Can Public Hotspots Make Money?

PHILADELPHIA — At the 802.11 Planet Conference here, the message to the
public hotspot market is: Forget John Q. Public,
unless he’s carrying a briefcase.

Analysts said the market for public hotspots, despite all the hype, doesn’t appear all that large, except for niche providers for business
travelers. According to Cahners InStat analyst Gemma
Paolo, today there are just 41,000 hotspot
subscribers. Even with Cahners InStat forecasting that figure growing to 400,000
by 2006, the economics of the industry are difficult.

“For the pure plays, there’s probably room only for a
handful to survive,” said Yankee Group analyst Adam
Zawel. “We’ve been playing with the numbers, and then
you’ve got all these players dipping in, and it just
gets really thin.”

A slide Paolo showed of the more than two dozen
companies in the public hotspot space showed how many
players had rushed in, despite the cautionary
tale of MobileStar’s demise
. Executives from three
of those companies explained why they would be among
the chosen few.

WayPort has set its sights firmly on the business
traveler. “Our focus is where does this type of
customer need the connectivity the most,” said Daniel
Lowden, WayPort’s VP of marketing and business
development. “Typically, they’re spending most of
their time in hotels and airports.”

To reach the traveler, WayPort has partnered with 460
hotels and four airports, spreading the up-front costs
unlike MobileStar’s model. WayPort also has 13
business centers through its acquisition
of Laptop Lane locations
.

Lowden said WayPort would get a boost from a new deal
with IBM to include a free 30-day trial with 1 million
ThinkPads. The deal follows WayPort’s rollout with
Windows XP last October.

But analysts still view the public hotspot market with
skepticism. “They’re having trouble attracting
customers in volume,” said Analysis consultant Ken
Figueredo, “and volume is what the telecommunications
industry is all about.”

Like WayPort, WiFi Metro thinks the on-the-go
businessperson is an ideal customer. Since launching
in January, WiFi Metro has opened 60 hotspots,
including a six-block
“hotzone” in San Jose
. WiFi Metro founder Arturo
Pereyra said WiFi Metro also targets the 43 million
business travelers, along with the 78 million mobile
workers, like pharmaceutical sales representatives.

“It won’t be everywhere,” Pereyra said, “but it will
be everywhere that it makes sense.”

Swimming against the tide, Surf and Sip President Rick
Ehrlinspiel said the public hotspot market could
support the coffee-shop model. With 126 shops in 17
states, Ehrlinspiel said the Surf and Sip can sell
coffee shops on Wi-Fi as a customer-acquisition tool.

“You get addicted to this stuff,” he said. “It’s worse
than crack.”

The analysts warned that the cellular carriers are
circling. T-Mobile, now the owner MobileStar’s network
of hotspots, and SprintPCS, investor in hotspot
aggregator Boingo, already made cautious moves into
the market.

“We are seeing carriers take an interest,” Zawel said.
But analysts cautioned that carriers were unlikely to
rush into a market so young, and with such uncertain
economics.

“It’s a new business and very different from what
they’re used to doing,” said Lowden, pointing out that
the hotspot companies have agility, speed and know-how
in their favor. “This is not an easy business.”

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