Commentary 4Mobility - Beware The Hype
By Andrew M. Seybold
<andy@outlook4mobility.com>
6 February 2003
Wi-Fi is coming to a hotspot near you! Today there are about 4,000 hotspots and
the joint venture between Intel, AT&T and several investors plans to build up to
20,000 more.
Wi-Fi is in the news every day. AT&T Wireless and Wayport have joined forces and
Nextel, Verizon, Sprint PCS and other wide-area voice-and-data providers are
rushing to make deals to offer combinations of wide-area data and wide-area
access.
The hype is growing; there are fortunes to be made in the Wi-Fi business. It's the
biggest thing since the onset of wireless. It's a logical extension of the Internet,
and it's going to be really, really big. Even Congress and the FCC have joined in,
looking for more spectrum for Wi-Fi types of communications.
But Wait!
I'm amazed at how many otherwise sane folks have jumped on the Wi-Fi
bandwagon! They actually think that there is money to be made in hotspots. Yes,
Wi-Fi is important. It's being installed in businesses and homes to provide wireless
connectivity to the Internet. But there is no economic model for an independent
hotspot business.
Do the math---I'm sure that most of these folks haven't opened a spreadsheet. If
you have to pay for back-end access for a hotspot there is no business model that
works. If you already have high-speed connectivity and add an access point, you
can make money. Consider this: An access point, today, costs about $250 and if you
match the data capabilities of Wi-Fi to the connection, the T3 line will cost around
$1,500 per month. If you sell your service through a reseller such as Boingo, you'll
get $1 per connection per day. Since your costs run about $50 per day (excluding a
back-end server and billing), you will need fifty users to connect to your hotspot
each and every day!
I have asked the folks at Cometa to share their business model with me and I'm still
waiting for their response. In the meantime, there are three basic Wi-Fi
communities out there. The first consists of those who seem to believe that Wi-Fi
hotspots can make money as a standalone business. Next are those who believe
that since the Internet is basically "free," Wi-Fi should also be free. Finally, there
are wide-area network operators that believe that Wi-Fi is complementary to
their wide-area systems (a view I support).
The fascinating thing is that Wi-Fi revenue can be derived in two ways: from new
hardware sales (i.e., WinTel devices with Centrino, access points, routers, etc.)
and from hotspot service revenue. Let's compare the importance of hardware to
service revenues for the wireless industry today.
In the U.S. in 2002 there were 66 million handsets sold at an approximate $150
ex-factory price, or $9 billion. Service revenue in 2002 was $72 billion, eight times
greater on an annual basis.
Things will be different for Wi-Fi and hardware sales will generate more revenue
than the service itself. Pyramid Research predicts 60 million WLAN users by 2007.
Yankee Group states that 2002 public Wi-Fi revenue was $9 million (a lot of press
hype for such a small number!) and it will grow to $1.6 billion by 2007; Gartner says
$3.5 billion. If Intel sells 60 million Centrino chips by then at $300 per laptop, sales
will be $18 billion.
If 60 million users generate $1.6-$3.5 billion in service revenue, this is only
$2-$5/user/month on average! Clearly, people will use Wi-Fi primarily in private
settings (homes, enterprises). Said another way, public hotspots in 2002 generated
as much revenue in a year as the wireless industry did in one hour. Even by 2007,
the wireless industry will have more revenue in a fortnight than public hotspots
will take in annually.
There's no business plan for a wide-area wireless network provider at $5/month.
The wide-area network is much more valuable for everywhere, always available
access than a public wireless local-area network that is accessible sometime in
some places.
In summary, those supporting Wi-Fi win if Wi-Fi generates lots of new hardware
sales. Wide-area networks win if there's sufficient new service revenue. These are
mutually inclusive outcomes.
Save this column and when someone offers to let you invest in the "next big thing"
in wireless, hand them a copy!
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