If there is a hot topic for the telecom industry, it’s hotspots. Public access networks based on the 802.11x Wi-Fi protocol are being deployed all over the country by local ISPs and other companies in piecemeal fashion. Now, larger scale deployments are being considered by both wireless and wireline carriers.
ForceNine Consulting’s recent study, “The Market for WiFi HotSpots: Consumer Behaviors and Relationship with 3G,” speaks to some of these issues, offering wireless carriers, in particular, information and analysis to make key business decisions regarding Wi-Fi product development, sales strategy and price structure. In addition to describing future market potential and successful service strategies, the report examines customer segmentation and competitive technologies.
“The telecommunications industry has been in a tailspin over the last 24 months, and Wi-Fi is seen as a bright spot to many service providers and technology investors looking for new avenues for revenue generation both in the near and long term,” says consultant Andy Roscoe, co-author of the report. “While Wi-Fi holds a great deal of promise, it is also one of the most misunderstood segments of the broadband wireless market.”
Research from IDC concurs, noting that building a functional network offering that attracts and retains subscribers over the long term will prove to be far more difficult than today’s Wi-Fi hype might indicate. “In many respects, the hotspot market feels like another technology gold rush,” says Keith Waryas, research manager for IDC’s Wireless Business Network Services program. “What we’re hearing right now are the promises of fame and fortune typical of an early deployment phase. It is imperative to remember that this market is still exceptionally young and rife with uncertainty. Most business models are not yet proven, or even solidified, and the competitive landscape is still very unclear. The hard work needed to achieve Wi-Fi’s promise still lies ahead.” Over the next five years, IDC expects the hotspot market to evolve through two distinct phases — two years of massive network footprint expansion followed by three years of intense relationship building among carriers, network operators and service providers.
The first phase will be characterized by dramatic growth in both the number of hotspots and hotspot users. During the next five years, IDC projects the worldwide number of available commercial hotspots will increase at a compound annual growth rate of nearly 57 percent, while the number of worldwide hotspot users will approach 25 million. One consequence of a rapid buildout is that many public access points will be underutilized because they weren’t deployed in a thoughtful manner, the research firm predicts. This will be further complicated by the evolution of usage patterns, pricing tolerances and service expectations among users.
In the second phase, IDC says network roaming relationships and network partnerships will become an essential ingredient for long-term success as providers seek to fill holes in their footprints and expand network utilization. This phase will be increasingly influenced by the weight that wireline and wireless carriers bring to the market as they seek to offer Wi-Fi as a lowcost extension of their existing services.
The hotspot market presents new challenges to network service providers (NSPs) because they do not control the spectrum or locations, and the equipment is simple and inexpensive to install, note analysts at Gartner. They say service providers that want to compete in this market must have an attractive business proposition for location owners or partnerships with other hotspot service providers. “NSPs need to figure out how to generate revenue directly from hotspot users, as opposed to relying on revenue from supplying backhaul broadband lines,” says Ian Keene, vice president in Gartner’s telecommunications group. “To do this, they should consider adding hotspot access to their existing services, rather than positioning it as a standalone source of revenue.”
A study from Wirthlin Worldwide shows that cable operators, wireless network providers and wireline telephone companies have an opportunity to bundle Wi-Fi with their existing offerings. Among likely subscribers, similar percentages would buy Wi-Fi if it were bundled with cable modem service (17 percent), with DSL service from a telco (17 percent), with cellular phone service (20 percent) or with telco-provided phone service (20 percent). Fewer prefer Wi-Fi service from an independent Wi-Fi provider (13 percent) or bundled with dial-up Internet access from an ISP (10 percent). Probe Research analyst David Chamberlain believes wireless service provider networks — operated by the Vodafones, T-Mobiles and DoCoMos of the world — will be important and perhaps dominant providers of public Wi-Fi services. However, these carriers have unique technological needs and a set of assets that do not exist anywhere else, particularly in the areas of roaming, authentication and billing that are far different than those of the more traditional Internet service providers.
Technology research firm Allied Business Intelligence (ABI) also contends cellular operators are poised to grab market share away from independent hotspot service providers. “Incumbent cellular operators are quick to recognize the complementary nature of the technology, and are willing to take this comparably low-cost gamble and install a network of hotspots,” says ABI analyst Kenil Vora, referring to the deployment costs of a Wi-Fi network over that of cellular.
Much like other businesses, what may portend the future for companies in the Wi-Fi space is “location, location, location.” Some of the independent hotspot providers, including Boingo, Wayport and FatPort, have secured arrangements for many key locations, including airports, hotels and other high-traffic areas — thwarting the rising pressure from cellular operators, with more than one billion subscribers globally.
However, ABI says the disruptive nature of Wi-Fi technology is challenging the importance of location in many respects. Verizon Wireless, through parent Verizon Communications, currently offers hotspot access at roughly 150 payphone locations in Manhattan — many within range of T-Mobile’s hotspots at Starbucks locations. “What we’re witnessing in Manhattan, for example, is two cellular operators simultaneously competing on multiple fronts. Verizon has shattered the previous notions of a location’s value,” adds Tim Shelton, ABI director of wireless research. “ABI anticipates that Wi-Fi will continue to alter the landscape for wireless data and how subscribers will consume it. The exact extent, however, changes almost daily.”
