T-Mobile Hotspot Revenue Jumps
By Carlo Longino, Fri Mar 26 19:30:00 GMT 2004
The carrier's US hotspots were generating $1.6 million per month at the end of 2003, compared to $400,000 in January 2003. While their number of locations doubled during the year, so too did each hotspot's average monthly revenue.
By my quick-and-dirty calculations, T-Mobile had about 2,000 locations at the beginning of 2003, and was pulling in $400,000 per month total, which is about $200 per hotspot per month. By the end of the year, they had about 4,000 locations generating $1.6 million per month, or $400 per spot a month. That's tremendous growth, both in the number of locations, and in the amount of money spent at each one. Additionally, T-Mobile says 67 percent of users are on subscription plans, meaning they're getting a lot of repeat business.
Glenn Fleishman over at Wi-Fi Networking News says the revenue figures are pretty strong, but says it's still not enough to break even, let along turn a profit, at Starbucks locations. Evidently Starbucks, as part of the deal they had with Mobilestar, which was bought by T-Mobile when it went bankrupt, has a T-1 line in each hotspot location that's provided at T-Mobile's expense. With those kind of backhaul costs, then throwing in support and capital expenditure, T-Mobile's figures would have to grow even higher to get in the black.
But I'm not sure how accurate a statement that is. It's important to remember first off that T-Mobile's got hotspots in places other than Starbucks: the latest figures I could find are that there are about 2,700 Starbucks stores with Wi-Fi, so there's another third of T-Mobile's total that likely don't have the same T-1 deal. And I'm also not sure that Starbucks has T-1 in all their stores. I'm in one right now here in Austin, where I appear to be the only hotspot user, and I'm getting speeds between 500 and 600 kbps, which would seem low for a T-1. I think a more likely scenario is that they're using SDSL or something cheaper than T-1, which could significantly reduce their backhaul costs.
I'm a huge fan of free Wi-Fi, and I certainly think that coffee shops and cafes and other businesses can have a great deal of success in using it to attract customers and increase their sales. But these figures have me rethinking paid access a bit -- they indicate to me that (in some cases, mainly dependent on location) it's a viable business. While some might pounce on these figures as evidence to the contrary, I think they show tremendous potential. The growth is significant, and it looks now like T-Mobile's network has hit critical mass in terms of the number and location of hotspots.
Their pricing plays a very key role as well. I started a subscription last month, because as a T-Mobile mobile phone user, I can get unlimited hotspot access for $20 a month. I'm not a heavy user, but for $20 a month, it's low enough that I'll pay for it each month just for the convenience of having the service and not having to worry about buying an hour or day pass should I want to use it. But those prices aren't out of whack, either, at $6 for an hour or $10 a day, or for $30 a month unlimited.
But another key point to consider, from Starbucks' or Borders Books' or Kinkos' view, is that aside from whatever revenue share they get from access fees, having the Wi-Fi also helps their traditional business sales -- just like places that use free Wi-Fi. When I was in Berlin last week, I went in a Starbucks there several times because I knew it had T-Mobile Wi-Fi I could use. I bought several cups of coffee from them I otherwise wouldn't have. People that go into Borders likely do the same, and maybe some pick up a book or CD or DVD they weren't planning on buying once they're in the store.
The bottom line is that there's a sweet spot paid Wi-Fi access providers can hit when they have hotspots in a number of good locations, and it's priced right. Then it becomes a win-win, where the provider generates usage revenues, and the hotspot location owner sees benefits in increased foot traffic and sales.