WAYPORT'S BUSINESS MODEL EASES CONCERNS OVER COMETA

If questions arose after the shutdown of Cometa Networks about how other Wi-Fi wholesale network operators would survive economically, one of the largest of those operators confidently answered those questions last week.

Wayport, which has more reseller deals with telcos, airports, hotels and retailers than any other Wi-Fi hot spot wholesaler, announced a new business model designed to provide it with the constant and predictable revenue streams that competitor Cometa may have been lacking.

Austin, Texas-based Wayport unveiled the new model on the same day the company officially announced what could potentially be its biggest Wi-Fi build yet — a four-year contract to expand the availability of hot spots in McDonald's restaurants from the current 350 stores to the chain's 13,500 restaurants nationally.

Under Wayport's new Wi-Fi World strategy, McDonald's and other potential hot spot partners will pay Wayport a flat activation fee, followed by per-month, per-location fees for the life of their contract with Wayport. Also, roaming partners that want to allow their users access to Wayport's Wi-Fi World sites now must pay Wayport a flat fee of $32 per month, per hot spot.

“No other Wi-Fi operator has been paid for services rendered,” said Dave Vucina, CEO of Wayport. “We are getting paid by the hot spot venue owner, and that is a real difference. We won't build it, and hope [customers] come. We will leverage the venue's market and then build.”

Wayport's deal with McDonald's had been rumored for some time, and the loss of it to Wayport probably doomed Cometa, which closed down its operation two weeks ago after it failed to raise additional funding.

“[Losing McDonald's] might have been the final nail in the coffin,” said John Sidline, vice president of corporate communications at iPass, an enterprise-focused virtual network operator that has had roaming partnerships with both Wayport and Cometa.

“We know they had been trying to raise more money,” added Dave Hagan, president and chief operating officer of aggregator Boingo Wireless.

Cometa's demise also prompted some immediate re-evaluation of the wholesale Wi-Fi business, but Wayport struck quickly to stem any criticism with the announcement of its new Wi-Fi World business strategy.

“We felt an impact from Cometa's shutdown that was basically concern about the business model, but we've answered that [with the Wi-Fi World strategy],” Vucina said.

Wi-Fi World dramatically changes the economic structure of Wayport's partnerships with hot spot location partners and roaming partners such as iPass and telcos. Wayport has long guarded the details of these partnerships, but it is believed most partners had to pay Wayport between 75¢ and $1 per connection for each user accessing the Wayport service. Many deals also involved a monthly revenue-share charge to Wayport that varied broadly from month to month based on usage.

Overall, Wi-Fi World makes the wholesale business less risky for Wayport and lets the company recoup its capital expenses faster. Vucina said, “With multiple revenue streams, we'll hit a break-even point after the first venue we install.” Wayport already has signed up one roaming partner under its new approach, though Vucina declined to identify the company.

Wayport also plans to share some of its new revenue with its Wi-Fi World partners. Under the McDonald's contract, the restaurant chain will share in the revenue from Wayport's monthly roaming partner fees once it reaches a certain revenue level. Also, McDonald's gets a share of all revenue from non-subscription walk-up Wi-Fi sales at its restaurant — though most usage is expected to come through subscriptions.

Wayport also claims the new strategy has benefits for broadband network operators. Wayport will buy and manage DSL lines or available alternative broadband access to backhaul traffic from Wi-Fi World hot spots, such as McDonald's, said Greg Williams, chief operating officer of Wayport.

“We'll use other forms of access when DSL can't reach the store,” he said. Williams also said Wayport eventually will look at WiMAX technology as a backhaul option.

John Yunker, Wi-Fi analyst at Byte Level Research, said Wayport's business model was “necessary and probably inevitable,” given declining end-user access fees, and the unpredictability of the traditional model based on per-connect partner fees.

“It gets us out of the per-connect quagmire,” Yunker said. Roaming partners pay a flat fee to participate, while end users, for the most part, pay a flat fee for access and “venues pony up cash to share in the venture,” he said. The model also encourages all parties involved to explore other applications for hot spots that could further drive usage, a benefit acknowledged by Vucina.

Its presumed roaming partners will end up paying Wayport more than they have been under the per-connect model, but iPass doesn't seem to mind. “There's no tension about it,” Sidline said. “This isn't the first new economic model we've encountered, and we've always been able to keep the per-minute fees to our own end users. We will just be paying them differently.”

Wayport's timing in convincing partners to accept a new model couldn't be better, with Cometa — one of it most significant competitors — eliminated. Vucina acknowledged T-Mobile as another Wi-Fi competitor working on a national scale, but otherwise said, “I don't know who our competition is.”

Sidline pointed out that plenty of Wi-Fi wholesale options exist for reseller/roaming firms, such as iPass and telcos — just on a smaller scale. These wholesalers include well-run companies like Eleven Wireless and Surf'N Sip, Sidline said.

Though Cometa might have seemed like a giant, it operated less than 100 hot spots at the time of its closing, several sources said. In retrospect, Cometa's expansion plan for cellular-like coverage of major metro areas was too ambitious, Sidline said.

“We saw the writing on the wall for Cometa for quite some time,” he said.