WiFi Metro Heats Up Another Hotzone

The hotspot market continues to be hot, hot, hot. Well, hot as in everybody’s
talking about it. If you’re an ISP operator desperate to get in the air, WiFi Metro
of San Francisco is another company worth checking out.

Like every other player, WiFi Metro is trying to invent a business model that
will actually allow it to make money from hotspots – an elusive goal. It looks
to have as good a chance as any of succeeding, though. In fact, it claims to
have already succeeded. Better yet, the model includes partnering with ISPs,
especially wireless ISPs (WISPs).

What’s WiFi Metro’s angle? It has more than one, but the most notable is its
“hotzone” strategy.

A hotzone is a section of downtown core with contiguous hotspot-style 802.11b
coverage both outdoors and inside businesses within the zone, such as cafes,
restaurants and bars. The company recently launched its second hotzone, in San
Jose, Calif., with WISP partner Gatespeed Broadband Inc.. The first hotzone
was constructed in Palo Alto, Calif.

“The hotzone idea is definitely differentiating us in the marketplace,” says
Arturo Pereyra, WiFi Metro co-founder and acting chief executive officer. “Some
companies are doing it in Europe, but to my knowledge, we’re the only ones doing
it here.”

WiFi Metro launched operations in October 2001 after being incubated
by ComVentures, a Palo Alto-based communications
industry venture capital firm. Start-up funds were provided by an unnamed angel

Besides the two hotzones, the company already has 60 conventional hotspots
installed in the San Francisco Bay area, mostly in restaurants, cafes and
hotels. Another 40 are in the works, many of them in Seattle, the company’s
second major market.

The objective starting out, says Pereyra, was to build an economical model
for the Wi-Fi hotspot space, commercialize it with a local operation and then
tinker with the model on a local level until the company had a successful

“When the concept has been proven on a local level, we do a national launch
using that recipe,” Pereyra explains. “We’re going methodically about our plan
now. In the Bay area we’re on target to be cash-flow positive by end of the

Not bad, if true.

Anatomy of a hotzone

The San Jose hotzone
takes in six central blocks of Santa Clara Ave., the city’s main drag, from 1st
Street to Notre Dame. It bleeds one block east and west from Santa Clara. Inside
coverage extends far enough into restaurants and cafes to take in most customer
areas, Pereyra says.

The Palo Alto hotzone takes in a similar-size section along University Ave.
between the UCal train station and Ramona St.

The technology used is apparently top secret. Gatespeed, WiFi Metro’s
technology partner on the hotzones, does some magic with antennas. Pereyra calls
the hotzones “hotspots on steroids.” Though he plays coy when we ask how many
access points are needed to provide the extended coverage, reading between the
lines, it may be just one.

Customers, who can use either hotspots or hotzones, fall into two main
groups. One is local road warriors, sales people, entrepreneurs, consultants who
leave home or office in the morning and spend most of the day on the road
calling on clients and prospects. The second is overnight business travelers.

“The sweet spot for us is the mobile professional who leaves the house and is
away from a decent Internet connection from 8 to 6,” Pereyra says. “I know if it
was me, I’d come back to about 200 e-mails. Everything piles up on them through
the day. That’s the profile of the user who pays for our service.”

They may use one of the hotspots or a business such as a cafi within one of
the hotzones, or they can sit outdoors in the hotzones. Pereyra knows one user
who regularly conducts virtual meetings from his car using a cell phone, WiFi
Metro Internet connection and Internet meeting software from San Jose-based WebEx Communications

He won’t say how many customers he has. They can buy an all-you-can-eat
package for $20 a month or a daily package for $7 that gives them unlimited
log-ins and downloading for 24 hours. Or they can buy a prepaid card good for
the same 24 hour period from one of WiFi Metro’s hotspot or hotzone business

Providing hotzone businesses with access to incremental revenues from the
WiFi Metro service is a key part of the company’s strategy and business
philosophy, Pereyra says. Hotzone partners buy the cards at wholesale prices,
mark them up and sell them to occasional and visiting users for between $5 and

One hotzone partner was quoted in a Businessweek article as saying
that selling the WiFi Metro cards added 3 percent in incremental revenues.
Pereyra views his ability to forge solid, fruitful relationships with partners
of all kinds as another crucial differentiator for WiFi Metro. “They all have to
be win-win relationships,” he says.

Dissecting the deal

The arrangement with
Gatespeed is another example. It includes a co-marketing agreement that involves
selling bundled packages that include fixed wireless access at home or office
from Gatespeed plus WiFi Metro’s hotspot service for a single fee.

The company already has one roaming agreement in place, with San Jose-based
wireless hotspot aggregator hereUare Communications Inc., which claims
to have 47 percent of public Wi-Fi hot spots in the U.S. WiFi Metro subscribers
pay extra for roaming.

Pereyra says he is also talking to other Wi-Fi hotspot companies, including
aggregators Boingo Wireless Inc., iPass Inc. and GRIC Communications

“In all the research we’ve done, talking to our customers and our
competitors’ customers and customers to be, when we ask what it will take for
them to sign up, they all mention roaming,” Pereyra says. “They need to be able
to get access wherever they go. And the number two thing they say is, ‘More
locations, more locations, more locations.'”

As in the cellular industry, he points out, forging roaming partnerships will
be crucial to providing the kind of service customers want. The difference may
be that the hotspot market, at least at the aggregator level, won’t be as
regionalized as cellular.

Pereyra concedes the possibility that competition for subscribers might heat
up to the point that partnering with some companies would become uncomfortable.
“But I don’t think it’s a high probability,” he says.

Hotspot companies will compete for subscribers on the basis of the added
value and service they deliver, and will always need roaming partners, he
believes “At the end of the day, a network is only truly a network if it can
offer ubiquitous coverage.”

WiFi Metro plans to be in six more major markets by fall. Pereyra won’t say
which six, but they are not all in the west. He visited New York on business
recently and used to live there. So it’s a good bet the Big Apple is one of the
metropolitan areas WiFi Metro plans to target.

The expansion plan is not exactly contingent on getting the $3 and $5 million
in Series A financing the company is currently seeking, Pereyra says. But not
getting the money would slow the pace of expansion.

ISPs, meanwhile, are an important part of WiFi Metro’s plans going forward.
It is seeking potential partners for other regional markets. It’s interested
mainly in talking to WISPs but will also talk to wireline ISPs, Pereyra says.

Reprinted from ISP-Planet.

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