By Gerry Blackwell

The economics around offering Wi-Fi hotspot service have always been questionable, and it seems that the for-fee model pioneered by T-Mobile, Wayport and others may finally be giving way to free services operated by venue owners.

The Krystal Company, which operates a chain of 246 company-owned and 190 franchise fast food restaurants across the southeastern United States, is a good example. Krystal launched its first Wi-Fi hotspot at a restaurant near the campus of the University of Tennessee in Knoxville 18 months ago, and recently announced that it had expanded its wireless footprint to 52 locations.

Wi-Fi service at the Krystal sites is absolutely free. Users don’t even have to give a name or authenticate themselves in any way. As soon as they adjust network settings so their Wi-Fi device associates with the Krystal SSID, they’re logged into the network.

Krystal chief information officer David Reid says it’s not beyond the realms of possibility that the company will consider charging customers for the service in the future — but at this point, he says, it’s extremely unlikely.

“We see the whole business of charging and figuring out how much to charge as such an obstacle,” Reid says. “We really wanted to make this free and easy.”

Developers of hotspot management software might disagree, but Reid suggests that setting up the infrastructure to support a for-fee service is often the biggest part of the cost of offering such a service. “It’s less expensive to not charge,” he says.

Certainly, costs for the Krystal service are low enough. The company installs a Linksys access point and a Cisco VPN (virtual private network) appliance at each site. Each location already had a network hub and DSL or cable connection. Capital costs per restaurant for Wi-Fi amount to less than $1,000. Install costs were minimal, as installation rarely took more than about ten minutes.

Krystal experimented with the technology at the initial site. At first, it had no clearly formulated intention of going further than answering the needs of students and faculty at the nearby university which had recently installed a Wi-Fi network on campus.

“After a few months of trying different configurations, we got to a point where we realized, this is cookie cutter enough that we could roll it out [to other restaurants],” Reid says.

Ongoing costs at the restaurant end are minimal or nil, since the Internet connection was already there and was invariably underutilized. Costs for network operations center services to manage the hotspot network come to about $2,000 a month.

Customer Internet traffic is backhauled to a network operations center (NOC) in Chattanooga, Tenn., where it’s filtered for content — “so customers aren’t bringing up pictures we wouldn’t like to see in our restaurants,” as Reid puts it.

Costs are low, but not nonexistent, and the return on the investment is not easy to measure at this point. It will come, Reid figures, in two ways.

Like every retailer offering Wi-Fi service, the company hopes it will attract customers that wouldn’t otherwise come to its restaurants, and that once there, they’ll stay longer and spend more. None of this is proven, however.

“It’s a hard one to prove,” Reid admits. “And therein lies the rub. We’re going on a bit of faith. But if you walk into a restaurant, we figure, you’re going to buy something. You’d feel a little guilty if you didn’t, and kind of conspicuous.”

It may be easier to prove the business case for internal use of the hotspots. Once the pilot sites were up and running, the company noticed that traveling Krystal employees were using the Wi-Fi connection as well. Many travel regularly — supervisors and managers with responsibility for multiple locations, as well as inspectors and trainers.

“They all have laptops with wireless cards, and what we found at the first site and at the next four was that their productivity was skyrocketing,” Reid says. “They’d get on the network and check e-mail and do whatever they needed to do on the company portal, which was a lot more efficient than the ways they were doing it before.”

Managers can connect to the company portal to get up-to-the-minute sales and staffing data. Trainers and managers can get instant access to training manuals over the Net. “They have access to information in seconds now that used to take hours,” Reid says. “It’s generating huge benefits.”

In fact, Krystal chose the next 47 sites (after the five pilot locations) based as much on their usefulness to employees as on their attractiveness to customers.

There is also one very soft benefit to installing the hotspots. As a chain of hamburger-and-fries joints, Krystal doesn’t exactly have a hip image. Reid hopes Wi-Fi might change that.

“We did a kind of fuzzy-math return on investment analysis and decided that the employee productivity increases alone were probably enough [to cost justify the project],” he says. “And if customers loved it too, that was gravy. It almost became a no-brainer.”

On the other hand, Krystal is making no commitments yet to roll the technology out to every restaurant. “We’ll wait and see now how they’re received,” Reid says. “We took a guess at what would be the best locations in terms of demographics. Now we’ll look at the traffic data and hope to get some learnings.”

It’s even conceivable that the company would take the service out of some restaurants if nobody was using it. “But the more likely scenario is that over the next the six to nine months we’ll put it in another dozen to 40 restaurants,” he says.

Usage statistics at this point aren’t very conclusive, since most of the sites have only been up for a month or so. The high-traffic sites — typically in larger urban areas such as Atlanta — get 12 to 20 users a day, on average. A lower-traffic site, more often in rural areas, might see fewer than three users a day. Word of mouth has yet to kick in.

While some restaurant and cafe owners are looking for ways to limit customers’ access time, Krystal has few concerns about customers camping out in its restaurants to use the service.

“As of today, we have no mechanism in place to prevent that,” Reid says. “That is one of learnings we will gain perhaps, but so far, it hasn’t been a problem. We understand our place in the world. It’s not a bookstore or a coffee shop, it’s a fast food place. It’s typically not the kind of place people hang out for hours.”

He also has Wi-Fi phones on his radar, but isn’t overly concerned about them yet either. If they become as popular as some vendors anticipate, users will be looking for free sites like the Krystal restaurants to use to make low-cost phone calls — and the phones could be bandwidth hogs.

Will free hotspots like the Krystal restaurants become the norm? Reid thinks there is still room for commercial services, especially if service providers can figure out better ways to aggregate their footprints so that coverage is more ubiquitous.

For now, though, Krystal sees enough benefits in offering the service for free that it’s unlikely to change direction any time soon.

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