INSIGHTanalysis: Sense Of Realism Needed In WLAN Market

WLAN relies on radio waves to transfer data with laptop and PDA users able to access the internet at high speeds of up to 11 megabits per second (Mbps) within a confined area. These wi-fi zones or hotspots have usually been found in business premises but an increasing number are being introduced in public areas such as shops, cafes, restaurants, hotels and airports.

It is hoped that the technology will have an effect far beyond the developed world. UN Secretary General Kofi Annan this week called upon governments, regulators and equipment providers to formulate a joint strategy for deploying wi-fi in poorer countries. With increased adoption of wireless networking and hotspots mushrooming across the globe, IDC this week reported that it expects the WLAN market to be worth $1.1 billion in 2007.

However, not everyone shares the excitement. In a study out last week, Forrester Research claimed that investment was too high for so few customers. It forecasts that there will be only 53 million WLAN-enabled devices in Europe by 2008, serving just 7.7 million users. Laptops are regarded as the killer application for wireless LAN but penetration stands at a mere 10% and is predicted to reach just 16% in five years time. Proceed with caution seems to be the appropriate motto.

Hotspots sprouting up The research firm Gartner estimates that wi-fi hotspot numbers in Europe will grow from 829 in 2002 to more than 15,000 by the end of this year. Moreover, it expects there to be in the region of 40,000 hotspots in existence in 2005. The telecoms consultancy BWCS is more cautious and predicts, in a new report, that there will be no more than 20,000 hotspot locations by 2007.

Although awareness of WLAN is on the increase, both organisations caution against high expectations. According to Gartner, the number of hotspot users worldwide will climb to 9.3 million this year but the technlogy has some way to go to achieve critical mass. Until then, users are unlikely to have cheap and easy access to public hotspots and wi-fi will remain a niche service.

“Of the 2.5m hot spot users in 2002, 91 per cent were infrequent users 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. “These people did not spend significant money, and have not shown sustainable usage habits that will provide the revenue to support growing numbers of hotspots in the future.”

This viewpoint is shared by BWCS which claims that the growing number of hotspots in cafes, bars and restaurants will not result in significant new income for operators. Business travellers will continue to account for the majority of wi-fi service revenues and numbers are not sufficient to justify large scale investment.

Limited ambitions Unlike in the US, where independent wireless ISPs have been largely responsible for the roll-out of WLAN services, the European wi-fi scene is to be dominated by fixed line and cellular telecoms providers. However, the growing popularity of wi-fi services should not delude operators into overspending as returns cannot be guaranteed. The telecoms market remains in a state of flux and many service providers have overestimated the potential of WLAN.

Lessons can be learned from equipment vendors who saw WLAN shipments double in 2002 but were unable to reap much in the way of financial reward due to a fall in the value of their products. According to Gartner, end-user spending rose by just 29% during the year.

It is estimated that there will be more than 70,000 public hotspots worldwide by the end of 2003 and an increasing number of visitors to shops, cafes and entertainment venues will be able to sample the WLAN experience. However, a convincing business model is yet to be developed and until wi-fi is available in the mass market (e.g. to mobile phone users), operators will have to live off small margins.