The CTIA Wireless I.T. & Entertainment 2004 conference is always a hotbed of wireless news and that includes Wi-Fi. The show held October 25 to 27 in San Francisco was no exception. The most active topic this year was wireless mesh networks, especially in large-scale outdoor settings.
For the lowdown on this and other developments in the business, we turned to Rajeev Chand, a senior equity analyst with Rutberg & Co., a “research-centric investment bank” in San Francisco.
Q: What were the major Wi-Fi themes are CTIA?
A: There were very few new things at the show, but the show did reflect fairly consistently the things that have been developing for the last six months. The size of show—10,000 to 12,000 attendees—was fairly impressive, so the industry is in a phase of growth. Mobile data has taken off, it’s real. But it is less about the ‘new’ new things, and more about getting scale on the things that are already succeeding.
That being said, the big topic regarding Wi-Fi was the continued momentum for mesh Wi-Fi outdoor metropolitan infrastructures. Here again it is more of a continuation on the last six months, but the point is that municipalities are buying this stuff. Some are buying it for public safety, some are doing it for public access, and now the vendors in the space have more business than they know what to do with. The sales are supply-constrained, if anything, rather than demand-constrained.
Q: Some people have downplayed mesh in the past. What’s changing?
A: Some of us were wrong about this space. Two or three years ago we thought that mesh outdoor Wi-Fi would have technology performance issues that would prevent its applicability in key markets. What we have seen in the past two or three years is that, for the municipalities, cost rather than performance turns out to be the large value proposition. Even if there are four hops, they are just delighted with anything better than 10 kilobits per second, even if there is a little bit of latency. That in turn has created a very significant near-term market.
Q: What kind of companies are taking advantage of that opportunity?
A: There are several private companies in the equipment space that are leading in this area, companies like Tropos Networks, BelAir Networks and Nortel Networks. Because there are so few incumbent vendors that are active in this space, it’s not the kind of thing where you are going head-to-head against a Cisco. So these private companies have a strong opportunity right now.
Q: Where does all this leave hotspots?
A: There was less talk about that at the conference. I think there is a general consensus that most carriers are dabbling in hotspot services, but are not really entirely committed to deploying infrastructure or to trying to build a business model for the hotspot space. Now, T-Mobile clearly takes the opposing approach to that, but I think that most carriers only are doing it because the people next door are doing it, not because it is fundamental to their business. So it has really gone from the hot topic to the ‘been there, done that’ topic.
Q: What tech news did you here at CTIA?
A: There is still some talk in the fixed mobile convergence space. This is the idea of having Wi-Fi in a cellular handset so that when you go inside your home you can get higher speed in-building coverage, offloading the cellular traffic in order to use that traffic more efficiently. But there are technical hurdles there. With 802.11 you need something to ensure quality of service, something to prioritize such that voice traffic comes in over data traffic. That is the biggest technological hurdle in this, along with issues of roaming and handoffs between the cellular and Wi-Fi networks.
Q: What are your expectations on this?
A: Carriers are all over the map on this. I talked to one carrier who said they are deploying it right now, while others say they are not doing anything on this until 2006. So there will be instances of deployment in the near term, but there will be an equally large number of carriers who will wait and see how it goes.
Q: Let’s look at the business side. Who is making money in Wi-Fi tody?
A: The positive business models right now are with the equipment vendors, both in the mesh outdoor Wi-Fi area and also in the hotspot Wi-Fi category. For example Colubris Networks is a private company, and Cisco is the big goliath in the space. Both have a strong presence. And while hotspots are questionable from a business-model point of view, people still are deploying these networks, and the equipment vendors are seeing growth.
That being said, while there is revenue growth in hotspot equipment, the margins are just under tremendous pressure. If you are a service provider and you don’t know if you are going to make a lot of money off this equipment, you are just going to beat the equipment vendors to death on price.
Q: Any other positive business news?
A: Another space that is making money is the service providers that are focused in places like hotels. If you look at STSN and GuestTech, they are focused on hotels and similar places, places where businesspeople will pay the $10 a day in fees, and you are seeing big revenues among these service providers. Now, there is a concern because there is a trend toward hotels and airports giving away this stuff for free, but in the interim people are going to hotels and they need the connection, they are expensing this stuff, and as a result some of these providers are making money, at least for the time being.
Q: Besides mesh, what do you see happening in the next six to 12 months?
A: In the next year these enterprise Wi-Fi infrastructure companies like Aruba and AireSpace will see fantastic growth. In the past 12 months large enterprises have not been spending a lot of money on Wi-Fi in the office, either for security reasons or budget reasons. They have felt that it just was not worth the time. But now we are seeing these large enterprises starting to invest in these infrastructures and we believe that in the next 12 months, as enterprises begin spending on IT, it is very possible that wireless LAN will be the among first places where they do start investing.
