MOVE RATTLES Wi-Fi PLAYERS

Is the Wi-Fi market another bubble doomed to burst, or did Verizon just do everyone a favor by legitimizing it? It's not surprising that Verizon's plan to offer free Wi-Fi access from New York City payphones to its DSL customers elicited a variety of opinions on the future of the embryonic Wi-Fi market.

The strategy appears to rebuke two of the market's predominant realities: the role of aggregators such as Boingo Wireless that assist in managing access, authentication, billing and roaming for Wi-Fi hot spot operators and users; and the idea of charging public consumers $30 to $35 per month or $6 to $10 per session for access.

In announcing the extension to its DSL service, Verizon President Larry Babbio said Wi-Fi aggregators “will not survive in the business. They don't have a good market niche. Retail providers could eventually do roaming agreements without the middlemen.”

Andrew Cole, senior vice president of the wireless practice at Adventis, agreed. “Many of those companies are going in one direction, and that direction is south,” he said. “There is a lot of fluff in the Wi-Fi market, a lot of bubble left, and sanity has not yet prevailed.”

In fact, Verizon may have answered the business model question by greatly reducing the role of wholesalers, said John Yunker, analyst at Pyramid Research. “[Hot spot wholesaler] Cometa [Networks] and Boingo are going to face increasing challenges,” he said. “Wi-Fi is going to be a nice value-add for operators, not a cash cow.”

But Dave Hagan, president of Boingo Wireless, said he doesn't see any negative implications in Verizon's plan for Boingo or its business model. “It's a great thing for Wi-Fi,” he said. “Getting a proliferation of Wi-Fi access out into wherever people congregate is good for the market overall. This is just an add-on for Verizon, but their customers will try it and end up wanting more than the limited coverage from payphones.”

That's where Hagan thinks Boingo has a strong chance to work with telcos, including Verizon. As customers demand more access from an increasing number of hot spots, telcos will want to outsource non-core back office support functions.

In those instances, Boingo proposes to reap revenue in two ways — by licensing its authentication and billing software to carriers, and by taking a percentage of the actual transaction between the user and the service provider. “The percentage we take varies from deal to deal,” said Hagan.

“That's a problem right there,” said a source familiar with one major telco's ongoing evaluation of Wi-Fi. “This telco doesn't want to share, and could just as well make it a perk like Verizon did.”

Still, Hagan said that Verizon's plan for free Wi-Fi access should not affect Wi-Fi pricing much overall. “It's an isolated group of customers who are getting this. What it could have an impact on is the idea of bundling Wi-Fi with other services, which our carrier platform software allows you to do.”

Cometa Networks, the national hot spot wholesaler funded by AT&T, IBM and Intel, has more positive prospects than Boingo, according to some analysts. “AT&T and IBM won't flinch,” said one analyst. “The Wi-Fi market is taking several different paths right now, and some will just resell capacity. Cometa doesn't need end user relationships, which is where this gets tricky.”

Some ultimately see Verizon's Wi-Fi play as giving more definitive shape to a young but rapidly developing market that is still sorting through business models.

“If you have a class of campers for this service, a customer base or a group of customers in mind, you can make it work,” said John Donovan, president and CEO of inCode Telecom, a consulting agency that helped Bell Canada launch Wi-Fi access from a small number of payphones in Ontario last year. The key for telcos using Wi-Fi is being able to leverage existing assets as much as possible, he said.

There also may still be room for a national wholesaler model like Cometa's because Cometa will resell capacity directly to carriers that have the customers but not the facilities, Donovan added.

“If anything, Cometa may speed up its plans,” he said. “All the telcos are seriously looking at Wi-Fi now. Bell Canada was an innovator, but Verizon will be the match that lights the fire.”