What is the Future for Hotspots?

By Ed Sutherland

July 15, 2003

Public access wireless locations are having a dickens of a time predicting the future, as two new reports indicate divergent paths -- one gloomy, the other groovy. The analysts weigh in.

It is the worst of times. It is the best of times.

Consider it Charles Dickens, in the guise of two new reports, hard at work predicting the future of the Wi-Fi hotspot market. Hotspots, designated public areas where someone with a laptop or PDA with 802.11-network support can access the Internet, are the face of the Wi-Fi revolution. Depending on which report you believe paints the most accurate picture, hotspots are either languishing in disuse or require only minor tinkering to continue their rocketing rise.

Tim Shelton, the director of wireless research at Allied Business Intelligence (ABI) in Oyster Bay, N.Y., believes while hotspot providers have explained how public Wi-Fi access works and where such services are available, the nascent industry needs to better explain just why consumers should use hotspots.

"In order for this industry to continue its growth, it has to more clearly communicate the technology's benefits to end-users, in order to generate wide scale adoption," Shelton says.

Despite other concerns of lack of interoperability between hotspot sites and a low number of users, ABI is predicting revenue from hotspots leaping by up to 121 percent over the next five years.

Depending on consumer adoption of Wi-Fi hotspots, Shelton sees hotspot locations growing from the current 28,000 to more than 160,000 sites worldwide by 2007. Spurring that growth will be traditional cellular carriers including hotspots in their mix of services offered to subscribers.

"There are some terrific opportunities for operators to start bundling services, offering consumers a more data intensive usage model, as well as a more compelling package of benefits and value," according to Shelton.

Yuanzhe "Michael" Cai, a research analyst for the Dallas, TX-based Parks Associates, believes the key to hotspot growth is not offering consumers more options, but simply getting people to use already existing public Wi-Fi sites.

"Fewer than three percent of U.S. Internet subscribers have used public hotspots, and a negligible number of them have subscribed to these services," according to the research firm's report entitled 'Public Hotspots: Moving Beyond Road Warriors."

"Our latest consumer research suggests that approximately three percent of Internet users have used public hotspot services and only five percent of these users converted into subscribers," Cai said.

Cai doubts claims of nearly five million hotspot users in North America during 2003.

"That number is simply unrealistic," Cai said. "The most optimistic 2003 estimate of hotspot users in the U.S. should not exceed 2.5 million," Cai said.

"The hotspot market is likely to suffer from a prolonged infancy, despite the rosy forecasts proffered by industry pundits," Cai claims.

The growth of hotspot opportunities "should not be mistaken for over-hype, as many players in the market are facing the reality of commercial deployments," ABI's Shelton counters.

This brings up the nagging question of Wi-Fi creating a 'bubble' of expected growth and profits similar to the earlier Internet bubble which led to the dot-com crash.

"Paraphrasing [Federal Reserve chairman] Alan Greenspan, the degree of exuberance about the revenue potential of public hotspots borders on the irrational," says Joe Laszlo, analyst at Jupiter Research (the analyst group owned by the parent company of this site).

Laszlo believes hotspot providers are taking the 'build it and they will come' approach to rolling out services and venues. He feels having public Wi-Fi available in coffee shops, airports and hotels makes sense.

"But the business model for doing so is nowhere near resolved, and once it is, I think that part of the industry is going to shrink substantially before real, long-term growth kicks in," says Laszlo.

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