Can Public Hotspots Make Money?

By Brian Morrissey

June 12, 2002

While some advocates proclaim the public hotspot addiction is 'worse than crack,' much of the industry is still grappling with how to turn that interest into viable businesses.

PHILADELPHIA -- At the 802.11 Planet Conference here, the message to the public hotspot market is: Forget John Q. Public, unless he's carrying a briefcase.

Analysts said the market for public hotspots, despite all the hype, doesn't appear all that large, except for niche providers for business travelers. According to Cahners InStat analyst Gemma Paolo, today there are just 41,000 hotspot subscribers. Even with Cahners InStat forecasting that figure growing to 400,000 by 2006, the economics of the industry are difficult.

"For the pure plays, there's probably room only for a handful to survive," said Yankee Group analyst Adam Zawel. "We've been playing with the numbers, and then you've got all these players dipping in, and it just gets really thin."

A slide Paolo showed of the more than two dozen companies in the public hotspot space showed how many players had rushed in, despite the cautionary tale of MobileStar's demise. Executives from three of those companies explained why they would be among the chosen few.

WayPort has set its sights firmly on the business traveler. "Our focus is where does this type of customer need the connectivity the most," said Daniel Lowden, WayPort's VP of marketing and business development. "Typically, they're spending most of their time in hotels and airports."

To reach the traveler, WayPort has partnered with 460 hotels and four airports, spreading the up-front costs unlike MobileStar's model. WayPort also has 13 business centers through its acquisition of Laptop Lane locations.

Lowden said WayPort would get a boost from a new deal with IBM to include a free 30-day trial with 1 million ThinkPads. The deal follows WayPort's rollout with Windows XP last October.

But analysts still view the public hotspot market with skepticism. "They're having trouble attracting customers in volume," said Analysis consultant Ken Figueredo, "and volume is what the telecommunications industry is all about."

Like WayPort, WiFi Metro thinks the on-the-go businessperson is an ideal customer. Since launching in January, WiFi Metro has opened 60 hotspots, including a six-block "hotzone" in San Jose. WiFi Metro founder Arturo Pereyra said WiFi Metro also targets the 43 million business travelers, along with the 78 million mobile workers, like pharmaceutical sales representatives.

"It won't be everywhere," Pereyra said, "but it will be everywhere that it makes sense."

Swimming against the tide, Surf and Sip President Rick Ehrlinspiel said the public hotspot market could support the coffee-shop model. With 126 shops in 17 states, Ehrlinspiel said the Surf and Sip can sell coffee shops on Wi-Fi as a customer-acquisition tool.

"You get addicted to this stuff," he said. "It's worse than crack."

The analysts warned that the cellular carriers are circling. T-Mobile, now the owner MobileStar's network of hotspots, and SprintPCS, investor in hotspot aggregator Boingo, already made cautious moves into the market.

"We are seeing carriers take an interest," Zawel said. But analysts cautioned that carriers were unlikely to rush into a market so young, and with such uncertain economics.

"It's a new business and very different from what they're used to doing," said Lowden, pointing out that the hotspot companies have agility, speed and know-how in their favor. "This is not an easy business."



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