Analysts are predicting that the honeymoon for 802.11 hotspot services is just about over.

Unstrung has been saying for quite some time that there are lots of similarities between some areas of the wireless LAN market and the hothouse environment of the Internet boom years (see WLAN: The Quiet Bubble?). Now analysts are predicting that the hotspotters could largely go the way of the dotcoms. (see WLAN: The Next Dot-Com Crash? and Hotspot SPs to Face Challenges)

"I think we've just about reached the peak of the hype and excitement associated with hotspots," says IDC analyst Keith Waryas. "This bubble is going to pop."

"The greatest role for WLAN will be in home networks, not in public hotspots," says Forrester Research Inc.'s Lars Godell.

"I am not saying that all the public hotspots will go bust, but there is an overexpansion and I don't think there is a good business case underneath it," he adds.

IDC's Waryas does not expect the fallout to be as dramatic as it was for many of the dotcom companies. "I still see a lot of value in this technology," he says, but he does expect a shakeout in the market.

Wireless service providers need to think about how they roll out these services and focus on providing good services in places where people want wireless Internet access (airports, hotels, etc.) rather than developing grandiose schemes to provide wide-area coverage using technology that requires vast amounts of expensive, wired backhaul.

"Wireless LAN is almost unbeatable as a local-area technology," says Waryas. "But for wide-area applications, it's horrible." (See Commentary: Why 2.5G Plus WLAN Doesn't Equal 3G, 4G: Running Before You Can Walk, and 802.11: The New WAP? for more on the WLAN difficulties.)

Waryas says that it costs about $1 million to set up a cellular site that will provide about one mile of wireless coverage. Covering the same area by networking lots of little access points will cost around three-and-half times that, he reckons.

In the U.S., Waryas envisages the hotspot market developing in two stages. The next 12 to 18 months will involve building out selective coverage in the right areas. Waryas reckons that service providers will need to install 25,000 to 30,000 hotspots before they can start aggressively trying to acquire customers.

"That's when the fun starts," he says. "Prices will really start to come down."

Nearly all the major carriers in the U.S. now have public and private WLAN projects. Smaller, local service providers are also heavily involved in the market.

Meanwhile in Europe, where the hotspot market is largely dominated by national carriers, Forrester is predicting that there will only be around 7.7 million hotspot users by 2008. "You have to put this into perspective -- only 10 per cent of Europeans have laptops," says Godell. "That is really going to affect the business case of WLAN."

In fact, says Waryas, more than 50 percent of the 19,800-plus hotspots that have so far been installed worldwide are actually in that Mecca of broadband: South Korea. Carriers in that potential hotspot are offering WLAN as an extension of their wired broadband services.

— Dan Jones, Senior Editor, and Justin Springham, Senior Editor, Europe, Unstrung