WiFi Metro Heats Up Another Hotzone

By Gerry Blackwell

May 21, 2002

Is anybody making any money from building Wi-Fi hotspots or reselling wireless access to these hotspots? WiFi Metro adds a new ripple to WISP opportunities for roaming the airwaves.

The hotspot market continues to be hot, hot, hot. Well, hot as in everybody's talking about it. If you're an ISP operator desperate to get in the air, WiFi Metro Inc. of San Francisco is another company worth checking out.

Like every other player, WiFi Metro is trying to invent a business model that will actually allow it to make money from hotspots - an elusive goal. It looks to have as good a chance as any of succeeding, though. In fact, it claims to have already succeeded. Better yet, the model includes partnering with ISPs, especially wireless ISPs (WISPs).

What's WiFi Metro's angle? It has more than one, but the most notable is its "hotzone" strategy.

A hotzone is a section of downtown core with contiguous hotspot-style 802.11b coverage both outdoors and inside businesses within the zone, such as cafes, restaurants and bars. The company recently launched its second hotzone, in San Jose, Calif., with WISP partner Gatespeed Broadband Inc.. The first hotzone was constructed in Palo Alto, Calif.

"The hotzone idea is definitely differentiating us in the marketplace," says Arturo Pereyra, WiFi Metro co-founder and acting chief executive officer. "Some companies are doing it in Europe, but to my knowledge, we're the only ones doing it here."

WiFi Metro launched operations in October 2001 after being incubated by ComVentures, a Palo Alto-based communications industry venture capital firm. Start-up funds were provided by an unnamed angel investor.

Besides the two hotzones, the company already has 60 conventional hotspots installed in the San Francisco Bay area, mostly in restaurants, cafes and hotels. Another 40 are in the works, many of them in Seattle, the company's second major market.

The objective starting out, says Pereyra, was to build an economical model for the Wi-Fi hotspot space, commercialize it with a local operation and then tinker with the model on a local level until the company had a successful "recipe."

"When the concept has been proven on a local level, we do a national launch using that recipe," Pereyra explains. "We're going methodically about our plan now. In the Bay area we're on target to be cash-flow positive by end of the summer."

Not bad, if true.

Anatomy of a hotzone

The San Jose hotzone takes in six central blocks of Santa Clara Ave., the city's main drag, from 1st Street to Notre Dame. It bleeds one block east and west from Santa Clara. Inside coverage extends far enough into restaurants and cafes to take in most customer areas, Pereyra says.

The Palo Alto hotzone takes in a similar-size section along University Ave. between the UCal train station and Ramona St.

The technology used is apparently top secret. Gatespeed, WiFi Metro's technology partner on the hotzones, does some magic with antennas. Pereyra calls the hotzones "hotspots on steroids." Though he plays coy when we ask how many access points are needed to provide the extended coverage, reading between the lines, it may be just one.

Customers, who can use either hotspots or hotzones, fall into two main groups. One is local road warriors, sales people, entrepreneurs, consultants who leave home or office in the morning and spend most of the day on the road calling on clients and prospects. The second is overnight business travelers.

"The sweet spot for us is the mobile professional who leaves the house and is away from a decent Internet connection from 8 to 6," Pereyra says. "I know if it was me, I'd come back to about 200 e-mails. Everything piles up on them through the day. That's the profile of the user who pays for our service."

They may use one of the hotspots or a business such as a cafi within one of the hotzones, or they can sit outdoors in the hotzones. Pereyra knows one user who regularly conducts virtual meetings from his car using a cell phone, WiFi Metro Internet connection and Internet meeting software from San Jose-based WebEx Communications Inc.

He won't say how many customers he has. They can buy an all-you-can-eat package for $20 a month or a daily package for $7 that gives them unlimited log-ins and downloading for 24 hours. Or they can buy a prepaid card good for the same 24 hour period from one of WiFi Metro's hotspot or hotzone business partners.

Providing hotzone businesses with access to incremental revenues from the WiFi Metro service is a key part of the company's strategy and business philosophy, Pereyra says. Hotzone partners buy the cards at wholesale prices, mark them up and sell them to occasional and visiting users for between $5 and $10.

One hotzone partner was quoted in a Businessweek article as saying that selling the WiFi Metro cards added 3 percent in incremental revenues. Pereyra views his ability to forge solid, fruitful relationships with partners of all kinds as another crucial differentiator for WiFi Metro. "They all have to be win-win relationships," he says.

Dissecting the deal

The arrangement with Gatespeed is another example. It includes a co-marketing agreement that involves selling bundled packages that include fixed wireless access at home or office from Gatespeed plus WiFi Metro's hotspot service for a single fee.

The company already has one roaming agreement in place, with San Jose-based wireless hotspot aggregator hereUare Communications Inc., which claims to have 47 percent of public Wi-Fi hot spots in the U.S. WiFi Metro subscribers pay extra for roaming.

Pereyra says he is also talking to other Wi-Fi hotspot companies, including aggregators Boingo Wireless Inc., iPass Inc. and GRIC Communications Inc.

"In all the research we've done, talking to our customers and our competitors' customers and customers to be, when we ask what it will take for them to sign up, they all mention roaming," Pereyra says. "They need to be able to get access wherever they go. And the number two thing they say is, 'More locations, more locations, more locations.'"

As in the cellular industry, he points out, forging roaming partnerships will be crucial to providing the kind of service customers want. The difference may be that the hotspot market, at least at the aggregator level, won't be as regionalized as cellular.

Pereyra concedes the possibility that competition for subscribers might heat up to the point that partnering with some companies would become uncomfortable. "But I don't think it's a high probability," he says.

Hotspot companies will compete for subscribers on the basis of the added value and service they deliver, and will always need roaming partners, he believes "At the end of the day, a network is only truly a network if it can offer ubiquitous coverage."

WiFi Metro plans to be in six more major markets by fall. Pereyra won't say which six, but they are not all in the west. He visited New York on business recently and used to live there. So it's a good bet the Big Apple is one of the metropolitan areas WiFi Metro plans to target.

The expansion plan is not exactly contingent on getting the $3 and $5 million in Series A financing the company is currently seeking, Pereyra says. But not getting the money would slow the pace of expansion.

ISPs, meanwhile, are an important part of WiFi Metro's plans going forward. It is seeking potential partners for other regional markets. It's interested mainly in talking to WISPs but will also talk to wireline ISPs, Pereyra says.

Reprinted from ISP-Planet.



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