Are Hotspots Cooling Down?

By Ed Sutherland

March 04, 2003

Is the shuttering of one Wi-Fi-based hotspot provider (Joltage) and the price cuts of another signs of second thoughts by companies or the first shots in a proxy war between cellular giants?

Is the shuttering of one Wi-Fi-based hotspot provider and the price cuts of another signs of second thoughts by companies or the first shots in a proxy war between cellular giants?

Before Joltage officially went offline Feb. 28, founder and CEO Andrew Weinreich wrote in an e-mail that "it appears that it will take substantially longer than expected for the significant numbers of users we anticipated on such a network to materialize."

Content of the Joltage Web site has been reduced to a single e-mail link.

"Like so many parts of the industry, people have let their expectations get somewhat ahead of them in terms of just how many people out there have laptops, wireless cards and the inclination to make regular use of them in public places," says Joseph Laszlo, a Jupiter Research wireless analyst.

On the same day Joltage was closing its hotspot business, the largest operator of public commercial Wi-Fi public access was cutting prices on its services.

T-Mobile's Pricing Turn-Around

T-Mobile, currently the nation's largest hotspot provider, has begun cutting prices for monthly Wi-Fi access at 2200 Starbucks coffee shop and airport lounge locations. T-Mobile's monthly Unlimited National plan drops from $49.99 to $29.99. T-Mobile is also making its unlimited plan truly "unlimited" by eliminating the previous 500MB restriction on data transfers.

The hotspot provider junked its Unlimited Local option which had cost $29.99 to access hotspots in just a single local area.

Additionally, for those unwilling to sign up for the one-year subscription required of Unlimited National plan users, T-Mobile is offering a month-to-month option with no commitment for $39.99 per month.

In another move to encourage more usage of the Starbucks sites, T-Mobile will charge pay-as-you-go customers $2.99 for the first 15 minutes, then $.10 cents for each additional minute, rather than $.25 for each minute beyond the first 15. Lovina McMurchy, director of new ventures at Starbucks, has said the busiest shop sees about 20 Wi-Fi users per day.

"Whenever you reduce pricing, you expand the scope of people who can engage the service," reasons Frank Ramirez, T-Mobile's Director of Business Products. In other words, the carrier is hoping less cost will equal more users.

There are several reasons for the price cuts. T-Mobile spokesperson Kim Thompson says dropping the hourly price from $14.24 per hour to $6 per hour brings the service more in line with real-world usage of hotspots. Ramirez says the changes simply are a response from customers seeking less complex pricing.

Wi-Fi at Any Price?

"It's telling that T-Mobile has cut prices," says Laszlo. The move "underscores that people are not so starved for constant connections that they're willing to pay any price for them."

Another possible reason for the price reductions is T-Mobile Hotspots are unable to generate enough money to cover operating expenses. Rather than DSL or cable, T-Mobile's hotspots use more expensive T1 Internet connections, which average between $400 to $1,000 per hotspot. T-Mobile also has revenue sharing agreements with the Starbucks coffee shops and HP, which provides some software support.

Joltage isn't the first hotspot operator to find the financial prospects of hotspots growing cold. In July of last year, San Jose, CA-based hotspot aggregator hereUare Communications and its wholly owned WiFi Metro subsidiary used the same wording as Joltage's Weinreich to explain why the business was being sold. WiFi Metro was folded into Hotspotzz.

Steven Cochran, co-founder and executive vice president of hereUare cited "the inability to raise money in this environment."

The troubles with hereUare began when partner MobileStar was purchased by VoiceStream and became part of T-Mobile Wireless Broadband. In one fell swoop, 600 hotspots vanished from hereUare's inventory.

Boingo Keeps Bouncing

In contrast, wireless Internet service provider (WISP) aggregator Boingo Wireless used the week to announce it had increased the number of member hotspot operators to 25. With partnerships with Earthlink and Fiberlink, Boingo has a network of 1,200 hotspots across the nation and in 10 countries outside of the U.S.

With Sprint a heavy investor in Boingo, T-Mobile operating a network of hotspots, and AT&T's involvement in Cometa, are we beginning to see the first shots in a proxy war between cellular giants with Wi-Fi the battleground?

You can "view it as a proxy war or a series of civil wars," says Yankee Group analyst Adam Zawel. At the 802.11 Planet Conference & Expo in 2002, Zawel said "there's probably room only for a handful" of survivors.

For hotspot operators to succeed, Laszlo says, there are two paths available. "One would be very big, and provide close to ubiquitous coverage. The other would be to be very small, and focus on just a handful of specific locations and cultivate a loyal clientele."

"Companies that fall in the middle, like Joltage did, may not find a comfortable niche for themselves," says Laszlo.

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