Carrier WiFi

Joltage Shocks the PWLAN Market

The recent shutdown of Joltage Networks, a public wireless local area network (PWLAN) provider, may well be the starting gun that causes PWLAN investors to race for the exits. The company, supported by media guru Nicholas Negroponte, offered the appropriate gateway software free of charge to a "micro-WISP," such as a small café or bookstore. In exchange, Joltage shared up to half of subscribers' $25 monthly fees.

However, PWLAN operations may be more vulnerable than the other links of the wireless LAN value chain (i.e., mobile devices, fixed access points and infrastructure). Probe Research Inc. expects that the coming one to three years will bring the greatest challenges to the PWLAN business with additional collapses resulting in a far different business landscape than today's.

Elements of the PWLAN Value Chain The technology chain for PWLANs has several roles that may be handled individually or a single vendor could combine several. Components include:
  • Mobile devices--computing device, access card, authentication applications and network detection applications.
  • WISP--may be a landlord/venue owner or a company wishing to set up a PWLAN in a particular location.
  • Venue--a location for the PWLAN. The landlord, or an outside WISP, installs and maintains the PWLAN equipment and provides access to the Internet point of presence (POP).
  • PWLAN infrastructure--includes radio frequency (RF) access points, router, and ports for backhaul connections.
  • AAA Billing-- authentication, authorization and accounting (AAA) which authenticates a user, authorizes network access, records usage, manages subscriptions and generates bills.
  • Backhaul--connection from the PWLAN to a network POP.
  • Network operations center/POP--network maintenance and operations as well as an interconnection to the Internet or other network.
In most PWLAN business models, the subscriber, not the carrier, is responsible for the mobile device, which contrasts with the practice of most mobile carriers that choose, subsidize and distribute mobile devices (handsets). Traditional Business Model The most easily understood business model for the PWLAN was for a carrier to be responsible for the entire value chain (excluding the mobile device), bear the costs of data backhaul from the site and interconnection with the network as well as negotiate terms with the venue owners. In addition, the carrier would market its brand and manage all customer authentication, billing and technical support. However, this approach has resulted in several failures, the most notable in the U.S. being MobileStar and Metricom Corp.'s Ricochet Networks Inc.. MobileStar declared bankruptcy after building hotspots in 600 Starbucks coffee shops. Ricochet was a bit more ambitious, offering PWLAN-like data communication using a proprietary network that covered city blocks instead of just a coffee shop. Even the wireless IP network operated by the giant Bell systems -- CDPD -- has been abandoned by AT&T Wireless Services Inc. (NYSE: AWE). In addition, Probe Research has noted significant dis-economies of scale for Internet service providers, wireless or not. Companies attempting to serve a very large number of subscribers or cover a great deal of territory have a much higher failure rate than those with less grandiose ambitions. Franchise Business Model More often called "aggregators" than "franchisers," several companies are offering various degrees of support to entrepreneurs wishing to become wireless Internet service providers (WISPs) and install their own PWLAN. These franchisers often sell or lease hotspot infrastructure to the WISP and then handle customer authentication and billing on a hosted basis. The franchiser also markets its own brand name and offers customer support. Depending on the franchise, the WISP may be compensated for each subscriber access, a percent of subscriber revenues, signing up new customers or simply by the incremental revenue from having more people using their location and staying longer and buying more coffee or books. Franchisers may also provide roaming agreements with other hotspot carriers or franchisers. Hosted Services Model Similar to the franchise model, hosted services are often supplied by companies that sell "hotspots in a box" -- complete on-premise equipment -- to set up a venue as a PWLAN hotspot. Companies that provide hosted services offer authentication and billing service as well as network access and network operations via a network operations center. Generally, hosted services are provided in exchange for a percentage of the subscriber revenue. Unlike the franchiser, the hosted service provider does not market its brand to customers, leaving that, instead, to the WISP. 2.5G/3G Network Support Model Wide-area mobile network carriers have been deploying PWLANs in several countries, concentrating on airport lounges and coffee shops. The biggest advantage for mobile carriers is that the PWLAN provides high-speed, high-capacity wireless data communication in concentrated areas and is relatively inexpensive to install and maintain. This allows the operator to avoid building out a full-blown 2.5G or 3G network covering a large territory in order to meet the requirements of users concentrated in a small area for brief periods. An airport is a good example of such a location; it's not necessary to provide data access to laptop users on runways, hangars or nearby highways (which a 2.5G or 3G network would offer) but very useful to do so in lounges and waiting areas. Not only do PWLANs allow mobile carriers to avoid building their advanced networks with such high capacity, the carrier can also start marketing customers wanting wireless data service before ever installing wide area networks, therefore generating a revenue stream and judging the demand of the market. In addition, the mobile carrier brings other important assets: its complex, expensive authentication and billing system and roaming agreements with other mobile carriers (another asset, just as important, is a recurring revenue source other than PWLANs). The infrastructure required to accept a subscriber's authentication credentials (e.g., SIM) for PWLAN and to use those credentials for roaming to other systems is now available from a variety of vendors. Wholesale Model Wireless companies have also learned a lesson about owning and maintaining network equipment - specifically the radio towers. Many U.S. carriers sold their towers to tower management firms and then leased them back. As a result, carriers shared space on towers in the most desirable locations instead of putting up a second, third or 6th tower. Not only did this tactic reduce the capital expense for building towers substantially, it reduced the expense and delays resulting from negotiation with environmental and municipal groups who protest and regulate tower siting. From that model, then, comes the wholesale model for PWLAN hotspots. A small number of companies could own and maintain the hotspot infrastructure then offer carriers access to those systems. Therefore, remote access companies such as AOL, Earthlink, AT&T, MCI, mobile carriers and others could offer PWLAN service without building and operating their own hotspots and negotiating with property owners. Free Access Model The expense and difficulty of authenticating and billing subscribers could make the difference in being profitable. For those WISPs, offering PWLANs for free may be the best alternative. Some examples of businesses that could benefit from the free access model are:
  • Coffee shops and restaurants that expect to generate incremental revenue from additional sales when customers buy more food.
  • Companies using PWLAN access for a competitive advantage. One example is hotels that hope to sell more room nights because business travelers want data access.
  • Carriers operating high-speed metropolitan area networks. PWLAN hotspots could be located outdoors near apartment buildings or residential areas to bypass the last-mile connection from the incumbent telco, providing access to the MAN without installation or monthly charges for DSL or cable on top of the MAN subscription price.
Companies using PWLAN for incremental revenue or competitive advantage can install and maintain PWLAN systems relatively inexpensively, reaching breakeven when the incremental business offsets the cost of a cable modem or DSL line used for backhaul. Authentication and billing are unnecessary because the service is being offered for free. Key Issues for PWLAN Success Probe Research believes there are several factors that must be considered to ensure the success of a public wireless local area network (PWLAN) hotspot.
  • Dis-economies of scale – Our research has found repeated examples of the dis-economies of scale faced by Internet service providers who attempt to cover a large territory or serve a very large number of customers. WISPs should be aware of these issues and adjust their business plans accordingly.
  • Inter-carrier roaming – A key element in attracting and keeping paying customers will be roaming agreements among carriers so subscribers can access their data without having to set up accounts with WISPs in several locations. There are several companies offering such agreements.
  • Alternate revenue stream – Companies that have relied solely on subscription fees generated by wireless data access have struggled to be profitable and many have vanished or come dangerously close to bankruptcy. PWLAN operations that are part of (or act as support for) another business are more likely to succeed.
  • Branding lessons from the Internet bubble – The business cases for many of the failed Internet startups in the late 1990s depended on the expectation that they could quickly establish their brand in the marketplace and capture consumers' share-of-mind. With very few exceptions, most of the marketing expenditures were unsuccessful.
  • Technology – Though not discussed in this Alert, technology choice will be an important factor in the success of PWLAN operations. The current standard of choice -- 802.11b (or Wi-Fi) enjoys a large and growing base of installed equipment and infrastructure. However, Wi-Fi occupies frequencies that are in danger of becoming crowded and have some limitations on the number of users (or WISPs) within a specific area. 802.11a has fewer limitations but does not enjoy the widespread installed base.
  • Regulatory issues – In a few countries there are restrictions on the use of public frequencies by profit-making ventures. The regulatory trend, however, is to relax those restrictions. Other regulatory hurdles may be erected, however, if the frequencies become too crowded with wireless LANs or other devices and interfere with normal use of the spectrum.
Assessment A period of consolidation will be crucial for today's fragmented public wireless LAN hotspot market by acquiring the assets and customers of the weaker players. Probe Research believes that the result will be a couple of strong national players that also have alternative revenue sources and those wholesaling their hotspots to a variety of remote access carriers. © Probe Research Inc.

broadbandbill 12/5/2012 | 12:29:07 AM
re: Joltage Shocks the PWLAN Market Unstrung,

Your coverage of Joltage's demise equates to the New Your Times writing about Bob's Diner closing in Terre Haute, IN; not relevant! If you are going to play in the majors you need to stay away from the National Enquirer-type of stories. Even your pun (shocks) was wrong!! It should have been "Joltage short-circuits". Next time you want to write about Hoosierland, call me first; I'll even give you the title.

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