free time is up.

Again, Boingo has an answer to this problem, in the shape of a new market player acting as aggregator. The aggregator provides the PC software, looks after the sign-ons to any hotspot and looks after the billing. It then acts as a reseller of hotspot capacity purchased from the hotspot provider – a Virtual Hotspot Provider in fact rather like MVNOs (Mobile Virtual Network Operators) in the mobile market.

It looks like this business is going to get more complex with yet more players before it gets simpler!

 © e-principles 2003

Robin Duke-Woolley