Is Integration Overrated?

Analysts say the interconnection of cellular WAN and Wi-Fi services is the next logical trend in the wireless market. They say the integration of these services, with seamless billing and continuous connectivity, would give users a practical blend of high speed and long range.

When it comes to this much-anticipated integration, wireless-services provider T-Mobile would appear to have it all: A solid base of WAN users, plus a growing hotspot footprint. In fact, T-Mobile made a move in the direction of integration earlier this month, when it announced a joint development deal with Boingo.

Still, some analysts say T-Mobile has been slow off the mark when it comes to integration.

Under the deal announced at CTIA Wireless 2003, Boingo Wireless will help T-Mobile to develop a client-server solution that will allow users to locate and access T-Mobile hotspots. Jupiter Research senior analyst Julie Ask interprets the deal to mean that T-Mobile executives take seriously the possibility of a future market demand for integrated WAN and Wi-Fi services. "They believe that consumers are going to want this, and they are taking a step in that direction," she said.

She added, though, that this is at best a very tentative step. "Having an interface on my computer that allows me to choose a network does not seem like the biggest hurdle," she said.

In fact, many analysts agree that in spite of its power position in the market, T-Mobile may be hampered by some very real constraints in its efforts to capitalize on the promise of integration.

In the first place, there are fundamental business issues blocking the path.

"How much do people really need and want, and how much are they willing to pay for it?" asked Warren Wilson, an analyst at Summit Strategies.

Julie Ask echoes this theme. "I think they could build it, but how are they going to get money once they do? Who's going to pay for it?" she said. As T-Mobile's recent price cut on its wireless LAN services at Starbucks and airports suggests, consumers have not yet given a definitive answer to the question of how much they are willing to pay for Wi-Fi.

Nor are consumers likely to give such an indication until they are given a compelling reason to use these services -- and this goes double for an integrated WAN/Wi-Fi offering. "What applications really leverage the connectivity between the WAN and the wireless LAN? What is it I would want to do that would require high-speed roaming access to the Internet?" said Ask.

Until compelling applications become available to drive such usage, she suggested, it will be hard for T-Mobile or any other carrier to make the case for investing in the technology needed to merge the WAN and Wi-Fi networks.

This might help explain why T-Mobile has taken a baby-steps approach to the question of network integration.

T-Mobile spokesman Bryan Zidar called the Boingo deal an "incremental step," adding that "you need to build the network and you need to make it easy for customers to use that first," before integration becomes an issue.

That being said, he added that T-Mobile absolutely intends to deliver an integrated WAN and Wi-Fi product. "We are confident that we are going to be able to offer our customers a seamless experience through combined networks," he said. In an important first step toward that goal, he noted, T-Mobile will offer customers a single-bill option by the end of the year, wherein a customer's hotspot charges would appear on that customer's regular cell phone bill.

While such efforts would suggest that integration is at least on the T-Mobile horizon, even the carrier's strategic partners say the integration of WAN and Wi-Fi is not yet heating up.

In conversations with T-Mobile, "there have been hints of [integration] as being one of those next things," but no specifics have been discussed, said Brian McCann, senior manager in solutions marketing at Portal Software, which provides the billing solutions for T-Mobile's Wi-Fi network.

While he has had no direct indication from T-Mobile, McCann suggested that the carrier may be interested in further expanding its hotspot footprint before it makes a move toward integration. "Right now they are concentrating on these strictly Wi-Fi offers, doing [partnerships] with Starbucks and Borders and American Airlines, and it could be that that is priority one, after which they will move to take advantage of their existing customer base. It could just be a matter of internal priorities," he said.

Even if T-Mobile can expand its hotspot footprint dramatically, as it plans to do by the end of the year, analysts say the fundamental business issues of integration remain unresolved.

"Obviously there still are hurdles," said Ben Bajarin, an analyst at Creative Strategies . "Let's say I am in my office now, and I get up and go to Starbucks. There is no hotpot in between, so really what does that service do for me there? And even if you can [roam between networks], who is going to walk out of the office with their laptop on and stick it in their car? I am not sure what kind of usage they are envisioning here."