Hotspots in the Great White North, Part II

Most of Canada’s hotspot entrepreneurs have been lurking on the sidelines,
waiting for the right moment to jump in and dash for the finishing post. That
moment has now apparently arrived — as we saw in the first of this multi-part
on the evolving hotspot market in the frozen north. Several significant
new players have joined the race recently.

About the only major Canadian veteran in the field is FatPort,
part of the Vancouver-based Ignition
Point Technologies
group of companies. FatPort first launched its service
in late 2001. Today it has about 42 hotspots up and running, mostly in western
Canada. It is one of the few service providers in Canada actually charging for
the service.

Even FatPort senses the new excitement. It announced last month it was jumping
on the Intel Centrino bandwagon
to take advantage of Intel’s new-found missionary zeal and marketing muscle.
Late last year, it signed a roaming agreement with Boingo. It already had an agreement with iPass.

At the other end of the hotspot spectrum in Vancouver is one of the most recent
entrants is BWireless Zones, part of the BWireless
group of companies. It has only one hotspot up and running at the time of this
writing, though it expects to have another seven up within the next month or

FatPort and BWireless have, as we’ll see, quite different strategies and evolutionary
paths. The one thing they have in common is that they’re both part of small
conglomerates with other business operations that complement the hotspot operations,
more or less, though not in obvious ways.

Ignition Point’s other major business is TeraSpan Networks, a company that
provides fiber installation services using patent-pending "Surface Inlaid
Fiber" technology. TeraSpan cuts narrow trenches in concrete and asphalt
to lay fiber rather than traditional dig-up-the-street methods. It’s supposedly
faster, cheaper and leaves less mess.

It’s hard to see much synergy with Wi-Fi hotspots beyond a common customer
universe that includes business buildings and MUSH (municipal, university, schools
and hospitals) campuses.

FatPort has, for the most part, pursued a typical first-generation hotspot
business strategy. Its locations include the usual mix of coffee shops, hotels
and transportation hubs. None is a major location — the airports are tiny.

Its strength is coffee shops. It’s working with a few cafi chains, the largest
being Seattle’s Best Coffee — it has five of the Seattle’s stores, all in Vancouver.
With the other chains it has only a couple of stores each. Ditto for the hotels
— it does have name brand properties, but only one or (in the case of Westin)

FatPort does have the occasionally odd, interestingly off-beat location, including
an entertainment complex in Calgary and the premises of business services companies
— an e-commerce consultancy, for example, and a MailBoxes Etc. franchise in

Like some other Canadian hotspot companies we talked to, FatPort is guarded
about future plans. Ignition Point CEO Peter van der Gracht wouldn’t tell us
much about plans for adding new sites.

"We said at the start that in the first two years we’d have a couple of
hundred sites," van der Gracht says. Given that the company has been up
and running in its current configuration for about a year, it will have to increase
the pace at which it’s adding new sites to meet that goal.

FatPort uses more than one business model in dealing with location owners.
"In some cases," says van der Gracht, "we own the equipment,
in some cases the premise owner does. Generally speaking, the retail locations
are owned by the premise owners. The hotel and airport sites are owned by us.
But there’s no hard and fast rule."

Where the premise owners own the equipment, they pay FatPort about $135 a month.
That includes payment for the hardware, installation and management. FatPort
also gets a split of revenues, but it varies and van der Gracht won’t give any
more details.

Where FatPort owns the infrastructure itself, it collects the revenue
and shares a much smaller portion with some of the location owners.

If FatPort has pursued a fairly typical first-generation hotspot strategy,
its results to date are also fairly typical. It claims to have just under 1,000
"users," but this is a mix of monthly subscribers and less frequent
ad hoc users, and van der Gracht won’t reveal the ratio of monthly to casual

BWireless’s core business is re-selling mobile phones for Telus, Canada’s second-largest
ILEC and a major mobile (CDMA and iDENS) service provider.
BWireless has eight stores. Its first hotspot is at the company’s flagship location
in Vancouver.

The company will add the other seven stores — three in the west, four in Toronto
— within the next 45 days, says BWireless Group president and CEO Emil Bosnjak.
It expects to have over 100 hotspots up and running by the end of this year.

BWireless will give the service away free to anyone for the first year — which
is fairly typical of Canadian hotspot players. "It’s not so much that they
wouldn’t be willing to pay for it," says Bosnjak. "But a lot of people
still don’t know what Wi-Fi is. We’re just trying to get people to start using
it first."

It’s too soon to say how much he would charge. He notes the drop in fees in
T-Mobile’s Starbucks service. "We’d be getting way ahead of ourselves to
try and come up with a good number at this point," Bosnjak says.

He also hasn’t yet determined a revenue model or a model for dealing with location
owners. If that makes it sound like the business plan is a little loosey-goosey
— well, maybe it is. BWireless is counting on two things to move it along until
the way ahead becomes a little clearer.

First, it has a large base of enterprise customers to which it already markets
heavily. It can now piggy-back on this $350,000-a-year marketing effort to get
the message across about the hotspot service — though Bosnjak concedes he’ll
need a lot more sites before he could attract corporate customers.

Second, BWireless has an un-toppable name for the hotspot biz. "It almost
defines the market," Bosnjak notes. Companies like Cometa Networks are
going to have a tough time, he suggests, because their names say nothing. He
may have a point. What’s a "cometa," anyway?

The other ace up his sleeve is the relationship with Canadian telecom Telus. The fact that
Telus has already invested fairly heavily in Toronto hotspot start-up Spotnik
may put BWireless second in line, but Bosnjak is hoping he can partner
with Telus both on establishing new hotspot sites and on marketing.

"We’ve had some discussions with Telus around this," he says, "but
we’ll start heating it up real soon. Telus would be our first choice as a partner
to grow with because of the history we have with them."

Bosnjak is also pursuing other avenues. He’s having discussions this month
with potential roaming partners in the U.S. — including, he implies, Boingo, iPass,
et al — and possibly U.S. location owners.

He’s not terribly worried about having no revenues for a year and no business
model — or at least none that he cares to share. There are already some synergies
between the old and new businesses, he notes.

"There are no direct revenues yet [from the hotspots]," Bosnjak concedes.
"But what we’ve found in setting up the first locations is that it increases
traffic in the stores, and we’re getting a lot of spin-offs. People come in
to try the service and then they end up buying accessories for their phones."

The first-year roll-out, he insists, will be funded entirely from the inside.
Venture capitalists have been sniffing around, but for now he’s sending them
packing. "We’ve run the numbers, we’re not too concerned," he says.
"At this point, we’ll continue the way we are."

It’s not just the strengths he believes his company possesses for this market.
Bosnjak also believes his timing is right. "Timing," he argues, "is
everything. This is the perfect time to be getting into this. Some got in earlier
and paid a lot for hardware, and we’ve seen a lot go out of business."
We have indeed.

In Part III: Some Canadian heavy hitters enter the hotspot fray.

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