Gartner pours more cold water on hotspots


24 Jun 2003

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Gartner has warned that expectations about public Wireless LAN access (or Wi-Fi hotspots) are currently artificially high. The IT market research firm has warned of considerable industry hype fuelling the expectation that a considerable increase in business productivity by accessing the Internet using Wi-Fi hotspots is near. Until hot spots reach critical mass, these expectations will be disappointed, it said.

The Gartner report comes in the wake of research from Forrester, as reported last week in siliconrepublic.com, which forecast that the hype surrounding public hotspots will lead to the next dot.com crash.

Gartner is somewhat more optimistic about the future of hotspots, saying that when Wi-Fi hotspots fail to meet the hopes of these short-term ‘inflated expectations’, a ‘trough of disillusionment’ will follow until hotspots are allowed time to mature into a sustainable access platform and reach the ‘plateau of productivity’.

According to Gartner, Wi-Fi hotspot numbers in Europe will grow from 829 in 2002 to 15,308 in 2003, before climbing to 39,009 in 2005. Wi-Fi hot spots are most prevalent in Scandinavia, followed by Germany and the UK, with Germany forecast to be the European leader by 2006.

The number of Wi-Fi hotspot users worldwide is forecast by Gartner to reach 9.3 million users in 2003, up from 2.5 million users in 2002. North America will account for 4.7 million users in 2003, followed by Asia/Pacific with 2.7 million users and then Europe with 1.7 million Wi-Fi hotspot users.

The number of public Wi-Fi hotspots worldwide has risen from just over 1,200 in 2001 to more than 71,000 in 2003, but there are still not enough hotspot locations to meet user demand, it said.

Gartner concluded that the number of hotspots available will need to increase dramatically before they provide a critical mass large enough to satisfy user needs. Until that critical mass is reached, users will not be able to rely on public hotspots for access when they need it and will encounter pricing systems that they are unwilling to pay. This will cause a significant disillusionment with the capability of Wi-Fi hotspots to deliver access in the short term.

Although user numbers are increasing dramatically, the growth in usage is soft. “Of the 2.5 million hotspot users in 2002, 91pc were infrequent uses attracted by opportunities to use a service just once or twice, often free of charge,” said Ian Keene, vice president in Gartner’s telecommunications group. “These people did not spend significant money, and have not shown sustainable usage habits that will provide the revenue to support growing numbers of hotspots in the future.”

“The issue at stake for Wi-Fi providers is how to supply the number of hot spots needed to achieve the critical mass required by users, but at the same time build a sustainable model for generating revenue from providing the service. We have not yet seen a sure-fire model for turning user numbers into cash,” he continued.

Retail outlets, such as coffee shops, gas stations and restaurants, were the leading location for public Wi-Fi hotspots in 2002, and will continue to lead the industry through Gartner’s forecast period. Retail outlets are projected to account for more than 70pc of all hotspots in 2003.

Gartner said while there will be a rapid increase in retail hotspots through 2005, some of these will not succeed because they fail to attract enough customers, or because customers use the service for long periods without spending enough money on goods and services. Consequently, the number of hotspots in retail outlets will peak in 2005 and decline from a high in 2005 through 2008.

The hotspot market presents new challenges to network service providers (NSPs) because the NSPs do not control the Wi-Fi airwaves or the locations. The equipment is also simple and inexpensive to install. Gartner analysts said NSPs that want to compete in this market must have an attractive business proposition for location owners or partnerships with other hotspot service providers.

“NSPs need to figure out how to generate revenue directly from hot-spot users, as opposed to relying on revenue from supplying backhaul broadband lines,” Keene said. “To do this, they should consider adding hotspot access to their existing services, rather than positioning it as a stand-alone source of revenue.”

By Dick O’Brien