Linda Branagan would seem to be the ideal customer for entrepre-neurs and telecommunications companies looking to make money selling wireless Internet connections. But, like thousands of business road warriors, Branagan often does not pay for the service because she gets it free.
At cafes, malls and downtown business districts, there has been an explosion of Internet access points, or WiFi hot spots, that let computer users log on to the Internet for free. That growth is a fundamental reason -- though not the only one -- that technology startups, investors and industry analysts who had high hopes for WiFi are scrambling to find sustainable business models.
Branagan, a director of a medical device research company, pays T-Mobile, a unit of Deutsche Tele-kom, US$6 an hour for a wireless Internet connection when she is in airports if there are no free access points. But it is another matter when she is working outside the office in San Francisco.
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"The Internet is free here," she said, as she sat doing research at The Canvas, an art gallery with a lounge and cafe setting in San Francisco's Sunset district.
"Why would I pay T-Mobile?" she asked, when the cafe owners provide free Internet access to attract patrons.
The number of WiFi hot spots has grown rapidly in the last year, with as many as 15,000 in public locations, according to the Yankee Group, a market research firm.
But the difficulty of making a profit was made evident last month with the demise of Cometa Networks, a well-heeled WiFi startup backed by IBM, the Intel Corp and the AT&T Corp. Cometa, founded in 2002 to build a network of access points at retail outlets, announced on May 19 that it would suspend operations because it was not providing a suitable return to investors. Verizon Wireless, which said last year that it would build 1,000 WiFi hot spots in Manhattan, has cut that number to around 500.
Meanwhile, thousands of free hot spots have been established by public agencies, mom-and-pop businesses hoping to attract customers and individuals working to build a grassroots network. A handful of city governments, some in cooperation with local busi-nesses, are deploying free WiFi networks in parts of Jacksonville, Florida and Portland, Oregon, among other places.
"It's going to be hard for commercial carriers to make a profit," said Dewayne Hendricks, the executive of Dandin Group, a wireless Internet service provider based in Silicon Valley, who serves as technical adviser to the US Federal Communications Commission on wireless Internet issues.
Each WiFi hot spot has a radio transmitter and receiver that is connected to the Internet through a broadband connection like a digital subscriber line. The transmitter communicates with personal computers and enables them to send information to, and receive information from, the Internet. The transmitters typically have a range of 45.7m to 304.8m, though there is new technology emerging that could send a signal over several kilometers.
Because transmitters can be on different networks, 12 or more hot spots can operate simultaneously in any given area, providing overlapping coverage. The connections do not interfere with each other because they are working on different radio channels. For users in big metropolitan areas such as New York City and San Francisco, a free connection can almost always be found on blocks where hot spots are dense.
Even so, not all companies selling WiFi service are struggling. T-Mobile, for one, has a well-established and profitable business model, said Roberta Wiggins, an analyst with the Yankee Group.
T-Mobile has 4,650 WiFi hot spots in Kinko's, Borders Bookstores, hotels, airports and Starbucks cafes, and it is adding 35 a day, the company said. Last week, it announced plans to deploy hot-spot connections in 122 Hyatt Hotels in North America. Users pay US$9.95 for single-day access, US$29.99 for a monthly access to all hot spots in the network or US$19.95 a month if they are customers of T-Mobile's cellphone service.
The company would not disclose how many customers it has, or its revenue or profits. But Joe Sims, general manager of T-Mobile's WiFi business, said, "We fully expect to make money in the public hot-spot business."
He noted that the company has learned some important lessons -- namely, that the hot spots need to be in locations with heavy traffic from business customers and that a profitable WiFi business needs to build a national network and brand that will give users the ability to log on at a variety of locations using the same service.
T-Mobile, he said, is keeping costs low by having the WiFi division and its mobile-phone business share an underlying data network, as well as the network operation and customer call centers. Sims also said the company is exploiting its brand name by marketing the wireless connection service to its existing cellphone customer base of 14.3 million users.
Sims said he is not worried about the growth in free hot spots because he believes commercial networks offer more reliable, more secure Internet access. Free service is fine for casual use, he said, but "when you absolutely, positively have to get that report downloaded or get access to your company system to conduct business, free probably isn't going to cut it."
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