Will WLANs Put the Hurt on 3G?

By Ed Sutherland

December 03, 2001

Find out what analysts think about the damage that WLANs could do to 3G revenues - at least initially - until pricing plans and other 3G advantages are ironed out and differentiated

Could mundane wireless local area networks (WLANs) eat into the profit potential of flashier third-generation (3G) mobile carriers? A flurry of reports this week seems to indicate that this is entirely possible.

The growing popularity and ubiquity of WLANs will likely cause wireless carriers to lose nearly a third of 3G revenue as more corporate users begin using WLANs to connect to the Internet and office networks. This is based on a recent report from the London-based market research firm Analysys.

The growth of public WLAN "hotspots" in airports, hotels, libraries - even coffee shops - portends revenue from wireless LANs skyrocketing to $868 million by 2006. In 2000, money from WLANs raked in just over $1 million, according to Allied Business Intelligence.

In a report on the surging interest in public WLANs, the Yankee Group research firm found carriers view WLANs as a "real threat and fear losing out" on a lucrative market, says Sarah Kim, an analyst and the report's author.

Fueling the increased interest in WLANs is the relative and growing ease of availability of fast Internet access for handhelds and the increasingly common use of wireless networks in the home and office, say analysts.

In comparison to the rise of WLAN use are stumbling mobile carriers and a handheld market in free-fall. Japan's DoCoMo announced it is recalling recently-released 3G phones following reports of erased data and other glitches. Gartner Dataquest points to the slow introduction of intermediate 2.5G mobile technology as a partial cause of a 10% decline in cell phone sales.

Analysts say the ease of installing and using WLANs is making it an attractive alternative to mobile 3G. In contrast to the reported $650 billion spent worldwide by carriers to get ready for 3G, setting up a WLAN hotspot requires only an inexpensive base station, a broadband connection, and one of many interface cards using the 802.11b networking standard now available for your laptop, PDA, or smart phone.

Will WLANs supplant 3G? No, says the Yankee Group's Kim. Aside from the fact that the two technologies use different radio frequencies, they are also targeting different markets. Where 3G is mostly phone-based and handles both voice and data, WLAN is a purely data-driven creation, says Kim.

While carriers have heavily invested in 3G, they are financially sound. Kim says WLANs don't have the capital to compete with Sprint or AT&T and points to MobileStar as WLAN operations that have gone under. (VoiceStream recently purchased MobileStar.)

While carriers will survive WLAN competition, the cost of recent auctions of 3G airwaves is giving rise to the increased talk of WLANs encroaching on any potential profit from third-generation services. Kim says such concern makes finding a realistic pricing plan for 3G services all the more urgent.

Allen Nogee, a senior analyst at Cahners In-Stat Group believes that rather than a threat, WLAN could help introduce consumers to the wireless word and mobile commerce.

"WLAN technology allows customers to get accustomed to having wireless access, with no contracts to sign, and no commitment," says Nogee. After the initial experience, consumers are more likely to pay more for expanding their wireless reach beyond the limited range of WLAN, Nogee says.

"Sure, in some situations, WLAN will be all that is needed, but in many others, cellular 2.5G integrates with WLAN nicely," says the Cahner In-Stat analyst.



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