Experts point out that the size and value of the target market is still uncertain and the instability of the market structure indicates a high probability of low profitability
Only a few years ago, WLAN was nothing more than a pastime of the amateur. Today, it’s a favorite indulgence of mobile operators, fixed service providers and ISPs, globally. Though the amateur’s fascination with the WLAN has shown little signs of fading away and WLAN is getting popular with more and more enterprises, it’s service providers’ growing involvement with WLAN–to the extent that it has almost overshadowed their earlier obsession with 3G–that’s making news. 3G ain’t out, but WLAN is the in-thing now.
Worldwide, leading service providers like Vodafone, Sprint, Verizon, BT and T Mobile have built hundreds of hotspots (public WLAN access points) and are planning thousands of more at urban locations like airports, business centres, hotels and restaurants regularly frequented by business travelers–the potential WLAN users. T-Mobile has 2,700 hotspot locations, probably the largest network in the world, across the US. The operator plans to build 200 hotspots in Germany by the year-end. BT has 200 hotspots in the UK and is planning to add hundreds of more. Last month, it signed a roaming agreement with the US-based Wi-Fi network manager Airpath Wireless Inc. that will allow business users to access WLAN networks on both sides of the Atlantic. Verizon Communications, a US-based wire-line as well as wireless provider, 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 New York City. According to an In-Stat/MDR report, the worldwide for-fee hotspot market will grow from 12,235 locations in 2002 to 145,417 locations in 2007.
In fact, a number of new announcements last month by operators in Europe and US have added to the momentum. US operator Sprint last month announced its plans to offer PCS Wi-Fi access across the US in over 2,100 locations by the end of the year. That service will begin in September. Vodafone Ireland also announced it is to deploy a WLAN hotspot network at key locations in Ireland later this year.
Why Public WLAN?
Operators have been gung-ho about WLAN because of several reasons. To begin with, it is the first and the currently only really mature wireless broadband technology.
Moreover, unlike many other technologies, WLAN deployment does not entail much expenditure–the cost of building hotspots is just tumbling everyday.
For service providers, WLAN also offers a strong possibility of successful integration with 3G or even GPRS networks offering users the best of both worlds–a high-speed Internet access at hotspots and mobility in the 3G WAN, with seamless connectivity. Most of the WLAN services are targeted at corporate travelers who would use it for accessing e-mails and their corporate network when out of office. It is for this precise reason that hotspots are being built at places that are frequented by a large number of businessmen and professionals.
Many operators are also looking at Wi-Fi as a sales driver or marketing tool. Verizon Communications, for instance, says it’s not looking at generating revenues from hotspots but looking at them as a marketing tool and sales driver for its other services. So for operators like Verizon and many others public WLAN has a strategic value.
The Fad Comes to India
The fad has come to India too. Even though as of today there would be just a score of hotspots in India with the majority of them being in Mumbai, service providers are enthusiastic about the idea of Wi-Fiing the transit points like airports and public places like hotels and restaurants. The fixed line and CDMA-limited mobility operator Tata Teleservices and ISPs like Sify and Dishnet are among those who have already begun building hotspots. In fact, among large telcos, Tata Teleservices has taken a sort of lead in deploying public WLANs. The operator recently tied up with Barista, a national cafÃ© chain. As part of the agreement between the two, Tata Teleservices will deploy WLANs in all the 130 Barista cafÃ©s over a period of time. The operator has already deployed it at ten locations and is likely to cover 30 more by the end of the year. “We are also talking to some leading hotel chains and the airport authority for deploying WLAN,” YVL Pandit of Tata Teleservices says. He adds that cafÃ© chains and restaurants are basically being used to popularize the concept. “It is from airports and hotels that we expect 90 per cent of our WLAN revenues,” Pandit says.
Similarly, Sify has Wi-fi enabled the departure lounges at the Chennai International Airport and the Indira Gandhi International Airport in Delhi. Browsers pay Rs 100 (about $2) for an hour’s access in advance in the form of a card with a temp ID for access. However, it will wait and analyze the usage patterns and commercial viability before building more hotspots. Referring to India’s abysmally low laptop penetration, David Appasamy of Sify says it’s hard to imagine that Wi-Fi can be a widely used facility, given the low laptop population.
Others like Bharti are still working out the rollout plans. Bharti, which has been deploying WLAN extensively in its office premises, wants to experiment with the technology before rolling it out for customers. According to a top Bharti official, the company is also talking to some hotels for deploying it. He added that Bharti also planned to use public Wi-fi access to get customers for its other services. This again is using Wi-fi as a marketing tool.
Many others are in a wait-and-watch mode and say that it would still take at least two years for anything concrete to happen in India on public WLAN front.
Aware of the state of telco-run WLAN hotspots in Europe and the US, Indian operators know that there is no viable business case for Wi-fi as of today. As such, operators like Tata Teleservices and Bharti are not betting too much on Wi-fi as a possible source of big revenues. Despite this, they find WLAN too tempting a technology. “It may not be a revenue earner but it’s a great technology,” a senior official associated with a mobile operator says.
How viable a business proposition would hotspots be for Indian service providers?
After all, none of the operators that have deployed public WLAN on a large or small scale has been making money. Forget money, most of the hotspots are highly underutilized, in other words, they are rarely used. Just take the case of British Telecom’s Openzone hotspots. BT’s 200 Openzone hotspots have recorded just one hour per day of usage per hotspot, thus forcing it to scale down its expansion plans. So when those operators who have built thousands of hotspots in the US and Europe are not making money, how can Indian operators do that in a not so
To begin with, India does not offer a great WLAN environment. Moreover, she has a negligible laptop population. Only 48,000 laptops were sold in FY 2002—03. PDAs, the other ideal WLAN devices, are a rare sight. Given this, it is highly unlikely that operators can expect more than a couple of thousand people to access public WLAN, that too not very regularly. And even such accesses would be for very short periods of time. Experience in the West shows that hotspots are rarely used the way they were expected to. Given all this, it will be too simplistic to assume, at least in the near future, that any of the operators can make money from the public
What Holds It from Clicking?
And why isn’t it going to be a fairy tale come true anywhere?
The business case of public WLAN or hotspots is weakened by a number of technological and other issues. For instance, despite good progress, security is still the key concern for the prospective WLAN users, and so is the lack of back-end systems like billing, mediation, roaming, and provisioning. While billing and mediation are primarily operators’ headaches, business travelers would not be attracted to WLAN unless security of their data and roaming issues are taken care of. More than that, WLAN is not a truly mobile technology; it’s just a wireless technology with limited coverage. The limited coverage offered by WLAN makes it less attractive than 3G even though the former offers better data speeds.
More than technology issues, which can be taken care of over a period of time, it’s the size and value of the target market that’s worrying. As a Northstream white paper points out, the size and value of the target market is still uncertain and the instability of the market structure indicates a high probability of low profitability. Similarly, even though a new brief by Forrester Research for the European market has come up on the possible size of the market, it concludes that contrary to the existing perception of operators and vendors, the public WLAN hotspot business cases will mostly fail. This is because they will serve a paltry 7.7 million users in 2008.
“With all the hype today about the rollout of WLAN public hotspots, it’s as if the dot-com boom and bust never happened,” Lars Godell, senior analyst, Forrester, comments. “We believe that much of the money being poured into public WLAN today to enable access–from places as diverse as bars, marinas, hotels, and airports, as also trains, buses, and metro stations–is being wasted.
In fact, just the basic constraints, viz. the number of devices in use and users’ unwillingness to pay a significant amount for Internet access on the go will limit public WLAN users to numbers well short of planned networks’ carrying capacity. Additionally, the sky-high costs of providing Internet backhaul from hotspots will kill many hotspot business cases,” he adds.
Forrester anticipates that only 7.7 million Europeans (comprising 20 percent and 15 percent of WLAN-enabled PDA and laptop owners, respectively) will be public hotspot users in 2008. Compare that with the 312 million mobile phone users Forrester expects in that year, and the hotspot bubble will seem ready to burst. When corporates eventually buy into WLAN for its enterprise-wide deployment, the service will mostly be used within a LAN setting with fat WAN fiber pipes back to the Internet, or other private hotspots, such as homes.
Public WLAN can be positioned by operators as a tool that airports, hotels, cafÃ©s and restaurants or other such establishments can deploy to gain competitive advantages. With low entry barriers (the cost of building a hotspot is going down quite rapidly), operators can look at selling them as solutions to these establishments. However, that is not going to be an easy task–as more and more operators begin building hotspots, a battle for the most suitable sites looks imminent.
Chances are that in order to outwit competitors from laying hands on the potentially lucrative hotspots like airports and hotels, operators might get into an undesirable hotspot bidding war. While that could bring in moolah to site owners, operators might end up paying more than they can earn and in the process.
WLAN’s potential can be best realized with its integration with GPRS or 3G networks and providing users with a single login.
A seamless integration could be attractive to users as they can access data anytime anywhere using the device they want (a cell phone while outside the hotspot and a laptop when inside a hotspot). For operators, such integration could become a competitive advantage as well–as is being tried by some in the US and Europe–apart from serving as a great marketing tool and sales driver.