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By Goli Ameri
Over
the past 2 years, while most high tech sectors faced major slowdowns,
the Wi-Fi market has enjoyed tremendous growth. The evolution of
"hot-spots" or public wireless local area networks (WLANs),
however, has had many false starts. Some business model pitfalls
were a direct result of the flush capital markets of the late 1990s
which encouraged reckless spending with little thought given to
traditional income and expense models. Others were associated with
the normal trial and error operations of launching any new business.
The original Wireless Internet Service Provider (WISP) model required
substantial investments for network infrastructure and real estate
with anemic subsequent revenues and subscriber uptake. WISPs like
MobileStar and Ardent Communications (CAIS Internet) expended significant
initial investments, since for one they had the cash and secondly
the theme of the day was nationwide build-outs. In addition, little
emphasis was placed on cost-effective technical solutions such as
the usage of T1 lines vs. digital subscriber line (DSL).
The original WISPs had anemic income for a number of reasons including
revenue sharing model and service pricing. WISPs paid for everything
and smaller WISPs kept only 10% of the revenues while MobileStar
kept 80%-90%. This model did not work and today the marketing motto
has changed to allowing the hot-spot owner to have "skin in
the game".
WISPs are asking for a guaranteed monthly minimum fee as well as
monthly support fees to receive cooperation from hotels. Lease financing
has simplified this revenue model as well. Some hotel WISPs have
a revenue sharing arrangement on public meeting rooms.
WISPs have had a difficult time with service pricing as well. MobileStar
charged $69.99 per month for unlimited usage. Both MobileStar and
Metricom’s fees have revealed that $70 is not mass market
pricing especially for a service that is not adequately ubiquitous.
Today, WISPs in both the US and Europe are experimenting with DSL-type
pricing between $48-$50 per month for nationwide access. Local monthly
rates are between $20-$30 per month. Daily usage can range from
$7-$12.
The Japanese, who have historically been more adept at service pricing,
are charging between $12-$17 per month for unlimited usage. This
is a more effective solution for buying market share reminiscent
of the early days of DSL pricing (in Japan).
WISPs have also struggled with proper marketing techniques. Small
startup companies with limited resources have been expected to build
brand, educate the consumer and drive the market. To be able to
do more with strained resources, WISPs are best served to focus
their initial efforts on one vertical market segment such as hospitality,
airports or coffee shops rather than the general corporate or consumer
markets. Customer acquisition costs dwarf the cost of network infrastructure
in the hot-spot space.
Some WISPs like Wayport have figured out that providing wireless
access alone is still not a moneymaking proposition. Similar to
Sonera that bundles its WGate WLAN with its GPRS service, Wayport
supplements its WLAN subscriptions with revenue from Laptop Lanes
and its wired hospitality installations. Other revenue generating
methods include providing parallel wireless networks for the personal
use of hot-spot owners as well as the neutral host model currently
employed in the Minneapolis airport where many different service
providers offer service on the same airport-owned WLAN network.
Many of the major wireless carriers in Europe, Japan, Singapore
and South Korea have started launching public hot-spots. The European
telephone companies were the first to embark on the WLAN initiative
since they made the hasty yet wise decision they would rather lose
3G revenues to their own subsidiaries rather than to third party
WLAN service providers. Korea Telecom and Hanaro Telecom have the
most aggressive build out strategies with the latter committing
to 25,000 access points last year.
In the U.S., although, announcements have been few in number, most
of the major carriers are in the process of developing their WISP
strategy. T-Mobile has been the most aggressive with agreements
with Starbuck’s and Borders Books. The founding of Cometa,
the startup Wi-Fi wholesaler, may accelerate this process.
In reality, U.S. carriers are currently sitting on the sidelines
and observing and learning from the initiatives around the world
as well as their own internal trials. These trials are not necessarily
only WLAN/hot-spot initiatives, but rather service management efforts
that will ultimately lead to the effective deployment of hot-spots.
For example, Verizon recently announced that it will provide and
install WLAN networks to small and medium enterprises.
Sprint has also taken important steps towards providing managed
LAN network services in the enterprise, which may be a first step
towards providing WLAN services. Sprint has also become very active
in the hospitality industry with the Sprint InSite - a service that
provides advanced guest solutions and in-room entertainment. Although
neither of these are wireless initiatives, they, no doubt, are a
test bed for future provisioning of managed wireless services. More
information on carrier and WISP efforts can be found in eTinium’s
upcoming study on Seamless Mobility: The Marriage of 3G and Wi-Fi.
Once the major U.S. carriers have covered the enterprise base, they
may enter the hot-spot market through a variety of methods. For
one, major airports and public venues would prefer to deal with
established players and a co-branding initiative could potentially
launch the carriers’ entry into the hot-spot market. The carriers
are learning about security, network management and provisioning
through their enterprise experience. They already have the roaming/billing
experience through their cellular divisions. All that would be left
would be to marry these two together.
About the Author:
Goli Ameri is the President of eTinium, Inc. (www.etinium.net) a
telecom consulting and market research company specializing in wireless
and switching technologies.
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