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Guest Column

Will 1x Networks Turn Wi-Fi Hotspots into Iceburgs?

Columnist:
Bob Egan
President and Founder
Mobile Competency

Topic Area
Wireless LANs

Problem Definition
Do retail hotspots live or die?

Findings:

Wi-Fi hotspot access is not easy or convenient to use
The Wi-Fi retail hotspot business model is broken
The enterprise has grave reservations about public hotspots
Wi-Fi access is fast - this is a short-term reality but a long-term fantasy
Wi-Fi hotspots are interference prone
Coverage is spotty and inconsistent

Predictions

1. By 2005, in North America, 1x technologies will demonstrate a significantly better cost, coverage, capacity and convenience proposition than Wi-Fi, thus relegating public hotspots to all but niche status.

2. By 2007, outside the US, the combination of 1x and W-CDMA technologies will relegate Wi-Fi hotspots to niche status.

3. CIOs should expect wide scale integration of 1x wireless technologies into PDAs by 2005.

4. CIOs can expect 1x technologies to be integrated in laptops, but not before 2007.

Upshot:

1. Should CIOs consider exploiting hotspots in the short term, they are well advised to take immediate action to scale Wi-Fi economics and employ more simplicity and security by using a provider that can aggregate the domestic and international
hotspot points of presence. iPass and GRIC are examples. Failing this, CIOs may well face material Wi-Fi expenses undermining their budgets over the next 18 to 24 months, much like cellular phone expenses did 10 years ago.

2. To curtail costs in today's budget-constrained environment, CIOs may consider a policy that discourages the use of hotspots at the department level by making it a non-reimbursable item unless a specific ROI has been determined within the LOB.

3. CIOs should consider trial use of 1x modems for highly mobile people and put pressure on their current mobile operator(s) for deep discounts from retail pricing for 1x data use based on the dollar volume their enterprise already does for voice and SMS.

Summary
Despite ill-conceived forecasts to the contrary, the lion's share of speculative, retail Wi-Fi hotspots are likely to become little more than frigid, floating, uncharted icebergs by year-end '05, especially in North America. CIOs and IT managers who count on Wireless LANs for anything other than use on corporate campuses, in hotel meeting rooms and in employee homes are likely to find themselves no less at risk for their shortcomings than did the Titanic's onboard designers.


With well over 100,000 hotspots expected to spring up around the world by 2005-as well as the debut of Intel's Centrino technology that integrates Wi-Fi capabilities into notebook computers-it may seem that public hotspots are ready to flame hotter. But we expect them to flame out as their shortcomings are exposed and as CDMA2000 1x is further deployed.

Don't get me wrong. As one of the original authors of the IEEE 802.11 Wireless LAN standard, I am a big fan of Wireless LANs-when used in the right place for the right purpose. I have worked with the technology for the past 10 years, when the solutions were far from the elegant, cost-effective designs that exist today. I have used it in my home for many years. I have deployed it within corporate campuses. And yes, I have used Wireless LAN access in airports and coffee shops many times, especially when it's free-often because no good alternative was available. However, the more that I use my 1x cards (1xRTT and 1xEV-DO), the more I realize how deficient Wi-Fi is when it comes to public access - with very few exceptions. Still, the hype is undeniably high, and hotspots have attracted their share of enthusiasts.

Why They're Hot…
Hotspots have captured the fascination of savvy business travelers, hip Starbucks customers and the trade press in large part because they represent hidden doors to the Internet that allow spontaneous networking and, in some cases, higher speed access than users are getting at home or in the office.

Numerous elements are converging to create fertile ground for hotspot growth, at least in theory. Namely, hotspots are finally proliferating beyond a few thousand locations. Airports, hotels and other establishments are opening their wireless doors by becoming hotspot locations. And carriers are ramping up their plans to deploy hotspots, with T-Mobile being the most aggressive as it outfits popular Starbucks locations with Wi-Fi capabilities.

Intel recently unveiled its Centrino technology, and that has fueled the belief that user interest in finding public access points will grow - particularly as a growing number of laptops begin to sport integrated wireless capabilities. What's more, the price of wireless-enabling LAN cards, now hovering around $100, is expected to drop nearly 70 percent in the next four years.

…And Why They're Not
While public hotspots may feed the need of frequent travelers to stay connected and appeal to the gourmet coffee crowd, a multitude of problems threaten to make hotspots turn colder than the Antarctic:

*Wi-Fi hotspot access is not easy or convenient to use
*The Wi-Fi retail hotspot business model is broken
*The enterprise has grave reservations about public hotspots
*Wi-Fi access is fast - this is a short-term reality but a long-term fantasy
*Wi-Fi hotspots are interference prone
*Coverage is spotty and inconsistent

Sexy But Not Easy
The first problem is that you often don't even know if you are in a hotspot. And when you do, in addition to needing a service plan and a device that is Wi-Fi 802.11b-capable, you almost need a masters degree in computer setup to know how to (re)configure your laptop or (worse) your PDA to the settings required by the hotspot provider - assuming you even know who that hotspot provider is.

In Search of a Business Model
I understand why Wi-Fi is good for Starbucks - Starbucks stores get cheap (free) access to a T1 for their enterprise use, and, if someone hangs around and buys one of those fancy name coffees that I like, so much the better! I also understand why there is so much hotspot interest from companies like T-Mobile and AT&T Wireless-it's based on survival, not investment return and ARPU growth.

But no true value proposition has emerged to guide carriers (or, for that matter, enterprises) on how to make money from hotspots. While nearly 4 million people around the globe access hotspots, the current core group of users is limited at best, encompassing the tech-savvy and access-hungry business traveler and upscale clientele that have the time to mill around gourmet coffee shops.

The Hesitant Enterprise
Purveyors of hotspots seem to think that they will attract a wider business audience once they bring enterprises more firmly into the fold, a scenario that seems unlikely for a couple of reasons. First, enterprise IT staff and management are leery of hotspots because they rightfully doubt the effectiveness of WEP security and are uncertain whether WPA will resolve these concerns. The bottom line is that they are afraid that hotspots could compromise their own corporate networks. The knee-jerk reaction has been to limit or eliminate access through unauthorized access points. Warchalkers already have shown how easy it is to spot and exploit access points on the fly.

What's more, the enterprise has not been presented with a clear strategy for achieving ROI by encouraging their employees to use public hotspots-nor have they attempted to comprehensively track the savings that hotspot access might bring about. For most enterprises, the ROI factor is a deal-breaker. In what has been a downturn economy for quite some time, the only initiatives that generally get the green light from management and IT are the ones with proven ROI-or those that streamline business processes.

Speed Kills, But Not for Long
Today, where there is a T1 and nobody is sharing it, Wi-Fi is faster than wide area solutions such as 1x. While the industry hypes the speed of Wi-Fi to be 11Mb/s per user, its real speed is more like a half duplex 6 Mb/s. Depending on where you are in the signal area or how much interference you are subjected to, it could be as low as a half duplex 1Mb/s shared channel. There are technology roadmaps to give Wi-Fi more speed, but not more capacity. On the wide area side, a hotspot supplier can invest in more T1s, but if the business model did not work with one T1, it will be worse with n+ T1s. Thus, success itself dooms the fast speed notion for Wi-Fi hotspots, either due to technology limitations or the investment barrier.

Can You Hear Me Now?
Wi-Fi hotspots operate in the free-for-all 2.4 MHz radio band. This same radio spectrum is home to cordless phones, remote controls, garage door openers and a host of other radio solutions. And, unfortunately, the interference source may not be limited to things that are located directly within the hotspots.

Public telecom solutions need protected spectrum - without it, the only thing you can count on the service for, is not counting on it.

1x Will Put Hotspots on Ice
Wi-Fi providers are truly in a Catch 22. While revenue is growing, it is not at the level needed to support large-footprint-expansion projects. However, in order to attract more users and subscribers, it will be necessary to expand the Wi-Fi footprint.

By contrast, 1xRTT is now served nationwide by two providers, Sprint PCS and Verizon Wireless. Already there are more than 100 million CDMA users in the U.S., and carriers are quickly making the transition to 1x. Microsoft has even thrown its considerable weight and influence behind CDMA and the eventual transition to 1x by taking the wraps off software that supports CDMA for both Pocket PCs and Smartphones. I predict that by 2005, 1xEV-DO will also be available nationwide, while Wi-Fi hotspots will still be struggling to cover an aggregate area that is less than the size of Rhode Island. Face it, without coverage, nothing else matters.

Of course, all is not a yellow brick road for 1x operators. While I believe 1xRTT is more convenient to use out of the gate, and the coverage proposition is good, overall it's too expensive and back office support is marginal at best. And while I am thrilled to finally see solid ISDN level speeds out of a wireless network, I continue to have an insatiable need for speed-and coffee-so I find myself standing around waiting for a place to sit and get sole access to a public T1 in a Starbucks. Thus, the deployment of 1xEV-DO is a market mandate for the traditional wireless carriers.

However, despite Wi-Fi's obvious surface appeal, overall, 1x sidesteps many of the problems associated with hotspots, and service prices will eventually drop significantly to attract a wider audience. CIOs would be well advised to put 1x on the radar screen for the long-term.

Entire contents © 2003 Mobile Competency. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. Mobile Competency shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.


About the Author


Bob Egan, a 25-year wireless industry veteran, founded Mobile Competency to provide companies with actionable, objective and influential market research and advice in today’s evolving and complex mobile and wireless market. A former vice president with Gartner, Mr. Egan has written 100s of articles and reports on the mobile industry, and his viewpoints have been featured in The Wall Street Journal, USA Today, Forbes, BusinessWeek and Fortune as well as on ABC News, CBNC, BBC TV and MacNeil/Lehrer NewsHour. In the course of his career, he has received the prestigious “Thought Leadership Achievement Award” from Gartner, has been called a “Market Maker” by Wireless Review and was named one of the top six most influential industry analysts by Adweek Magazine Technology Marketing Group. Mr. Egan is an author of the IEEE 802.11 Wireless LAN standard and has held product leadership positions with Corechange, Gartner, Digital Equipment Corp., Waters Associates and GTE Research Laboratories.

(4/28/2003)

 


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