Although worldwide sales of wireless mesh equipment will double this year, and will generate almost $1 billion in revenues for equipment vendors by the end of 2008, inflated expectations for the sector in North America are unlikely to be met, according to a new report from Heavy Reading.

“There will be some large scale build outs in the U.S, by enterprises and by some Tier 1 carriers," says Heavy Reading analyst Patrick Donegan, the author of the report, "Wireless Mesh Equipment Forecast." "However, the shortlist of tier one carriers that are likely to commit on a large scale seems to be dwindling."

Despite the publicity surrounding proposed city-wide mesh networks in large cities including Philadelphia and San Francisco, U.S. carriers are taking a wait-and-see approach as profitable business models for wide-area mesh networks have yet to emerge. Several high-profile mesh build-outs in the U.S. have encountered unexpected obstacles: The Philadelphia project, for example, is now not expected to be complete until at least the fall of 2007, more than a year later than originally planned. (See New Muni Models and Mesh Mess Sinks Sacramento Net.)

As a result, the North American share of the global wireless mesh equipment market will decline to 42 percent by the end of 2008 from 64 percent at the end of 2005.

Countries in the developing world, meanwhile, will see significant mesh activity in the next few years, as vendors direct their energies toward markets such as Russia, Kenya, China, and India.

"The start-up vendors have been preoccupied with the U.S market, but it’s increasingly clear that the center of gravity for wireless mesh equipment is shifting to the developing world," Donegan observes. "The basic value proposition in some of these markets -- 'If you want broadband, this is the only way you’re going to get it any time soon' -- is refreshingly straightforward and compelling."

One company that has already taken advantage of the off-the-radar wireless mesh opportunities is London-based LocustWorld Ltd. , which specializes in selling to small wireless ISPs in rural areas in the U.K. and the U.S. as well as in the developing world. As of June 2006 LocustWorld led the wireless mesh sector in terms of total units shipped, with 21,000.

"While media attention has focused on North American muni builds and the first wave of start-ups that have shipped systems for them," Donegan writes, "LocustWorld has quietly gone about establishing a leadership position by focusing on a very different niche: the small WISP market."

That may change rapidly, however, as big players like Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT) enter the market with new products and large installed customer bases in related segments like in-building WiFi. Along with Strix Systems Inc. , these two established vendors accounted for almost one-third of all unit shipments in the first six months of this year.

The "Wireless Mesh Equipment Forecast" marks the debut of a new service from Heavy Reading, the Wireless Mesh Equipment Tracker. For a free preview of the service, contact Dave Williams at [email protected].

— Richard Martin, Senior Editor, Unstrung