Fixed Wireless Business

Wanted: A Few Good Wi-Fi Pops

Despite Wi-Fi's popularity, the technology has not yet produced a national network. Some Wi-Fi boosters claim that its first mover advantage could erode quickly when the telcos join the fray, unless rural ISPs act now.

by Max Smetannikov [April 12, 2002]

The newest mobile broadband wireless technology and its backers have everything a developing industry needs: big visionary names, venture capital budgets, fresh startups, and obvious benefits to end-users. However, the Wi-Fi industry lacks a national network, and the way executives in the trenches see it, ISPs might play a pivotal role in establishing one.

Services running Wi-Fi, or mobile wireless broadband running on 802.11b standard, are rapidly spreading throughout the U.S. Started by enthusiasts as free broadband targeting high traffic spots dubbed "hot spots" like coffee chops, airports, hotels, and crowded public areas, Wi-Fi has turned a commercial phenomenon.

Operators of Wi-Fi services like MobileStar, WayPort, and Surf and Sip are quickly expanding their geographical reach. At the same time, the facilities-free nationwide providers of Wi-Fi services are finding more customers their networks every day. IPass, an established provider of roaming services to corporations, has jumped on Wi-Fi bandwagon, as has Cisco with its Internet Mobile Office program. The latest startup by EarthLink founder Sky Dayton, Boingo Wireless, is also pushing all Wi-Fi all the time.

The Wi-Fi revolution has caught two groups of potential heavy hitters by surprise. Mobile wireless operators are in the midst of figuring out their strategies with third generation mobile wireless networks, dubbed 3G. Off to a rocky start in Europe and Japan, these networks promise 1 Mbps connectivity via mobile phones once they are up. The first service in Japan, run by NTT DoCoMo, has 60,000 subscribers. The big question for mobile operators (one that has no answer for the time being) is whether Wi-Fi would make a good intermediate service as they gear up for 3G, or might even provide greater bandwidth at a lower cost.

It's clear that some operators have already decided that it's better to be in the game than watch it from the sidelines. Deutsche Telekom's VoiceStream acquired Wi-Fi pioneers MobileStar out of bankruptcy reorganization, reportedly paying $2.5 million for a $70 million network and contracts with key hot spot operators like Starbucks. VoiceStream's Wi-Fi service is due out by this year's end.

ISP-Planet's articles on Wi-Fi indicate that mobile providers theoretically have the advantage in rolling out national Wi-Fi services since the biggest expense in setting up a wireless POP lies in setting up the radios on towers and rooftops. Indeed, Sprint's mobile phone service provider unit PCS was an early investor in Dayton's Boingo Wireless.

Sprint's position as a Wi-Fi observer is telling of the dilemma that the other set of network providers is facing. In the late 1990s, Sprint and WorldCom went on an acquisition rampage which ended with the two owning the bulk of MMDS licenses in the U.S. An alternative to more expensive LMDS, MMDS is a spectrum of licensed frequencies that supports line of sight wireless broadband connectivity. The early thinking was that MMDS broadband would fill in the gaps between DSL and cable modems. However, in October of last year Sprint stopped adding subscribers to its MMDS network, finding out that after spending $1 billion on spectrum licenses it was running a service that was unprofitable by definition.

Now Sprint executives say they are waiting for positive results of mobile MMDS trials, which may result in end users having a palm-size device attached to their laptop as a source of mobile broadband connectivity in major cities. Deployments like NextNet Wireless' non-line of sight MMDS gear in three Mexican cities by MVS Comunicaciones suggest that the evolution of MMDS technology has not stopped, and mobile MMDS Internet service might make an appearance before the end of this year. Should this happen, carriers with traditional interest in fixed wireless are likely to be out of the Wi-Fi game.

"If we deploy a more portable product with a wide city footprint and permitting portability I do think that in that space we become competitive with Wi-Fi," said Cameron Rejali, Sprint vice president of wireless products and services.

Wi-Fi operators like Surf and Sip think that while large carriers have a lot of muscle when it comes to launching national networks, the reality of the situation is that building national footprint is a city-by-city, POP-by-POP job. Regional ISPs that understand the wholesale data business could be better builders.

"We'd work with just about anybody, and are particularly interested in working with ISPs in rural areas," said Rick Ehrlinspiel, Surf and Sip president, reached on a mobile phone in Denver where he was busy picking sites for new antennas.

Ehrlinspiel feels that small Wi-Fi players need to move fast to take advantage of their first mover advantage in the market that is ripe for picking. Prices for laptops with built-in Wi-Fi cards hit a street price of $1,000 in Q4 2001, the threshold many Wi-Fi operators view as critical for widespread adoption of their services.

The way the Wi-Fi pitch goes, ISPs interested in partnership have little to risk and lots to gain. "A startup guy," Ehrlinspiel has the logistics of running a Wi-Fi network figured out. A company with a telling name, Surf and Sip started out selling wireless broadband to coffeehouses. Its expertise is in handling the back end of customer authentication and billing. By default, it is also in the business of supplying network connectivity for wireless installations. This is the part that is done on the cheap. For most Wi-Fi POPs, an ADSL or cable modem line is sufficient for shared wireless access, with T-1 lines necessary only on exceptional POPs. Ehrlinspiel recalled a conversation with one customer in Alaska who wanted to offer Wi-Fi access with dialup being the shared wireline connection.

Wi-Fi popularity sends operators like Surf and Sip looking to scale their service beyond traditional "hot spot" areas. Surf and Sip finds that only 15 percent of its users need real nomadic Internet access. The rest of the customers get online in the same spot time after time.

With that in mind, Wi-Fi service providers are looking for ISPs interested in selling Internet access to that nomadic 15 percent of their users by putting Wi-Fi in select POPs. The immediate target is users who move from office to office, or from building to building within one city. While Ehrlinspiel was vague as to how much ISPs would be paid for furnishing customers, colo, and backbone access, he did mention that coffee shops sometimes get to keep up to 50 percent of the revenue.

Surf and Sip may be pitching a good deal for ISPs that have no Wi-Fi expertise.

Small ISPs that have already played with wireless broadband are not waiting for a Wi-Fi partner like Surf and Sip to show up at their offices. Arizona-based CommSpeed, one of the few independent owners of MMDS licenses, has retrofitted some of its POPs for Wi-Fi, and is going to national aggregators like Boingo directly.

"We are one of the few providers that has both MMDS and eight Wi-Fi hubs to fill in in smaller areas," said Mark Davis, CommSpeed vice president. "I have met the CEO of Boingo, but we are not in discussions. There seems to be a new Wi-Fi company appearing every day."

—End