Europe's metrozones need to learn that this will be a large company game

Rethink IT, May, 2006

The fervor surrounding Wi-Fi metrozones is reaching fever pitch, with almost a city a week announcing plans in the US, and key European locations like London following suit. But the supporters should cast their minds back just a few short years, to all the sound and fury that surrounded the early roll-out of Wi-Fi hotspots. A similar pattern will appear in metrozones--over ambitious hopes; a failure to find any profit model despite the undoubted benefits of the services to end users; the telcos and cellcos asserting control.

The alternative operators will need to learn the lesson of the hotspots--that there is no money in Wi-Fi unless it drives other services and revenues, and that large players will dominate in the end. Like T-Mobile in that first wave, the EarthLink/Google/Motorola combination stands out as the body that has recognized that fact, and could therefore provide a real alternative to telco control in many large cities.

Hotspots were undoubtedly a great phenomenon for laptop carrying users looking for (relatively) cheap, convenient access; also a great bonus for makers of those laptops and their chip suppliers. Less exciting for the operators of the hotspot services. Amid talk that a global network of hotspots would eliminate the need for 3G mobile data services, the grandest of the start-up initiatives that bought into that dream quickly shrivelled (remember the IBM/AT&T venture Cometa?).

The main gainers were the aggregators, notably iPass, but while hotspots drove some additional revenue and reduced churn for some venue owners and WISPs, they failed to find a profit model in their own right, as they came up against the basic user expectation, engendered by the internet revolution--that they should have ever faster and more ubiquitous broadband access, for ever lower, and certainly flat rate, prices.

With their entire business model under threat from this trend--not specifically from hotspots or any single technology--the cellular providers bit the bullet and took control of the hotspot trend, with T-Mobile, Swisscom and others blazing the trail. Overall data margins were squeezed painfully and with wireless VOIP, the voice cashcow looked to go the same way, but at least what money there was in public Wi-Fi was safely back in the cellcos' pockets.

The same pattern is clear in metrozones, but on a grander scale, because Wi-Fi (or in future, WiMAX) mesh can provide coverage similar to that of cellular networks and second generation meshes are supporting VoIP and video as well as data. This means the threat to telcos is greater, and after an initial attempt to resist the onset of the metrozone, this has prompted many of them to try to wrest control of the trend.

IBM, heavily involved in metrozones on the integration front, has seen a noticeable move in the US away from idealistic city-backed projects aimed purely at public safety and bridging the digital divide, towards systems that will generate profits and carry premium services as well as best effort access, and which will be driven in many cases by existing operators. Some of these will be, like EarthLink and cable operators like Cox, wireline providers looking to reduce churn in their base and create a wireless base without a 3G license. By partnering with companies like Google, which will fund a best effort service in return for increased advertising revenue, these operators can focus on delivering premium services for a profit, and biting into the telcos' market share.

Many large US telcos are now targeting a piece of the metrozone pie. AT&T put in a bid this month to provide the wireless internet service for Michigan's Washtenaw County with roughly 325,000 residents. Cableco Cox Communications recently teamed up with two companies to offer wireless access in some Arizona cities, and Time Warner Cable has signaled interest in Texas. AT&T is working with Tropos and IBM in Michigan and is proposing offering at least five hours of free service per month at DSL-like speeds, and unlimited free access at slower speeds.

This shows the real dilemma for the large telcos--by joining in the metrozone race, they are undercutting their core broadband access prices, but without the compensation of a revenue stream such as advertising, as Google has; but as the limited success of anti-municipal legal actions showed last year, if they remain outside the game they will lose revenue and margin anyway, but to competitors. AT&T is also bidding in Michigan's Genesee County.

Time Warner is bidding in Dublin, Ohio and Corpus Christi, Texas--also of interest to AT&T--while Comcast's venture arm has invested in mesh specialist BeiAir Networks, which has created a product that integrates Wi-Fi access points with cable lines, so that cablecos do not have to pay for access to infrastructure such as light poles.

The latest telco to get involved in this race is Sprint Nextel's soon-to-be spun off local phone arm, now renamed Embarq. Cut free from its parent, Embarq will face all the threats to its core voice revenue that the larger local operators have, and like them it is turning to wireless to compensate, with plans for a cellular MVNO (presumably leasing capacity from its former parent) and to bid for metrozone contracts. It has set up two square-mile trial networks in the Las Vegas, Nevada suburb of Henderson, one of the fastest growing cities in the US and one of Embarq's largest markets. Using BelAir equipment, Embarq aims to create a business model that would reduce churn and enhance the service bundles it can offer its traditional voice base.