By Eric Griffith

May 25, 2004

The McDonald’s rollout is underway and Wayport spells out what the deployment and their new business model mean for the company and maybe for hotspots in general: a ‘Wi-Fi World.’

The deal Austin, Texas-based Wayport landed with McDonald’s to unwire the majority of the restaurant’s US locations over the next year has been resonating in the industry for weeks now. Arguably, the deal sealed the fate of both Toshiba and Cometa, its two competitors in a year long trial at various McDonald’s locations. The question now is how it will impact the rest of the hotspot market.

Today, Wayport unveiled the business model it will use for this deployment, a program it calls “Wi-Fi World.” They plan to do away with the idea of revenue sharing between the venue and the network provider. Instead, McDonald’s will pay Wayport. Also, roaming partners will pay Wayport. All Wayport pays for is the capital expenditures, running the network and the backhaul connection — and even there, they’ll get some money from Mickey D’s to help.

“In the past, providers like Wayport charged a per-connect fee to a partner. ‘You pay me X amount per connection, and if there’s no connection… no money,'” says Wayport CEO Dave Vucina. The new deal is for a monthly fixed price going to the provider from the very beginning. “We’re over the break even mark with our first store… it gets us in the black out of the gate.”

That seems a lot to ask, but Wayport — who says it’s been sitting on this business model idea for a year — sold McDonalds on it with the promise to bring in extra customers to the restaurant. For them, Vucina said the deal had to be about “driving their core business. It’s about selling more hamburgers.”

Wi-Fi, he says, gives McDonald’s a real differentiator over other quick service restaurants (QSRs). In fact, during the trial phase, surveys indicated that 72% of the patrons asked might not have come to the store that day if Wi-Fi hadn’t been available — a number that made the restaurant giant, which has been losing customers for the last few years, stand up and take serious notice.

The real money is likely to come from national companies that become partners. The Wi-Fi World package would be sold to any major provider that Wayport can sign as a roaming partner — Regional Bell operating companies (RBOC) , broadband providers like Comcast, ISPs like MSN and AOL, aggregators like Boingo and iPass, even hardware providers like Dell and HP. Those are just a few of the names on Wayport’s list of around 60 potentials. Broadband providers that Wayport uses for backhaul could buy in, and could get in on the in-store branding efforts available (see below).

Vucina says that the flat fee charged to strategic roaming partners will be $32 per month per Wi-Fi World location. For that price, the partner’s end-user customers can get unlimited access to the hotspots at whatever price the partner sets — they can even give it away if they want. (Basic price for someone just looking for access time as people down their McNuggets and fries is $2.95 for two hours. Such walk-up fees would be shared with McDonalds. There will be a monthly subscription rate through Wayport.)

Maybe $32 doesn’t sound like much, but a strategic partner that wants access to all 8,000 locations would pay that $32 for each venue. $32 x 8,000 equals $256,000 per month — A number that would go up as more Wi-Fi World locations are deployed. It’s not cheap, but this isn’t a deal targeting small regional providers, says Vucina. Besides, he argues, not even the big guys can build out that number of venues at anywhere near that price.

Keep in mind, Wayport is months away from getting anywhere near to that number of venues set up. 8,000 — just a little more than half of the McDonald’s locations in the country — is simply a reference point for their target, but one the company considers conservative.

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The basics of deployment are that the restaurants will be outfitted with Internet backhaul, usually DSL, and 802.11g equipment, usually from Cisco, to provide Wi-Fi connections for patrons and store employees. The wireless will also be used on a number of other applications Wayport is helping to develop, including cashless purchases of food. In the future, the WLAN could be used for security cameras, kiosk, and more.

The Wi-Fi World hotspots will be heavily marketed by McDonald’s. Table “clings” (stickers), signs on cash registers, signs at the drive-thru window, and even the Golden Arches signs outside will all feature the trademarked logo — McDonald’s “M” inside an “@” sign — to signify available Wi-Fi access. Wayport is giddy that its own company logo and “Wi-Fi World” branding will also appear on the signs. Options are available for branding for broadband provider partners as well, giving them a bit of local advertising in exchange for discounts in service to Wayport.

“This is unsurpassed branding and advertising and promotion in hotspots,” says Vucina.

The terms of the agreement are relatively exclusive. McDonald’s locations are not supposed to promote any other wireless network, though it was unclear whether this is a hard and fast rule for all the franchises (only about 3,500 McDonald’s locations are company owned). The contract lasts for four years, during which time Wayport can’t work to install Wi-Fi for any other QSR.

That’s not to say Burger King couldn’t get in on this.

“We will not build out and manage a [competing] venue from A to Z,” says Greg Williams, Wayport’s COO. “But if someone else did it, they could make it a part of Wi-Fi World.”

The company says it’s open to talking to anyone, including T-Mobile, which currently is the number one hotspot provider in the US.

Wayport’s early business model was installing hotspots and wired networks for motels (800) and in airports (12). Those locations will continue to operate, but at this time they are not part of the Wi-Fi World program.

The company sees the program as a natural progression from its early target of mobile pros who travel by air to road warriors and consumers visiting the restaurant with their kids. Ultimately, Wayport would like to sell this to a number of big brand names, like the UPS Store, which the company is helping unwire as part of its managed service business with partner SBC.

“This is about retail brands,” says Vucina. “It’s not about thirty thousand mom-and-pop hotspots; it’s about ten or twenty thousand locations with retail brands.”