Public WLAN market may become saturated

25 Apr 2003

Operators such as Eircom and O2 that are targeting hotels, rail stations, airports and other public places with ‘paid-for’ Wi-Fi services may eventually lose out to a growing community of locations offering free access to wireless local area networks (WLANs) as a ‘value-add’ service to their customers, a recent Ovum analysis has indicated.

Over the past couple of months, Eircom and O2 have begun rolling out paid-for WLAN services in a number of key hotels and public transport outlets, whereby business users can buy a coupon granting them hourly or daily access to broadband over the local WLAN.

However, Ovum indicates a growing number of facilities such as bars and coffee shops across Europe and the US are beginning to provide free broadband access over a WLAN as a ‘value add’ with the bonus that they can sell more coffee, beer or other services.

Ovum senior analyst, Richard Dineen, says: “For hotspots in bars or cafés, for example, the idea being that offering wireless internet services will encourage your customers to linger a little longer and order another beer or caramel frappuccino.

“There is a number of managed service providers that are targeting products and services specifically at this value-added PWLAN [public wireless local area network] segment. Some have even modelled opex (operational spend) in their brochures in language the hotspot owners can easily understand: “You can pay back your wireless LAN running costs by selling an extra three beers per day – that kind of thing,” he adds.

Such talk, Dineen says, has prompted fears amongst the ‘paid-for’ lobby that value-add public WLANs as well as community-based free networks will gradually become so pervasive and of sufficiently high quality that they will erode the coverage and service level benefits associated with paid-for services. “Ultimately, in this scenario, wireless LAN would become like air conditioning: lots of places have it, some places might occasionally gain additional custom because of it, but no one charges extra for it,” Dineen says.

“No one is concerned about the odd café or library offering its loyal patrons a free ride on the internet – it’s the prospect of whole sectors migrating en masse to the value-add model that’s got the paid-for guys worried. For example, if 50pc of all the hotels with PWLAN hotspots began to offer services free of charge it would become extremely difficult for the remaining 50pc that do charge to attract or retain customers. Slowly, due to this competitive pressure, all hotels would migrate to offering free public WLAN services. This might happen equally in airports or coffee shops,” Dineen warns.

However, Dineen is sceptical about the overall threat to telcos offering paid-for services, in that cafes, pubs and hotels ultimately are not telecom companies and may not see the ultimate benefit as clearly.

“Offering charge-free services will simplify the network design, installation and management task and its associated costs. However, it does not alter the fact that premises owners are not telecoms service providers – network management and maintenance lies way outside their core competence and must be paid-for from a third party. And remember that fat pipe to the internet doesn’t come cheaply either.

“Besides, why would an airport, hotel or coffee shop turn down the opportunity to make money? No other telecommunications services are offered to users free of charge. Dial-up PSTN [public switched telephone network] or Ethernet from hotel rooms, DSL [digital subscriber line] access from airport business centres and even in airline club lounges are all invariably provided as chargeable services, so why should wireless LAN be any different? No reason.

“These businesses are not philanthropic organisations – they are there to make money and which businesses, if offered the chance of an additional revenue stream (and in time, a potentially lucrative one), would turn it down? Very few,” Dineen concluded.

By John Kennedy