Wireless: Carried away
Until now, wireless local area networks have been just another grass roots, hobbyist technology--the purview of home-networking enthusiasts and risk-taking IT managers. But all of that will change in 2003, as the major international wireless carriers roll out high-speed local networks. Paradoxically, this both threatens and assures the future of 3G--the heretofore heir to the wireless throne.
By Dan Briody
Red Herring Prediction
December 16, 2002
Why It Will Happen
Wireless local area networks (WLANs), known more economically as wi-fi, or 802.11 in geek speak, are high-speed wireless networks with a radius of about 150 feet. They operate just like ethernet (the technology that links most PCs in business offices), but without wires, creating--say, in airports and cafÈs--hot spots that let computers, handhelds, and cell phones connect to the Internet. The secret to wi-fi's success is simple: it's fast, cheap, and available today.
T-Mobile is making the biggest bet by far of all the major carriers, taking the assets of MobileStar Network, the bankrupt wi-fi provider it picked up through its VoiceStream Wireless acquisition, and lighting up nearly 2,000 hot spots at Starbucks locations worldwide over the next year. Other carriers are still dipping their toes in the water, taking a more cautious approach. Sprint, among others, invested $15 million in a Series A round of financing for Boingo Wireless, a wi-fi service provider, and AT&T Wireless is setting up a trial network at Denver International Airport. But this early timidity will vanish in 2003, as carriers take advantage of wi-fi's explosive growth.
Adding to the excitement is the introduction by Microsoft of a wi-fi home-networking kit and wi-fi capabilities in its future operating systems, as well as the news of a beefy consortium code-named Project Rainbow, leaked to the press in summer. The clandestine intent of the group--made up of AT&T Wireless, IBM, Intel, and Verizon--is to create a company that would roll out a massive nationwide wi-fi network commencing sometime next year.
Regardless of how such a network gets built, the rapid spread of wi-fi is a virtual certainty. Market analysts predict growth in the wi-fi hardware market of more than 70 percent next year. The number of public hot spots in major cities, currently a few thousand, is expected to double next year. It is a technology on a roll.
What It Means
In the short term, the rise of wi-fi will have a detrimental effect on the rollout of next-generation, or 3G, wireless technology, which is more expensive, slower, and less available. WLANs provide speeds of 11 Mbps, soon to get bumped up to 54 Mbps--approximately 20 times the speed that 3G could potentially offer. A typical hot spot costs less than $200, compared with the $500,000 to $1 million cost of a 3G base station. With a comparison like that, wireless carriers are kicking themselves, wishing they had known about wi-fi before they spent $100 billion on 3G spectrum.
Some portion of the carriers' money, then, will start to move away from traditional 3G infrastructure and into WLAN equipment. Yet the world will still need 3G to fill in the gaps between hot spots, which are likely to be pretty large. After all, no one is under the impression that the entire world will be covered by WLANs, 150 feet at a time. While carriers believe that wi-fi will eat into their 3G revenue, it will not eliminate that revenue altogether. And in fact, the success of WLANs proves a much larger point: wireless data is in high demand, and wi-fi will whet consumers' appetite for 3G. "Once people get a taste for this thing, they get addicted," says Steve Hodges, vice president of corporate strategy at AT&T Wireless. "There is even some value in wi-fi, in that it cuts down our costs in deploying 3G infrastructure."
Carriers like British Telecom, Sprint, and T-Mobile are in the perfect position to offer both wireless services, combine the billing and customer service, and walk away with a more effective, if less elegant, solution to providing wireless data--while maintaining their death grip on customers. But don't expect wi-fi to goose carriers' revenue all that much--the economics are not particularly attractive. Many consumers are used to getting the service for free and don't want to pay much more than that. The same holds true for wi-fi service providers like Boingo, which either sell their service to the major carriers or offer it directly to consumers. Aside from going public (eek!) or being acquired, it's not clear where they will get their revenue. Just like the ISPs of today, the wireless service business is not a heavy-profit enterprise. There will be a great deal of competition, driving prices ever lower.
Rather, wi-fi hardware companies are poised to make real money. Equipment will fly off the shelves when carriers belly up to the wi-fi bar. That means base stations and spectrum will become less important--sorry Ericsson, looks like more trouble ahead--and 802.11 semiconductors, wi-fi service providers, and good old-fashioned T-1 lines, which carry the data from the wi-fi base unit to the Internet, will become more important.
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