Will Cometa Burn Up in the Hotspot Market?

By Ed Sutherland

December 16, 2002

Analysts say the late to the party company formed by IBM, AT&T and Intel may not make it, simply because users may not want to pay... but maybe money isn't everything.

If Cometa Networks is to succeed in its quest to build the first nationwide network of Wi-Fi hotspots, they need to listen to what Amy Cravens is saying about the future of wireless Internet access.

Cravens, an analyst for the Scottsdale, AZ-based In-Stat/MDR technology research firm, is just one of those questioning last week's announcement by tech heavyweights IBM, AT&T and Intel, along with some investors. The trio has formed Cometa and foresees 20,000 hotspots in the U.S. by 2004. The company wants to place a Wi-Fi hotspot within five minutes reach of every wireless user in the nation.

Is it possible?

"It's possible," says Cravens, who is the author of a new report on the outlook for commercial 802.11-based hotspots. While the analyst believes Cometa will be a driving force behind hotspot growth, Cravens says the company's projected 20,000 hotspots is more than triple the 6,000 locations In-Stat believes will spring up in the U.S. by 2003.

Falling Short

Other hotspot providers have fallen short in their estimates, says Cravens. Boingo, which had predicted it would have between 2,000 and 5,000 locations by the end of the year, had less than 1,000 sites by the end of November.

For the number of hotspots in the U.S. to grow next year, Wi-Fi operators must change their way of doing business, says Cravens. The first step is getting more users.

While Cometa CEO Larry Brilliant expects Intel's WLAN-enabled Banias chip for laptop computers to swell the currently 3 million 802.11-enabled devices to 100 million devices, for now the user rate of individual hotspots is in the single digits. Cravens says the average hotspot attracts seven users. John Chang, an analyst with Allied Business Intelligence, says T-Mobile, which will have 2,000 locations open by the end of the year, averages about one user a day.

Turn Away from the Past

Chang says there is no way Cometa could turn a profit if they do what others in the hotspot market have tried in the past.

Although Cometa is positioning itself as a hotspot 'plumber,' distancing itself from the more volatile aspects of the market, the company still must depend on the 'build it and they will come' hope of future growth in that sector.

"All services offering public access to data services in the U.S. for mobile users are doomed to failure," says Allen Nogee, an analyst with In-Stat/MDR.

Nogee says the biggest reason for his gloomy outlook on public wireless networks is money.

"Users aren't willing to pay the fees that are being charged for mobile wireless data access," he says.

Realigning Perceptions

Cravens agrees with Nogee's assessment. While business users, expected to be the bulk of any hotspot's users, are willing to pay between $30 and $40 for monthly unlimited access, the analyst says national providers, like Boingo are charging $75 to $79.

"Price points must realign with user value perception," writes Cravens.

Cometa says it intends to promote hotspots everywhere -- from restaurants, hotels, and convention centers. The company seems split whether to provide access at airports.

Cravens is concerned about Cometa locating in restaurants. In her report, the analyst sees future hotspots focusing on airports, hotels and convention centers.

To get into those venues, Cometa will need to partner with already in place networks such as T-Mobile and Wayport, says Cravens. So far, only AT&T has said it will use the Cometa network.

Nogee says making lots of money may not be the main goal for Cometa Networks, but they instead just favor getting more people to embrace wireless local area networks.

"IBM is a major provider of network equipment and hotspots, already," Nogee points out. "Intel soon will be selling a WLAN chipset for laptops and AT&T doesn't want to be left out, especially since T-Mobile, Verizon and Sprint are each starting WLAN networks of their own," Nogee says.

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