Wi-Fi benefits to wireline carriers and ISPs

Wi-Fi deployments will allow fixed-line service providers to sell a variety of broadband services across wide market demographics including consumers, businesses and public venues. In addition, it is a way for these carriers to make up part of the loss of their fixed-line revenues to cellular carriers. Wireline carriers are already feeling the effects of cellular phones on second lines in homes and in small businesses and large enterprises. Consumers are opting for cellular phones with free long distance instead of a second line or even a primary line at home. Many business users who are away from their desks use their mobile phones for voice. Wireline service providers who own cellular companies are reaping the benefits--even if it's money out of one pocket and into another. For those wireline operators who do not have a cellular division, offering public Wi-Fi service is a good way to fight back and a good source of incremental income. For one, it will give fixed-line operators the opportunity to expand into mobile services through voice-over-WLANs as well as using their excess backhaul capacity for incremental services. In large hot spots such as airports or college campuses where cellular service might be sub-par, fixed-line operators can deploy a VoWLAN system with better quality of service and at significantly lower price.

Every Wi-Fi-enabled hot spot requires a high-speed connection in the form of T-1, DSL or cable back to the Internet. As a result, as hot spots proliferate, so do sales of broadband connections. Some carriers are concerned that the existence of hot spots near a user's home location will push them to go to the hot spot rather than install a DSL system at home. This might be the case in the café societies of Europe, but it will not be the case in the United States, where business users are either on the road or on the move from the office to the home environment.

Wireline carriers are in a unique position to offer public Wi-Fi services since they own and operate these backhaul networks, which are a significant part of the cost of deploying a Wi-Fi network. They also own a diverse customer base that they can cross-sell services. This will provide new revenue streams, provide access to a growing customer base, allow bundling of services and allows for new partnerships for new value-added services. A recent cost analysis has shown that the subscriber acquisition costs of public Wi-Fi are lower than broadband and offer greater returns. WLAN operators report acquisition costs of $800 per subscriber including sales, marketing, installation and customer premise equipment. This compares to $1,000 per subscriber for xDSL and $1,200 per sub for cable, according to cost analysis performed by analyst Jonathan Tirone.

Offering WLAN services in the SOHO market as a complementary service to broadband access such as DSL and cable can boost the uptake of these services. In late 2002, Telecom Italia started offering Wi-Fi to its residential customers as a way of increasing DSL uptake. Customers will receive WLAN CPEs when they sign up for DSL service as a value-added service. This strategy has lowered churn and it will also introduce consumers to the value of Wi-Fi. Consumers who are used to high-speed service at home or at the office look for the same while on the road. Offering public Wi-Fi will then bring in its own revenues.

In addition, offering public Wi-Fi will open the door to provide additional data services to large hot spots. British Telecom, for example, views its Openzone as a means to get its foot in the door for additional data services. For its hotel clients, the carrier is offering in-room solutions, private WLAN solutions for the hotel's own use, CCTV security cameras and wireless waitress applications, upselling the service as more of a private Wi-Fi network with an integral visitor network. Openzone religiously uses its major business sales force to target airports, railway stations, large hotels, etc.

Another revenue-generating advantage of Wi-Fi deployment is the increased sales of VPNs to assuage the security concerns of enterprises that are increasingly gravitating to WLANs. Currently the largest provider of VPN clients to the enterprise is AT&T, followed closely by Sprint and MCI. These wireline carriers have the necessary expertise to deploy and manage the solution upon installation, a robust network with a broad global reach, strong systems integration, technical support and strong customer care capabilities--all required qualities to offer Wi-Fi service and become an integrated service provider.

Fixed-line carriers also have the opportunity to breathe new life into their dying public phone divisions, which are looking at public Wi-Fi deployments as a second chance for growth. Some like BT, Bell Canada and Verizon are looking to deploy access points in pay phones and use those indoor locations such as libraries, airports, railways stations and coffee shops as hot spots.

Some wireline carriers may think that offering public Wi-Fi may cannibalize the mobile revenues of their wireless subsidiaries. This is why it was easy for BT to enter the public Wi-Fi market: The company had divested itself of its wireless subsidiary mm02 and there was no downside for the company. It is important for fixed-line operators to understand that it is best for them to book the public Wi-Fi revenues and have it be consolidated in the company's overall revenues, rather than having the revenues cannibalized by another wireless operator or a fixed-line competitor.

For those wireline carriers that do not have a wireless arm, such as MCI, or for large ISPs such as AOL or MSN, there is further reason to offer Wi-Fi service since they have no concerns regarding lost revenues in another subsidiary. Usually, when a business case is developed for a new service, the potential for revenues are assessed and estimated costs are broken down. The next step usually involves the calculation of a revenue substitution factor if the new service has the potential of cannibalizing an existing service. Some wireline carriers and ISPs do not have this added concern, making them perfect candidates to offer the service.

If ISPs provide this service, they will be taking away lucrative wireless data revenues from the mobile carriers. Portable data is more in line with an ISP's relationship with its customers. ISPs also have better pricing vs. the per-minute or per-KB pricing of mobile carriers. Of course, since the public Wi-Fi industry is a market of alliances and partnerships, wireless carriers and ISPs could team up and offer each other's services as a bundled package to their divergent customer base.

More information on the benefits to wireline carriers and ISPs can be found in eTinium's recently released study Seamless Mobility: The Marriage of 3G and Wi-Fi. 

Goli Ameri is the President of eTinium, Inc.  She can be reached at gameri@etinium.net or (503) 968-8437.