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Wireless carriers that launch public wireless-LAN (WLAN) "hot spots" will get burned, according to Herschel Shosteck Associates.
The research company found a "lack of a convincing business case" and expects the public WLAN networks to become unprofitable loss leaders for carriers' traditional wireless services.
"Despite increasing numbers of laptop computers equipped with WLAN capability, only a tiny fraction of those laptops will ever pay to connect to a public WLAN network," the report contends. The company cited four reasons:
Without ubiquitous nationwide and widely available coverage, few business customers will find the networks worth the cost to subscribe.
Public WLANs compete with free or cheap Internet access from other sources.
For most people, public access is a secondary way to get online, so their cost-sensitivity is much higher.
The potential customer base is very narrow.
Despite these drawbacks, Shosteck said, wireless network operators around the world are announcing their intentions to deploy WLAN hot spots alongside their existing cellular networks. Suppliers are announcing hybrid wireless LAN/cellular chipsets, PC cards and the like. And dedicated public WLAN businesses such as Boingo, Wayport, Surf and Sip, and Joltage continue to promote the concept.
WLAN hot spot provider MobileStar burned up an estimated $50 million before failing, Shosteck said. "T-Mobile Hotspot's re-launch of the MobileStar-Starbucks alliance may not be any more profitable for T-Mobile than it was for MobileStar," he said.
Wireless carriers, he suggested, must "concentrate on ways of making its current investments in technology and infrastructure more profitable."
In detailing the drawbacks, Shosteck pointed out that "truly useful coverage of the United States would begin when there are hundreds of thousands of hot spot locations in place." But he called such coverage impractical because "WLAN hot spot networks do not enjoy significant economies of scale." In addition, WLAN signals cover only small areas. "It's often difficult to find a hot spot even when you know where to look," he said.
In addition, the traveling public in industrialized nations have many other Internet-access options, he said. They include in-room Ethernet provided by hotels, "cybercafes," business service centers such as Kinkos, public libraries, free hot spots provided by community groups and dial-up access available virtually everywhere.
Because WLANs would be a secondary way for people to get online, people who will pay $20-$40 per month to get online at home or office are "much less likely" to spend the same amount for a connection they only use occasionally.
Nor are there enough people in the potential customer base to make a national public WLAN network profitable over the long-term, he continued. The target customer is a frequent traveler who needs high-speed Internet access away from the office or home, will hunt for the a nearby WLAN location that is "essentially invisible," has the right hardware, and isn't prevented by corporate policy from using a public network.
Cybercafe operators have already discovered that providing Internet access is not a profitable business in and of itself. The only profitable public WLAN network, Surf and Sip, restricts service to a relative handful (150) locations and rents computers to people who lack an appropriately-equipped laptop. "This isn't the model being pursued by the wireless industry," he said.
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