Concerns Over Hotspots Heat Up

By Joe McGarvey

June 17, 2002

Broadband service providers say Wi-Fi hotspots generate lots of traffic but no revenue. So why do they embrace the hotspot aggregators?

Despite the apparent groundswell of popularity, the momentum of just about every grass roots movement eventually collides with the commercial interest of another party. In the case of the rapid growth of Wi-Fi-based hotspots, early indications are that the injured party could be broadband service providers.

A common characteristic of a Wi-Fi hotspot is a collection of multiple wireless users that share a single broadband connection to the Internet. As the number and popularity of Wi-Fi hotspots increases, some DSL and cable modem service providers are worried that their networks may experience a surge in traffic without an equivalent uptake in revenue associated with new subscribers.

Service providers, say some industry analysts, are monitoring the situation closely.

"Absolutely, service providers are concerned about this situation," says Russ Craig, an analyst with the Boston-based Aberdeen Group research firm. "It could destroy their established pricing model."

Craig says that most broadband access providers price their services and provision their networks under the expectation that users will only use a certain percentage of their bandwidth. While service providers can tolerate a few abusive bandwidth users, the vast majority of connections, says Craig, are not designed to run at maximum capacity for several hours during the day.

Should an increase in Wi-Fi hotspots begin to place pressure on network infrastructures, service providers would be faced with two alternatives, says Craig. The first, he says, would be to allow service to degrade across the entire customer base. With more users fighting for the same amount of overall bandwidth, says Craig, subscribers are bound to experience a higher rate of failures and a decrease in performance. The other alternative, says Craig, is for service providers to increase investment in the outside plant and routing and switching equipment.

Given the capital-challenged environment in which service providers now operate, however, Craig says most would probably react to a hotspot-influenced increase in traffic by moving away from a flat-fee pricing scheme.

"What I expect to see happen is that the broadband provider will begin to monitor usage pattern and then create multiple types of services," says Craig. "Instead of saying you can have all you want whenever you want it, service providers may constrain bandwidth by giving them only X megabits a month. It creates some sliding scale that reflects actual usage and available resources."

Though he says that Wi-Fi hotspots have yet to become a noticeable drag on the network, Mike Durkin, the president of Belmont, CA-based Raw Bandwidth Communications, a DSL provider that services the San Francisco area, is in the process of formalizing the company's usage policies. Durkin says he wants to send subscribers a clear message that the broadband provider frowns on customers sharing their high-speed circuit with multiple users.

"We don't mind, of course, if people in the same residence want to share a couple of computers," says Durkin. "We're worried about everyone on the block or in a 300-foot radius, jumping on to our network through a single subscriber."

Similar to many other service providers, Raw Bandwidth established its flat-fee business model with the expectation that subscribers would not max out their pipes. Says Durkin: "The whole game with the flat rate is that we expect a certain amount of traffic and a certain amount of users. When you have more users on the same line you increase the usage but not your subscription rate."

Raw Bandwidth, says Durkin, is considering moving subscribers who abuse bandwidth to a payment scheme in which they must pay by the bit for traffic that exceeds a certain threshold.

The growth of Wi-Fi hotspots is taking two tracks. There is the communal type of hotspot, which is marked by broadband subscribers offering excess capacity on their DSL or cable modem links to neighbors and friends. Durkin refers to this type of arrangement as a "home brew" hotspot. At the same time, however, companies such as Boingo Wireless and Joltage, are commercializing the Wi-Fi hotspot concept. These companies are aggregating multiple hotspots, such as those found at Starbucks or other public places, and forming a much larger network, which is based on a subscription model.

Ironically, ISPs are less troubled about the commercial entities than they are the private hotspots. For one thing, private networks are much more difficult to detect than commercial ones. Craig says that a group of users sharing multiple high speed connections could keep under the radar of their service provider's bandwidth police by randomly switching the access point of the hotspot between a few Internet links, making it difficult for a service provider to identify a pattern of abuse.

Monitoring usage and traffic patterns are the best tools ISPs have for identifying Wi-Fi hotspots. Though it brushes the fringes of privacy laws, service providers could examine e-mail and packet headers to determine if a single subscriber is generating traffic from multiple sources, says Craig.

"You could tell if there were multiple users," he says. "All of a sudden if you have 60 users on one broadband link, you know something is going on."

Commercial entities are not nearly as much of a threat to service providers for several reasons. First of all, says Craig, most of these players handle all of the backend databases and broadband connections. Outfits such as Boingo, says Craig, are going to purchase sufficient bandwidth to satisfy the number of users, a situation that is likely to help generate revenue for service providers.

In addition, these companies have expressed a willingness to cut the broadband service provider into the deal. Durkin, for one, does not mind the notion of a third party profiting from his access services, provided he's properly compensated.

"I'm not opposed to the concept of Wi-Fi hotspots," says Durkin. "I just want to be included in the profits."

Covad, a national wholesaler of DSL services, is not worried about a non-revenue-generating spike in bandwidth due to hotspot growth. In fact, it plans to capitalize on the new segment of the industry. Hunter Middleton, group manager of consumer product marketing at Covad, says that the broadband access supplier and its retail entities don't have a particular issue with subscribers sharing their lines with wireless users.

"If a user has more bandwidth that he or she needs and wants to share it with a neighbor," says Middleton, "we don't have a problem with that."

Covad can be more tolerant than other broadband service providers, such as cable MSOs, says Middleton, because it can deliver its service in small increments. For example, the bottom line residential service features downstream bandwidth of about 600 kilobits per second and 128Kbps upstream. Middleton says with that connection speed, a subscriber could give 10 people a link that's roughly the speed of a dial up line.

"If that's what they want to do, go ahead," he says. "That's what we sold to the customer."

Middleton, however, says that line sharing will just create more business. As more users share a line, he says, they will need to purchase additional bandwidth to the Internet.

"We're happy when people share connections," he says. "It just creates more demand."

Like Durkin, Middleton has a preference for commercial services, such as Boingo. He cautions that the risk with "neighborhood" hotspots is that the holder of the Internet subscription retains responsibility for the actions of all the users he or she allows to share the line. If a user sharing the line violates any laws, such as hacking or disseminating illegal material, the holder of the account could be held responsible.

"Our agreement is with one person," says Middleton. "That's whose name is on the line."

Joe McGarvey is a freelance networking and telecommunications writer based in New York. E-mail him at

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