Wifi hotspots; the next land grab?

By Mark Newman

When the mobile industry became aware of the potential of HSPA to offer high speed mobile broadband services more than five years ago, the key protagonists – mobile operators and network infrastructure vendors – decided that this would inevitably mean the end of the public wifi business model.

It coincided with the demise of the municipal wifi concept as mobile operators – seeing this as a threat to their business –succeeded in persuading government bodies that it could represent a threat to their business. Lukewarm customer feedback to muni-wifi and, in some cases, under-funded networks and services were another factor behind their demise.

It was the launch of the 2G iPhone that transformed the fortunes of public wifi. Lacking 3G connectivity, Apple decided that public WiFi hotspots would increase the attractiveness of the iPhone service proposition. And even with the adoption of 3G, access to WiFi hotspots is still one of the benefits associated with iPhones.

Mobile operators have latterly embraced wifi because it can help them to manage the explosion of data traffic on their networks. Some operators still have their own wifi hotspot businesses but others buy capacity from dedicated hotspot operators such as The Cloud or BT in the UK.

It is not just the mobile operators that can see the benefits of public WiFi. Fixed telecoms operators are also looking to offer wifi as a complement to their triple-play services and to differentiate themselves. In the UK, pay-TV operators and broadband service provider Sky has moved to acquire The Cloud. Its motivation could either be to enhance its fixed broadband offering or to provide another platform for its Sky TV customers.

With so many different fixed and mobile broadband operators interested in using wifi to enhance their basic offerings it is worth speculating as to whether we will see a rush to acquire wifi hotspot assets in other countries and whether it is the mobile or fixed operator/service provider community that takes a lead.

The structure of the public wifi hotspot sector varies from country to country. Where there are large independent hotspot operators there is every chance that either fixed operators, cable companies, ISPs or mobile operators will see the opportunity to acquire an asset that allows it to differentiate the service that it offers from a competitor.
Whether such an acquisition makes sense in the longer term is another matter. Does WiFi offer a genuine advantage over cellular for a mobile operator? Both require backhaul connectivity so it is really an issue of whether there is any inherent advantage in the radio. It makes perfect sense for a mobile operator to make use of wifi on an ad-hoc basis and wherever they face pressure points on their network.

But owning and operating a wifi hotspot business is a different matter altogether. Hotspot operators rely on a wholesale business model. In the UK, all mobile operators buy capacity from BT. But if a mobile operator was to buy a hotspot business it would have to be on the basis that it reserved usage for its own customers – otherwise what would be the point of taking ownership? And would the benefits that accrue to its business in terms of signing up new customers and retaining existing ones more than compensate for the loss of wholesale business?

In the UK, O2 announced that it planned to invest tens of millions of pounds rolling out its own WiFi hotspot business just as news was emerging of Sky’s interest in the Cloud. It is too early to tell whether O2 sees this as part of its wider mobile broadband network strategy or more of a marketing strategy aimed both at its customers and those its competitors.

It is perhaps telling that none of the leading network infrastructure vendors such as Ericsson, Huawei or NSN have yet made a foray into the wifi infrastructure business. They will, no doubt, be keeping a close eye on the operators – their customers – as they offload traffic to wifi networks. But they will also be working with operators to deploy their own “small cell” solutions as an alternative to using wifi. Small cells are set to be one of the main solutions that vendors push at this year’s Mobile World Congress. And at a time when many operators globally are looking to outsource different parts of their network it would be unusual to start acquiring wifi hotspot networks.

The same argument could be made of fixed or cable operators. Sky has not historically been in the infrastructure business and its acquisition of the Cloud will – for the first time – see it operating a wireless network. But perhaps this is the point. It is inevitable that mobile operators will continue to broaden and deepen their cellular networks and so there would have to be a question about where a wifi business would fit into any medium to long-term network strategy. But for fixed operators or ISPs, a wifi hotspot business may be as close as they ever get to owning a wireless network.