Wi-Fi hot spots in critical condition

Last August, I gave the reasons why wireless hot spots would not survive. Stubbornly, public Wi-Fi access providers don't agree. They still see the hundreds of thousands of storefronts that lack access points as green fields waiting to be plowed.

It's a mirage. Just because you build it does not mean they will come.

But didn't Wayport Technologies just land a big deal with McDonald's to install hot spots in their burger joints around the country? Yes, and it's true that there are 13,500 McDonald's restaurants between New York and California. Wayport is happily selling picks and shovels to miners. But the miners are not going to strike gold.

Rather than rehash old arguments for why hot spots won't make it, let me add some new fuel to the fire. For a fresh insight, I turned to Randy Battat, president and CEO of Airvana, a mobile infrastructure provider.

Wi-Fi's free spectrum and $100 access points have a lot of appeal, Battat notes. But the problem is that you need to get that wireless data to the wired Internet. A T1 line costs about $500 per line per month, depending on the distance to the ISP. How many T1 lines will be needed to offer decent service in a typical McDonald's, which seats anywhere from 40 to 160 people?

"You're certainly not going to have eight T1s so everyone can get 11Mbps performance," Battat says.

On the other hand, the cellular networks, with their towers and base stations, are already in place. EvDO (Evolution Data Only), a new, high-speed cellular data technology, offers 300Kbps to 600Kbps throughput at the low end, with maximum performance rated at 2.4Mbps. Adding EvDO to an existing cellular network often means simply installing new cards in the base stations (and, yes, Airvana makes those cards).

The only companies in a financial position to lay out a nationwide Wi-Fi network are the cellular carriers, but with EvDO on the horizon, they have little incentive. Expect them to follow the lead of T-Mobile and market hot-spot service as a loss leader in order to win more subscribers for their cellular networks.

After all, what do you think the huge, multimillion dollar advertising wars and the multibillion dollar battle for cellular spectrum have been all about for the last five years? Does anyone believe the cellular carriers are going to say, "Oh, never mind, you're better off with Wi-Fi"? Not likely.

Cellular carriers will take over most subscriber-based hot spots and slowly kill them off, either by acquisition or through partnerships. If you find that hard to believe, think of Wi-Fi hot spots as you now think of pay phones on street corners.

Verizon has already announced its national rollout of EvDO, and other carriers are right behind. By summer's end, Verizon will have EvDO in its top 30 markets; by early 2005, most of the country will be blanketed.

Why would a CFO sign off on employee subscriptions to five different Wi-Fi service providers with a fraction of cellular's coverage area, instead of signing up with a single service provider that offers coverage just about everywhere?

Access to a broadband data network from anywhere is powerful. It will dramatically increase productivity from both an employee standpoint as well as from the standpoint of increasing the flow of information in real time to dramatically improve decision making.

The wireless carriers are in the process of building that broadband data network. When CFOs and CTOs realize what's being offered, they will come.