Horses for Courses
By Carlo Longino, Wed Jul 16 12:00:00 GMT 2003
The 3G hype machine has come full circle, so now it's SOP to bash the poor idea at any and every opportunity, with wireless LAN the latest and greatest flavor of the month. But if it will knock out 3G before it even arrives, why aren't carriers getting in on the WLAN game?
"Forget about 3G. Not gonna happen. No chance."
Never mind that third-generation networks are up and running in a number of countries around the world, wireless LAN's most fervent supporters would have you believe that the technology is so wonderful, it will supplant 3G and other wide-area networking technologies, rendering them irrelevant. Right? How very wrong.
While WLAN is a disruptive force in the networking and telecommunications industries, it will only support 3G, not supplant it. The two technologies, though both offering wireless high-speed connectivity, serve wildly dissimilar needs, and can happily coexist - allowing mobile carriers to make money from both of them without cannibalizing either revenue stream.
Many of these reasons are technological, and no matter the improvements in WLAN transmission distance or roaming, 3G will always provide the better wide-area network, while WLAN will continue to fill the local-area niche. But there are economic reasons, too, not the least of which the lack of a viable business plan based solely on hotspots.
Who is making money from hotspots? Nobody. The best-known WLAN network is T-Mobile's US operation that has hotspots in about 2,500 Starbucks coffee shops, airports, and some other locations. While the carrier hasn't released any usage or revenue figures, most estimates suggest they would be pretty underwhelming. T-Mobile has twice cut their pricing plans, recently offering deep discounts to their GSM subscribers.
BT Openzone, which operates 200 hotspots in the UK, patted themselves on the back in May when they announced they were bringing forward their build-out target and would have 4,000 sites by next summer, saying their network was being used for over 90,000 minutes per week. Wow - that's a little more than one hour per day per hotspot. And their network includes London's busy Gatwick Airport, a number of Hilton hotels, and the Earl's Court exhibition center.
Verizon Communications, a wireline provider in the US (which also co-owns, with Vodafone, a mobile carrier of the same name), announced its WLAN plans earlier this year - subscribers to its residential ISP services will have free access to a network of hotspots installed at its payphones scattered around Ney York City. It doesn't plan to generate any revenues from the sites - it's writing them off as a marketing tool and sales driver.
Pricing models differ from WISP to WISP. Some charge by the minute, hour, or day. Some offer monthly flat-rate, unlimited use subscriptions. Some offer pre-pay, others are post-pay only. Chaos reigns when it comes to pricing, strategy, and business model - with none showing much sign of viability.
Part of the problem would seem that WISPs have a greatly exaggerated perception of the market - research firm Forrester recently said 25 million Wi-Fi devices have been sold worldwide. Compare that to the 1.2 billion mobile phones in use around the world. So though there's a lot of interest in and buzz about WLAN, and it's no doubt growing quickly, it's still a relatively small market that caters to a fairly select group of people.
Home WLAN use is taking off as consumers become more familiar with the technology and its cost drop. But most of these people are interested in sharing high-speed Internet access among a number of computers in their house, whose location makes standard Ethernet not viable, and they'll never use a hotspot. These WISPs are focusing their efforts on business travelers and mobile workers who spend their time outside offices (people like salesmen and realtors) - and while it's a decent-sized market, it is well overshadowed by the number of mobile users. And it goes without saying that just because someone has a mobile phone, they'll want and pay for high-speed Net access. But 3G is more than delivering unfettered data access, it's also about delivering content and services - to general consumers and business users alike.
The point is that mobile data services, whether they be ringtones and screensavers and SMS alerts on today's networks, or video clips, fancy games, and corporate e-mail access on 3G networks, will always have more demand and a bigger usage base than high-speed wireless hotspots.
Financial and strategic arguments aside, there are a number of technological issues that dog WLAN when it's argued as a wide-area replacement for 3G. One of the most significant is security. WEP is a joke for anything other than casual use, and doesn't meet the security requirements of many corporate IT departments, while mobile networks offer much higher levels of protection.
But more significant are back-end systems like billing, mediation, roaming, and provisioning. Mobile networks are inherently designed to locate users and remember where they are, and follow them as they move from cell to cell. While some companies are working on and have released WLAN products that enable roaming in multi-cell networks, none have achieved much market traction. But WLAN remains essentially a one-way technology requiring users to make themselves known to the access point and network whenever they leave one area of coverage and move to another.
True roaming, from one WISP network or one area to another, is a different story. Few WISPs have roaming agreements, requiring frequent travelers (who seemed to be key users) to maintain different accounts and logons for different networks, depending on whose airport lounge they use or what hotel they stay in. SIM-based solutions for identification and logon are emerging, but until WLAN roaming is as simple as mobile roaming (even domestically), its takeup will be hurt.
These are all issues that mobile carriers have dealt with and successfully conquered in the past, giving them a leg up on their WISP competition. Carriers created mobile standards for voice and data roaming allowing users to roam on other networks and receive the same level of service as on their home network, while allowing for mediation so that the networks could settle billing and payment issues. There's no such framework allowing a Boingo user to roam into their local Starbucks and use the T-Mobile network their without setting up and paying for a separate account. But roaming is old hat to mobile carriers.
Coverage is Key
But the real difference is simple: coverage. Though the price of a WLAN access point pales in comparison to a 3G base station, the fact that such an access point has a range of about 50-100 meters, compared to 10 to 20 kilometers, makes an unrecoverable difference. For what it's worth, Ericsson says it takes 10,000 WLAN access points to equal the coverage of one 3G base station.
But if all this is true, why are carriers entering the WLAN fray? Because having WLAN hotspots as a part of a wide-ranging high-speed network makes all the difference. One login - and one device (when WLAN/cellular devices hit the market) - with seamless access will unlock the potential of the hotspot. People tend to forget that WLAN is not a mobile technology - it's a nomadic one. You can move from hotspot to hotspot, but have no coverage in between. And most people tend to spend most of their time in that in between.
Having these gaping coverage whole certainly won't fly for voice, and it won't work for data either. Would RIM have such a hit with their BlackBerry devices if they only worked around hotspots? Absolutely not. But with their constant access, they've been a runaway success for people wanting perpetual e-mail access. But letting users have the ability to up their data speeds when they're in certain locations conducive to such use without having to set up another account, use another device, or go through another provider will be a boon to the entire mobile data market, not just WLAN.
Carlo Longino is a freelance writer based in Austin, Texas. His previous experience includes work for The Wall Street Journal, Dow Jones Newswires, and Hoover's Online.