Winners, losers in enterprise Wi-Fi

Many Wi-Fi service providers have come and gone over the past three years in the enterprise space. At the beginning of 2004, Cometa Networks, T-Mobile USA and Wayport were considered the front-runners with the largest networks and commitments to further deploy Wi-Fi hot spots around the country, but now only two names remain.

Wayport is one of the survivors and has leaped ahead of its competitors with a recently announced deal with McDonald’s to install Wi-Fi connectivity in more than 6000 U.S. restaurants by the end of the year. Wayport ultimately will install Wi-Fi hot spots in all 10,000 domestic McDonald’s restaurants. When combined with the company’s existing base of more than 3000 locations, Wayport will be the largest Wi-Fi hot-spot provider in the U.S.

“When we announced McDonald’s, interest [from the corporate sector] went up exponentially,” Dan Lowden, vice president of marketing for Wayport, said.

Based in Austin, Texas, the firm in 1998 started providing wired Internet connectivity to hotels and airports and has weathered the dot-com crash to see brighter days, migrating from wired to wireless connectivity.

“Over the past two and a half years, there’s been a tremendous increase in demand for connectivity by business travelers,” Lowden said. “We’re seeing a large majority of folks that want to connect with Wi-Fi at the places they go to — hotels, airports and all the places in between.”

Wayport gets close to 500,000 connections per month through its Internet network and is already experimenting with other revenue streams beyond Internet access.

“We look at ourselves as a premium provider offering additional content,” Lowden said, explaining that the company currently provides free digital copies of USA Today, the New York Times and Business Week to users. Wayport is trying to deliver live television, music and movies over Wi-Fi to provide a complete experience.

Corporate users are paying for Wayport Wi-Fi access through several mechanisms, according to Lowden. “Some companies are allowing their users to expense the cost. Others have approached us to secure corporate discounts.” One night of Wi-Fi access at a hotel costs $9.95, but individual users can purchase prepaid access cards from $25 to $100 or pay an unlimited connection fee of either $49.95 per month or subscribe for a year to get a rate of $29.95 per month.

End-user fees are merely the beginning of revenue streams. Wayport is providing supplemental business applications for corporate clients on top of its basic network. The underlying Internet infrastructure lets hotels integrate their operations with property-management systems and will support McDonald’s rollout of cashless payment to its properties.

“A lot of providers have paid for everything from connectivity to [customer equipment] and would just take a portion of the revenues,” Lowden said. “That model doesn’t work. You have to share the risk and reward.”

For example, McDonald’s will pay a fixed fee for each installed Wi-Fi site to cover the cost of the service package being provided, but the company will also receive a revenue share to lower costs. “All of these things contribute to Wayport’s bottom line,” Lowden said.

Wayport is also teamed with SBC to install Wi-Fi hot spots at UPS stores nationwide, deploying equipment and managing services on behalf of the telephone company. Wayport will install equipment, host Web pages and handle credit-card authorizations through its existing infrastructure.

Currently, Wayport has only four sales people but is looking to increase the sales force based upon enterprise customer interest through the McDonald’s win.

“We go about [corporate] sales in two different ways,” Lowden said. “We don’t have a big sales force. Most folks are actually finding us. We’re [also] working with roaming partners that already have these corporate relationships. It’s up to [the corporate customer] to make the selection between dealing directly with us or through a roaming partner.”

Until the Wayport announcement, T-Mobile USA — a subsidiary of international telecommunications conglomerate Deutsche Telekom — laid claim to having the most Wi-Fi hot spots in the world, with more than 4700 locations. Formerly VoiceStream Wireless, the company got a jumpstart into the Wi-Fi hot-spot space by acquiring the assets of bankrupt MobileStar Network in 2001. T-Mobile Wi-Fi hot-spot service is found at such brand names as Kinko’s copy centers, Starbucks coffeehouses, Borders Books and Music, and airline clubs for American Airlines, Delta Air Lines and United Airlines.

T-Mobile views Wi-Fi hot-spot access as a complement to its existing voice and data cellular phone services. “It’s speed when you need it,” said Brian Zidar, spokesperson for T-Mobile USA.

Corporate travelers can do one-stop shopping for all their communications needs from the company, purchasing mobile-phone services, BlackBerry-device e-mail services, low-speed Internet access through the company’s GPRS cellular network and high-speed Internet access for Wi-Fi devices.

“The key is that the corporate user can get all these services on the same bill and only have to deal with one customer-service contact,” Zidar said.

Zidar describes current T-Mobile Wi-Fi customers as mobile professionals and breaks them down into “road warriors” traveling among many cities and “windshield warriors” driving within a geographic territory.

“We’re going into places that mobile professionals frequently visit — Starbucks in the morning, Kinko’s in the afternoon, Hyatt at night,” he said.

T-Mobile believes it has a competitive advantage over other hot-spot services because of its own national telecommunications network and customer-care department, as well as the way Wi-Fi complements its business.

“We do not see Wi-Fi as a standalone business,” Zidar said.

Purchased as a standalone plan, T-Mobile hot-spot access starts at $29.99 per month on a 12-month commitment or $6.00 per hour, with prepaid plans also available. If purchased as a bundle with other T-Mobile services, users receive 50% discount on Wi-Fi access. Zidar says most corporate users simply expense Wi-Fi usage, and corporate sales are just getting started.

T-Mobile also uses a shared expenses and revenue model with its Wi-Fi hot-spot vendors. “There’s mutual incentive to make it profitable,” said Zidar. “Both companies make mutual investments, so there’s a reason for both parties to have this be successful.” While T-Mobile doesn’t bring in third-party applications or vendors like Wayport, Zidar said it is “something we could do in the future.”

The loser in the corporate Wi-Fi hot spot battle was Cometa Networks, a joint venture of AT&T, IBM and Intel. Cometa was formed in 2002 and announced it would deploy 15,000 Wi-Fi hot spots by 2005, but the company shut down in May 2004 after burning through its initial start-up funding with little to show for its expenditures.

“They kept spending money, with little revenues coming in,” according to Phil Solis, Wi-Fi analyst for ABI Research. “That differed from Wayport, which has grown slowly but surely.”

Solis said Cometa tried to do too much too fast relative to the slow growth of the Wi-Fi hot-spot market. In the future, Solis sees more Internet services bundling, similar to the Verizon Wireless bundle of Wi-Fi hot-spot access with DSL service in the New York City area, as well as more exclusive content being delivered through Wi-Fi.

“In Starbucks, you can already access some free content,” he said.