Free or Fee? The Hotspot Debate Continues

Free or Fee? The Hotspot Debate Continues

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Written By Eric Sandler

By Jeff Vance

October 23, 2003

It’s the debate that never abates: Some say freenet hotspots will eat into the profits of the pay locations; others think users will flock to the high-quality services they have to pay for. It’s possible they both may be right.

Having just spent a month driving across the United States, I can attest to the fact that the Wi-Fi hotspot space is booming. I found T-Mobile hotspots in several Starbucks locations. In business-class hotels, I ran into Wayport and Boingo networks, and I even came across hotspots in a Circle K convenience store in Tempe, Ariz., and a Flying J truck stop in Albuquerque, N.M.

In the Little Italy section of San Diego, I discovered two fee-based hotspot choices within two blocks of each other on India Street: Cafi Italia’s independent service and Surf and Sip’s location at the It’s a Grind coffeehouse. When I fired up my laptop from the tables outside of It’s a Grind, I also found a third offering: the free service from Little Italy WiFi. Unfortunately for the coffeehouse, Little Italy’s signal was actually stronger than its in-house offering.

This San Diego street is representative of the space at large. While wireless companies are busy building out fee-based services in such myriad locations as hotels, coffee shops, RV parks and truck stops, local community-based hotspots are being thrown up on the cheap as either marketing gimmicks or because the owners believe that the Internet should be untethered, ubiquitous and free. The free hotspot movement may seem a bit naove and quixotic, but it does pose a serious threat to the business case of the for-pay hotspot movement.

“At the very least,” said John Yunker, an analyst at Pyramid Research, “the free hotspots will put downward pressure on the price of the for-pay services.” The research firm believes that there will be more than 21,000 hotspots in the United States and 45,000 globally by the end of 2004, and that the price for the services will begin to fall soon thereafter. “[T]he rapid growth in Wi-Fi users will be coupled with equally rapid price erosion,” Yunker said. “Average revenue per user will drop from $30 per month this year to $3 per month in 2008.”

The operators of the community-based free sites receive $0 per user, yet show no signs of abandoning their nodes. For them, Wi-Fi is a valuable marketing tool. Phil Lavigna, who operates Little Italy WiFi in San Diego, says that setting up a Wi-Fi node is fairly cheap, and with it comes the opportunity to communicate with users via the splash page, the first Web page users see when signing on. What’s more, free Wi-Fi offers good public relations to the community Lavigna’s business, Color Graphics, serves.

“This section of San Diego is a tight-nit urban neighborhood,” Lavigna said. “It’s compact, with a lot of pubs, cafes, and coffee shops, and there are a plenty of young, tech-savvy people patronizing those businesses. Free Wi-Fi is something I can offer to make our community that much more appealing.”

Lavigna has no desire to compete with the Boingos or Cometas of the world. With a free service, he doesn’t have to worry about Quality of Service (QoS), billing or roaming. He simply has a low-cost Linux-based system that gives his neighbors an easy way to check e-mail or browse the Web while enjoying their morning lattes. “If someone comes to me and wants a guaranteed level of service, or a certain amount of bandwidth or security, I’ll direct them to one of the fee-based sites. There are plenty around here,” he said. “We can coexist with the paying services because we serve much different needs.”

Even so, cost-conscious road warriors will be able to skirt the for-pay services, instead relying on an ever-expanding network of free locations. But this doesn’t necessarily mean that wireless ISPs (WISPs) are doomed. Pyramid’s Yunker believes that Wi-Fi will be offered as an amenity at many locations, especially in hotels and chain restaurants, and while amenity services may technically be free to the end user, some company has to exist in the background to work out the roaming agreements and security concerns for public-space, business-class wireless access. Users will seek out a service that provides a consistent look and feel across its many locations, and one that shields them from configuration burdens, he said. “In a couple of years, I wouldn’t be surprised to see business travelers choosing their hotels based on the availability of a particular Wi-Fi service.”

Market research firm In-Stat/MDR agrees with Pyramid that the WLAN hotspot market is in a rapid expansion phase, but it also notes that as the hotspot footprint approaches a critical mass where it is viewed as a largely available service, the provider impetus must shift to populating those locations. Hotspot usage is currently very low, with some providers supporting a user to location ratio as low as 7 to 1. To develop this base to a sustainable level, business models must shift.

Colby Goff, vice president of network strategy for Boingo Wireless, is predictably more bullish on the space. Boingo Wireless’ roaming system has about 1,750 locations in the United States already, with 500 sites overseas. With recent roaming and partnering agreements in place, Boingo will soon boast a network of over 5,000 total hotspots, which includes 3,500 cafes, 1,300 hotels, 200 office buildings, 28 airports and 11 convention centers in 19 countries worldwide.

When I asked Goff about the pressure from the free sites, he expressed a somewhat surprising affinity for them. “We don’t mind the free sites,” Goff said. “In fact, we list the free sites on the Boingo directory. We’re in favor of anyone getting the word out about Wi-Fi.” Boingo, though, is already in the process of migrating away from a business model predicated on building up a subscriber base to one focused on selling network services to carriers and ISPs.

“The carriers will sell Wi-Fi hotspot services as part of their communications offerings to Fortune 1000 companies, and those customers will expect a level of service that won’t be guaranteed at the free sites,” Goff said.

Boingo’s migration towards a carrier customer base signals a trend. The Wi-Fi hotspot market is already segmenting: on the low end are free hotspots that are ideal for casual Web browsing and personal use; and on the high-end, companies like Boingo and Cometa will target business-class users with fee-based services. Somewhere in the middle will be Wi-Fi as a carrier offering for consumers, but rather than spending $30 a month for the service, it will be an add-on intended to increase customer stickiness, or yet another service like three-way calling or voice-mail. Verizon Wireless is already pursuing this model in New York City, offering free Wi-Fi to its broadband customers through a network of pay-phone-based hotspots.

Jeff Vance is a technology consultant and writer. Before becoming a full-time freelance writer, he was the editor of Mobile Internet Times and E-Infrastructure Times. His articles have appeared in DeviceTop.com, Telecom Trends, Wi-Fi Planet, and SearchWireless.com, among others. You can contact him at jwvance@zoomInternet.net.

To find a hotspot near you, visit Wi-Fi Hotspot List.

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