Wi-Fi

The year started out with considerable excitement over the potential of wireless LANs, and it's ending the same way. Telecom executives are not much closer to nailing down a business case for Wi-Fi, but they are beginning to understand that they must start making their moves now — or watch someone else do it.

Though analysts estimate that more than 50% of all enterprises will deploy at least one WLAN in 2003, carriers are still trying to construct a business model that provides recurring revenue to balance the daunting capital requirements necessary to build out coverage. Revenue forecasts for Wi-Fi are a drop in the bucket when compared with total carrier revenues: The Yankee Group predicts total North American revenues from public WLANs will reach $1.63 billion by 2007.

While momentum is building for consolidation and aggregation of public WLAN hot spot services, consulting group Strategy Analytics predicts the market will suffer growing pains until more hot spots proliferate. More than 99.5% of the 1.1 million WLAN access points in the U.S. are private systems in business or residential use, with public systems scattered and generating little revenue and traffic.

T-Mobile USA, which purchased the Wi-Fi assets of bankrupt carrier Mobile-Star in 2001, has the most to gain — or lose. The company controls about 1400 hot spots in Starbucks coffeehouses and has signed deals with numerous businesses to create more. Analysts say T-Mobile is years away from breaking even, considering the capital investment for each hot spot, which is about $7000 per, according to Timothy O'Neil, founder of independent Wall Street research house The EON Group. Strategy Analytics says T-Mobile's public WLAN sites have an average of just one user a day.

Meanwhile, Sprint PCS said it is struggling to find a good business case for Wi-Fi and doesn't envision deploying the technology on a widespread basis. Nextel Communications has hinted that its Wi-Fi strategy may revolve around offering WLANs to office buildings, but it also is struggling with the business case. Cingular Wireless is working on some sort of Wi-Fi strategy but isn't ready to announce it, and AT&T Wireless has deployed a WLAN at the Denver International Airport and plans to use Wi-Fi to fill in coverage holes around its next-generation EDGE network.

Landline operators are watching just as closely. BellSouth has offered services to enterprises and small businesses for two years. Meanwhile, Verizon Communications recently launched Wi-Fi services in Boston as a way to get into the network management and professional services game, and Qwest Communications is in noncommercial trials.

Telecom operators potentially could find a business case in Cometa Networks, the company created by AT&T, Intel and IBM to provide national Wi-Fi service to ISPs, cable operators and wireless carriers on a wholesale basis. Cometa plans to work with major national and regional retail chains, hotels, universities and real estate firms to deploy hot spots through the top 50 metropolitan areas.

But Wi-Fi must overcome security issues, one of the biggest problems with the technology to date (see story on page 24). The current out-of-the-box encryption has been cracked on numerous occasions, and those seeking free broadband access have turned to a cat-and-mouse game called “war chalking” in which hot spots are marked on buildings and sidewalks so Wi-Fi users will know where networks are.

Ultimately, the telecom community may decide that the traditional telecom business case does not apply to Wi-Fi. Indeed, their jump into Wi-Fi may be a ploy to stave off competition and create a closer relationship with valuable enterprise customers. Regardless of the motivation, though, expect to see some leaps of faith in 2003.