The Battle for Wireless Data
By Dan Briody, Thu Sep 19 00:00:00 GMT 2002

Can Wi-Fi overtake the mighty 3G in the race for consumers? hearts and minds?


What a fickle and impatient public we are. It was
barely two years ago now that we all thought 3G was going to be the
biggest thing since the Internet. It was going to save us from the
collapse of the technology markets and prop up the slumping wireless
industry. Consumers would be exchanging photographs, music, and video
clips on their phones. It was going to change the world again. But two
years hence, and 3G is still not here. And we’re already losing
patience. Isn’t there something else we could be doing besides
waiting?

In fact there is, and it’s called Wi-Fi. Also known as
wireless LANs, 802.11, wireless firewire, and the bane of 3G’s
existence, the latest craze in wireless networking is quickly filling in
the gaps that 3G is leaving open. In the technology world, extended
delays are as good as a death sentence. And if it weren’t for the
billions of dollars wireless carriers have spent on 3G networks, the
struggling technology would have already died many deaths, at least in
its current form. In the mean time, consumers, enterprises, hospitals,
and schools have turned their attention to a more reasonable, not to
mention available, solution to their high-speed wireless data needs:
Wi-Fi.

Wi-Fi enjoys a number of advantages over the incumbent
3G. First of all, it’s being deployed, to varying degrees, throughout
the world. Secondly, it’s cheap. Compared to the extraordinary costs of
building out a 3G network - $10 billion for spectrum; $500,000 per base
station; marketing costs; etc. - Wi-Fi is a drop in the bucket.


And finally, Wi-Fi is a grass roots movement that isn’t
suffering under the weight of bloated expectations and interminable
delays. It’s the loveable underdog. But don’t confuse this fascinating
technological duel with a zero sum game. This is not winner takes all.
Rather, both these technologies will grow to rely on each other in time.
And the result will be what we’ve all been waiting too long for:
seamless wireless access at blazing speeds.

Hot
Spot Heaven


With the exception of Seoul,
Korea, you can walk around any major city these days and pretty much
guarantee you won’t be getting 3G service on your phone. But slap a
wireless LAN card in your laptop, and chances are you can hop on to a
Wi-Fi hot spot at your local Starbucks. From these locations, you surf
the Web at speeds from 11mbps to as much at 54mbps (coming soon). That’s
20 times the speed that 3G is promising, if and when it is up and
running.

In the United States, wireless LANs are popping up so
fast that a motorist driving down highway 101 through the heart of
Silicon Valley, can pull over on the side of the road and jump on the
Wi-Fi network of one of the many high tech businesses that line the
road. The way these hot spots are popping up around the world is
downright viral. “802.11 is a disruptive technology,” says Sam May,
analyst at USBancorp PiperJaffrey. “Get on the train, or get hit by the
train.”

The truly frightening thing about Wi-Fi is how
inexpensive it is. For as little as $129 per access point and $50 for
the network interface card, businesses or consumers can set up Wireless
LANs for peanuts. They’re so cheap in fact, that home users are a
growing segment of the market. Even notoriously cheap retail businesses
are recognizing Wi-Fi networks as an inexpensive way to attract and
retain customers. In August, Starbucks announced a deal with Deutsche
Telekom’s T-Mobile subsidiary to roll out more than 2,000 hot spots
throughout the U.S. and Europe. Starbucks chairman Howard Schultz calls
the service “an extension of the Starbucks coffeehouse experience.” And
he’s not talking about selling overpriced legalized addictive
stimulants.

While Starbucks and T-Mobile are clearly taking the
international lead in Wi-Fi, they are not the only players. BB
Technologies in Japan has signed a deal to start rolling out 802.11
service in McDonalds franchises throughout the country. In Korea, KT
Freetel and SK Telecom are beginning to roll out hot spots as well.
British Telecom has announced that it aims to install as many as 4,000
hot spots by June of 2004.

But each country has its own set of
concerns in rolling out Wi-Fi. In the United States, the spectrum over
which wireless LANs operate, either 2.4 GHz or 5 GHz, is unregulated.
That fact has allowed for unmitigated adoption of Wi-Fi, with everyone
from big businesses to weekend hobbyists setting up shop. Some countries
throughout Europe and Asia however, restrict the use of those
bandwidths.

India, for example, is looking into releasing the
Wi-Fi bandwidths from government regulation to allow the emerging market
to thrive. How regulating bodies decide to allocate this precious
spectrum will ultimately decide how successful Wi-Fi is. But the lessons
learned from the 3G auctions are still fresh in minds from Europe to
Asia. And with 3G languishing under the weight of the debts incurred
through those auctions, governments have a rare second chance. Let’s
hope they get it right this time.

Clueless
Carriers


No one is more affected by the onslaught
of Wi-Fi than the wireless carriers. Having already shelled out billions
on spectrum, base stations, and cell phones all custom made for 3G, the
carriers have been hiding their collective heads in the sand since Wi-Fi
first appeared on the scene. “The carriers aren’t going anywhere near
this,” says Mike Doherty, analyst at Ovum, a wireless research company.
“It is a real danger for the carriers. If Wi-Fi takes off, the carriers
are going to lose ownership of the customer, and that is fatal for them.
They become dumb pipes.” The longer the carriers wait, however, the more
ground they cede to the likes of IBM, EDS, Boingo, and Wayport:
companies that can deliver the services and systems integration of
wireless LANs that carriers lack.

But carriers are starting to
take a hard look at Wi-Fi, and how it can fit into their overall
business plan. Cisco, IBM, Intel, Nokia, Siemens and others hardware
makers have already figured out how they plan to use the burgeoning
technology going forward. The only thing holding back carriers is the
fear that they may undermine their own investments in 3G. At least some
of the opportunity has already been lost by the carriers.

The
current modus operandi for carriers seems to be waiting until the market
is established, then acquire their way into it, a la T-Mobile’s
acquisition of MobileStar. The question is, how will T-Mobile reconcile
its newly acquired Wi-Fi division with its long-running 3G plans? “We
don’t see Wi-Fi as a standalone business,” explains Bryan Zidar,
spokesperson at T-Mobile. “We see Wi-Fi complementing 3G, and we want to
combine the benefits of both.”

Peace, Love,
and Synchronicity


There is another school of
thought on the subject. In many ways, Wi-Fi could be the best thing to
ever happen to 3G. How’s that you say? Consider this: with the
ever-longer delays of 3G, all of the pent up demand for wireless data
when the hype first began is starting to dry up. Consumers are starting
to forget what they need high-speed wireless data for. But with the
advent of Wi-Fi, appetites are being whet for the day when 3G does
finally arrive. And Wi-Fi will never be able to serve the same purpose
that 3G can. At just a 100 foot radius, Wi-Fi is clearly a local area
network. Outside of densely populated urban areas, you’re on your own.
Unless, of course, there is a wider, albeit slower, network to pick you
up. And that’s where 3G comes in.

Wi-Fi will clearly usurp some
of the expected revenues from 3G networks. As Doherty says, “by
embracing Wi-Fi, carriers are admitting that their networks can’t do
everything they had hoped they would do.” There are more than 15 million
Wi-Fi hot spots around the world already. But if the carriers play their
cards right, they can use dual mode phones and PC cards to create a
single point of billing for customers that use both Wi-Fi and 3G for
continuous roaming. Those carriers that get on board quickly, like
T-Mobile, Sonera, mmO2, and NTT DoCoMo will find themselves in the best
position when 3G does become a reality in 2005.

Unfortunately,
the business model for both 3G and Wi-Fi are unproven, at least from the
service provider’s perspective. There is plenty of money to be made by
hardware equipment makers, semiconductor providers, and systems
integrators. Experts are not so bullish on service provider prospects.
Because wireless LANs are so cheap, just about anyone can set up a
network. That means that carriers won’t be able to charge much at all
for minutes. “It’s going to be very hard for the service providers to
make any money on this,” says May.

Whether you like to root for
the underdog, or you’re more of a frontrunner, the race between 3G and
Wi-Fi is a compelling battle to watch. 3G is going to have to get used
to a diminished role in the future of wireless data. But in time, both
technologies will find their respective places in the wireless universe.
And the world will be a happy place.


After failing miserably at every attempt
to become the next great American author, Dan Briody settled in San
Francisco and started writing about the technology revolution in the
mid-90s. Today he is the author of Red Herring's Wireless Watch
column, and he is still trying to write the great American novel.