Chill Hits Wi-Fi
Fails to Meet Expectations;
Cost, Free Services Are Blamed
DAVID PRINGLE and EVAN
Reporters of THE WALL STREET
March 18, 2004; Page B1
Tom Montalbano seems like an ideal customer for
wireless Internet "hot
spots" in hotels, restaurants and airports. The 41-year-old insurance
investigator travels four days a week, compiling reports from jewelry
robberies on his laptop computer.
But Mr. Montalbano, of Syosset, N.Y., bristles
at paying $6 an hour, or
$10 a day, to log on using the technology known as Wi-Fi. Monthly
available for $25 to $30, are little help, because no one service
access in enough places, so he'd have to pay multiple monthly fees. And
clients won't pick up the tab. "They say, 'We'll wait the extra day' "
for Mr. Montalbano to e-mail his reports from slower, wired Internet
Mr. Montalbano's experience helps explain why
fee-based Wi-Fi hot spots
have failed, so far, to become tech's next big thing. Connection
are high. Services don't offer ubiquitous coverage. There are a growing
number of free wireless connections, so many users don't feel any need
pay for access. And some laptop users connect to their cellphone or
cellphone network to go online.
Market researcher In-Stat/MDR, Scottsdale,
Ariz., estimates that service
providers world-wide will generate $80 million this year from Wi-Fi
In the U.S., In-Stat estimates that Wi-Fi providers will take in about
million -- roughly as much revenue as Verizon Wireless Inc., the
largest cellphone company, generates in 12 hours. Senior analyst Amy
Cravens says In-Stat recently lowered its revenue projection to reflect
No Wi-Fi provider "will make any money before
the end of 2005," says
William Clark, an analyst for market researcher Gartner Inc., Stamford,
It's a far cry from a year ago, when Wi-Fi burst
on the scene with a
$300 million marketing campaign from chip titan Intel Corp.,
which makes chips for
Of course, public hot spots are only a small
part of the Wi-Fi market --
3% of Wi-Fi equipment sales this year, according to
Research, Oyster Bay, N.Y. Most Wi-Fi equipment is used to extend
high-speed Internet access wirelessly inside homes and businesses, and
market remains strong. But hot spots took on outsize importance as
cellphone service providers and well-financed start-ups promised
Wi-Fi access from every airport and coffee shop in the country.
Many of those plans have been scaled back
drastically. Cometa Networks
Inc., a start-up backed by Intel, AT&T
Corp., and International Business Machines
Corp., among others, once boasted of building 20,000 hot spots. Today,
has roughly 220. Chief Executive Gary Weis talks about "rightsizing the
network" and declines to estimate how many hot spots Cometa eventually
deploy. Like most other major Wi-Fi providers, Cometa also won't
how many users it has. "We're all learning as we go how to build a
profitable service," Mr. Weis says.
One lesson from around the world: To attract
users, lower the price. In
Europe, where access charges are higher than in the U.S., Wi-Fi use is
lower. But Asian operators that offer cheap Wi-Fi service have
In South Korea, for example, KT Corp.
charges less than $13 a month for unlimited access to its 12,000 hot
Subscribers to KT's residential high-speed Internet service can add
access for less than $1 a month. Through January, KT reported about
Wi-Fi subscribers, two-thirds of whom are also Internet subscribers. In
Hong Kong, PCCW Ltd. has attracted 40,000
Wi-Fi users with similar deals, at even lower prices.
"The uptake in Korea has been dramatic," Mr.
Weis says. But he questions
whether that experience translates to the U.S., because so many of KT's
Wi-Fi subscribers are taking the service along with regular Internet
By contrast, BT Group PLC, the leading
operator in the U.K., charges nearly $11 an hour, or $153 a month, for
Wi-Fi access. European providers believe that "Wi-Fi is really about
high-end business travelers who are price insensitive," says Matt
senior analyst in London with ARCchart Ltd., a research firm. European
systems say their prices are justified because they include security
European service providers, like their U.S.
counterparts, decline to
provide customer numbers. But market researchers say usage lags behind
the U.S. and Asia. Gartner estimates that just 1.7 million
a free or fee-based Wi-Fi hot spot last year, compared with 4.7 million
Americans and 2.7 million Asians.
In both Asia and Europe, Wi-Fi services must
compete with advanced
cellphones, which allow users to exchange e-mail or short text messages
without computers, although at connection speeds slower than Wi-Fi. Vodafone
Group PLC of the U.K. and
some other cellphone operators also are targeting computer users by
data cards that plug into laptops and can be used to surf the Web
wirelessly via cellphone networks. In fact, though European cellphone
companies also frequently are big Wi-Fi providers, they are reluctant
push Wi-Fi too hard, for fear of jeopardizing their investments in
cellphone-based Internet service.
The upshot: As Robert Cameron sipped his coffee
in a London Starbucks
one recent morning, he wirelessly downloaded his e-mail to his laptop
through his cellphone, rather than the available Wi-Fi connection. The
Wi-Fi price of $9.90 an hour is "too dear," the 28-year-old theater
A year or two ago, pundits viewed Wi-Fi as a
threat to advanced cellular
networks because it offers faster connections and is much cheaper to
deploy. Now, Wi-Fi's limited range from a transmitter -- roughly 300
-- and the crazy-quilt of network operators appear to be bigger
liabilities. As a result, some analysts think Wi-Fi will merely whet
appetites for more ubiquitous cellular-data networks. "Once you get
checking e-mail at Starbucks, you want to check it on the bus," says
Rerisi, vice president for research at ABI.
Backers say Wi-Fi hot spots are in their
infancy, similar to the
high-price, brick-size cellphones of two decades ago. Coverage will
improve, and more laptops and hand-held computers will come equipped
Wi-Fi capability, eliminating the need for special adapter cards.
U.S. carriers are beginning to share hot spots, offering more coverage
a single subscription.
But carriers still must contend with sites that
offer Wi-Fi free of
charge. Tom Keller, general manager of the Hampton Inn in Auburn Hills,
Mich., installed Wi-Fi in the hotel's 124 rooms early last year. He
charge for the service, but views it as a way to compete with the 12
hotels within five miles. Mr. Keller figures he needs to book 10 extra
rooms a night, at an average of $100, to defray the $30,000
cost and $1,000 monthly fees to provide Wi-Fi. By now, he says, he's
recouped the cost "many times over."
Every hotel offering free Wi-Fi makes it less
likely that John Dean will
pay for the service. Mr. Dean, a 36-year-old technology manager for a
high-tech manufacturing company in Milwaukee, is a big Wi-Fi fan. But
hasn't subscribed to a service because he's accustomed to logging on
at restaurants and cafés around town, or at hotels on an occasional
"There's no question that it's useful," he says.
"The big question is at
what price does it become useful enough to pay for."
Write to Scott Thurm at
David Pringle at
and Evan Ramstad at