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Last Updated: Friday, 20 June, 2003, 16:05 GMT 17:05 UK
Wi-fi will be 'next dot.com crash'

By Tim Weber
BBC News Online business editor

Hopes that the roll-out of wireless broadband networks - so-called wi-fi hotspots - will result in a profits bonanza will be dashed, the technology consultancy Forrester has warned.

"With all the hype today about the rollout of... public hotspots, it's as if the dot.com boom and bust never happened", said technology analyst Lars Godell.

Wi-fi access points and connectors from Netgear
Wi-fi equipment is selling fast - but will it stay at home or go on the road?
Currently there are about 1,000 public hotspots available throughout Europe. Installed in airports, companies, cafes or hotel lobbies, they allow users of laptops and handheld computers to surf the internet or send and receive data at broadband speeds - provided they have the right wireless equipment.

Rival technology consultants IDC recently predicted that by 2007 this market will have grown to 32,500 locations generating revenues of $1.4bn (800m).

But Forrester argues that the Wi-fi market is facing natural limits. Wi-fi is for computer users on the move, but only 10% of Europeans currently own a lap-top, and numbers are expected to rise only slowly.

At the same time, hotspot coverage will be very patchy for years to come.

Transmitters have a reach of just a few hundred metres, and unlike users of mobile phones, people with wi-fi equipment will find it difficult to roam from one hotspot to another, because of incompatible billing systems.

Finding a business model

In many ways, wi-fi is already successful, with more and more homes and offices cutting the cable clutter and using wireless routers to link up their computers and connect to the internet.

Toshiba 'hotspot in a box'
The Toshiba 'hotspot in a box' promises to be a cheap wi-fi solution
Now, however, wi-fi is going public. During the past couple of months, the UK has seen a string of high-profile launches of Wi-fi hotspot systems.

But will this result in just a few hotspots, with patchy coverage and the need to take out multiple subscriptions to move around?

Or will we have wi-fi hot regions that are as convenient to use as mobile phone networks?

And most importantly, will all these new hotspots generate enough revenue to pay for themselves?

Hotspot in a box

Computer maker Toshiba says its new wireless solution will "really bring wireless connectivity to a mass audience at... a low-cost price point".

It's called "hotspot in a box", and Toshiba has linked up with former telecoms monopolist BT to sell the product.

Any business, cafe, hotel or golf course with a broadband connection can now buy the basic equipment to set up a public hotspot for just 400, including the link-up to a centralised billing system.

Toshiba laptop and handheld computer
Are enough people lugging around wi-fi enabled computers to make hotspots pay?
George Bartley, a consultant with the Cordless Group, calculates that these systems will pay for themselves if a hotspot owner can persuade just 27 users a month to pay 5 for a one-day subscription to use the service.

Extra revenue - for example more double decaf lattes sold - comes on top of that.

By the middle of next year, BT hopes to have 4,000 hot spots in place across the UK. Currently there are just 400 in the whole country.

On a smaller scale a chain of internet cafes, Internet Exchange, has started rolling out wi-fi access in its outlets.

Another venture, the Cloud, wants to go large and install wi-fi terminals in thousands of pubs, piggy-backing on the entertainment centres operated by Leisure Link in chains like JD Wetherspoon, Scottish and Newcastle, and Mitchell and Butlers.

But analysts disagree whether such ambitious roll-out plans will deliver the broad wi-fi coverage needed to attract customers in larger numbers.

'No licence to print money'

Currently, hotspot users are at best "occasional users" say the IDC experts, but they confidently predict that as soon as access prices fall and hotspot services become ubiquitous, many people will become subscribers.

Toshiba hotspot
New wi-fi solutions promise a quick set-up and easy revenues
It can be done. Zamora, a medium-sized Spanish town of 65,000 near Madrid, already boasts 75% wi-fi coverage.

In the UK Andy Bass, general manager of Toshiba Information systems, hopes that demand will be driven by the launch of wi-fi enabled handheld computers and a new generation of laptops with wi-fi enabled microprocessors like Intel's Centrino.

And once Intel's marketing machine kicks in and promotes wi-fi mobility at a large scale (reportedly to the tune of $300m), enough consumers may be persuaded to try true internet access on the go.

The analysts at technology consultancy Forrester, though, have grave doubts about such scenarios.

The vast majority of wi-fi users will stick to their home networks, they say.

And even the IDC experts warn that hotspots are "not a license to print money".

"What we're hearing right now are the promises of fame and fortune typical of an early deployment phase", says Keith Waryas, a wi-fi expert at IDC and warns that "this market is still exceptionally young and rife with uncertainty".

Fighting over the revenue

Only a few hotspots will have enough traffic to generate large revenues.

George Bartley at Cordless predicts that in a wi-fi enabled UK just 15 to 20 places - like airports or train stations - will snap up 40% of all wi-fi revenue.

Hotels for business travellers in about 1,500 locations will account for another 40% of revenue.

About 17% of income will go to another 3,000 sites, while at the bottom end some 30,000 hotspot owners will fight for the remaining 3% of the wi-fi profit cake.

If the pessimists are right, many wi-fi hotspots may go the way of the Rabbit, the cheap but ill-fated UK telephone network that relied on a patchy network of short-range base stations.

And then there is the ever present threat of third-generation mobile phone networks, which promise mobile road warriors high speeds in central locations and near-global coverage at lower speeds.

The first victims of all the hype are likely to be investors - yet again. Shares in wi-fi technology firms have soared in recent weeks.

But somebody has to make streams of money to justify such high share prices. At the moment, cash is coming in as a trickle.

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