Gartner: Look Beyond Hotspots

STAMFORD, Conn. -- The number of public wireless LAN (WLAN) hot spots has risen from just over 1,200 in 2001 to more than 71,000 in 2003, but there are still not enough hot spot locations to meet user needs, according to Gartner Inc. (NYSE: IT and ITB).

The number of WLAN hot spot users is forecast to reach 9.3 million users worldwide in 2003, up from 2.5 million users in 2002. North America will account for 4.7 million users in 2003, followed by Asia/Pacific with 2.7 million users and Europe with 1.7 million WLAN hot spot users.

"With just 2.5 million hot spot users in 2002, the vast majority of these (91 percent) were infrequent uses attracted by opportunities to use a service just once or twice, often free of charge," said Ian Keene, vice president in Gartner's telecommunications group. "Many more hot spot locations are needed if user numbers are to rise greatly."

Retail outlets such as coffee shops, gas stations and restaurants, were the leading locations for public WLAN hot spots in 2002 and it will continue to lead the industry through Gartner's forecast period (see Table 1). Retail outlets are projected to account for more than 70 percent of all hot spots in 2003.

"These deployments are justified not by profit but through a vision of greater customer services. Network and installation costs are often offset by profits in other business segments," said Ken Dulaney, vice president at Gartner. "Viewed singularly, these hot spots do not generate profit, but as part of the overall business model they do. Gartner research also shows companies installing WLANs for internal needs and creating virtual LAN segments they then sell off to generate cost offsets."

Table 1: Public WLAN Hot Spot Locations Worldwide, by Type

Gartner analysts said more than 50 percent of professional notebook PCs will be WLAN-enabled in 2004. As a result, many workers will welcome opportunities to synchronize their e-mail or download files outside the office. Retail outlets want to attract these people. Many are considering installing a WLAN hot spot to do so.

There will be a rapid increase in retail hot spots in 2003 and 2004, peaking in 2005. "However, some of these hot spots will not succeed because they fail to attract enough customers, or because customers use the service for long periods without spending enough money on goods and services," Keene said. "Critical mass, however, could come sooner if billing interoperability is achieved, an effort clearly in the sights of those committed to the business."

All segments will see an increase of hot spots the next few years. The largest, most attractive airport and hotel locations will have hot spots by 2005. "As with retail locations, many airline lounges and hotels will use hot spots to attract customers to their core business, rather than as a stand-alone revenue stream," said Keene. "Despite alternative connectivity schemes, hot spots will offer the most bandwidth within these environments unmatched by alternatives such as CDMA or UMTS."

The hot-spot market presents new challenges to network service providers (NSPs) because the NSPs do not control the WLAN airwaves or the locations. The equipment is also simple and inexpensive to install. Gartner analysts said NSPs that want to compete in this market must have an attractive business proposition for location owners or partnerships with other hot-spot service providers.

"NSPs need to figure out how to generate revenue directly from hot-spot users, as opposed to relying on revenue from supplying backhaul broadband lines," Keene said. "To do this, they should consider adding hot-spot access to their existing services, rather than positioning it as a stand-alone source of revenue."

Additional information is available in the Gartner Dataquest Market Trends report Public Wireless LAN Hot Spots: Worldwide, 2002-2008. This report examines the current state of hot spots on a worldwide basis, and it provides analysis on what will drive the market through 2008. This report can be purchased on Gartner's Web site.

Gartner Inc.