COM W. Clark, M. King, J. Girard, I. Keene, R. Simpson

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1 W. Clark, M. King, J. Girard, I. Keene, R. Simpson Research Note 3 July 2003 Commentary Select Vendors Fuel Global Wireless LAN 'Hot Spot' Market Worldwide investment in WLAN grows significantly as DSL and cable providers enter the market. North America will widen its lead over Europe and the Asia/Pacific region in hotspot availability and user adoption through Wireless LAN (WLAN) "hot-spot" growth will increase dramatically through North America will lead worldwide growth through 2005 with at least 60 percent of total hot spots, with the remaining 40 percent shared between the Asia/Pacific region and Europe. Interest and positioning in the public WLAN market increased significantly during 1H03. Gartner expects new entrants, buildouts and partnerships to increase for the next 12 months. Worldwide efforts to address interoperability, roaming and billing have not been fruitful. The Wi-Fi Alliance's recent announcement of Wi-Fi (also called Wireless Fidelity) zones only addressed some issues regarding branding. The Alliance did not resolve billing issues, nor did it include the leading market players. This move is a major inhibitor to growth and a challenge for success in the enterprise market. Enterprises will be faced with six business models (see "Enterprises Must Consider Six Types of WLAN 'Hot Spots'") that will complicate their ability to guarantee good user access. They also must be aware of major activities and investments worldwide. North America Hot-spot operators Wayport and T-Mobile enjoy the early lead for total numbers of owned hot spots. Both providers have increased their number of venues substantially during the past nine months, although at a lower rate than their initial buildouts from 2001 to Wayport is reporting month-to-month growth of 30 percent in wireless connections and 20 percent for wired connections at its hotel venues. It has announced partnerships with ATT Wireless and Verizon Wireless, and has slightly increased its presence in the airport market. T-Mobile has dropped pricing for U.S. hot-spot access by 60 percent, from $49.99 per month to $19.99 per month. T-Mobile's aggressive pricing in the hot-spot market, coupled with $20 for unlimited general packet radio service (GPRS), is a bright spot in the industry. These reductions foreshadow a number of services and products that will offer multimodal data capabilities to mobile enterprise workers. By YE05, 75 percent of mobile operators in North America will offer flat-rate pricing at less than $35 per month for wireless WAN (WWAN) and WLAN connectivity (0.7 probability). Gartner 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Growth in visits per day for venues other than hotel and convention centers is low throughout the market and is financially strangling hot-spot rollouts. During the past six month, hotel usage rates have risen significantly, from a range of 3 percent to 5 percent to a range of between 8 percent and 25 percent of available rooms. In 2003, "pay as you go" hot-spot customers outnumber monthly subscribers by approximately a 4-to-1 margin across all user bases. We do not expect that ratio to change for national or regional "road warriors" (mobile workers) until coverage improves and seamless roaming is available. Through YE04, 80 percent of users who travel more than 50 miles during an average day will adopt payas-you-go hot-spot plans (0.7 probability), because they will not be able to find enough locations to justify using a loyalty program from hot-spot owners. By YE04, 50 percent of users who stay within a single metropolitan area during an average travel day will sign up for a loyalty program and use a monthly rate (0.7 probability). By 2007, more than 50 percent of all hot-spot users will pay monthly subscriptions, rather than use a pay-as-you-go plan (0.7 probability). Local exchange carriers (LECs) are entering the hot-spot market by combining pay-phone points of presence with WLAN hot spots (see "Verizon Introduces Low-Priced DSL, Wi-Fi Services"). Verizon plans to initially blanket the New York metropolitan area with 1,000 such hot spots by YE03, and it will offer free access to its own DSL customers. Verizon is gambling that bundling Wi-Fi with DSL (GPRS) will increase its Internet access market share and customer retention in competition with T-Mobile's bundling of Wi-Fi with GPRS. Bell Canada also has introduced WLAN at pay-phone locations in airports in an effort to test the Canadian road warrior demand. These trial bundled deployments are not be compelling offers for roaming Wi-Fi users; using pay phones as hot spots entails significant coverage restrictions, especially in providing in-building coverage. Verizon will introduce WLAN hot-spot capability to the major metropolitan areas in its territory by YE04 (0.6 probability). This and other emerging WLAN initiatives (such as neighborhood hot spots that alleviate the need to run wire to each household) will force other LECs and cable providers to follow suit. Cable provider Comcast's interest in WLAN hot spots and SBC Communications' move toward public Wi-Fi illustrate how WLAN will be used as competition heats up between DSL and cable modem services. Most incumbent carriers, as well as cable companies in North America, will enter the Wi-Fi market during By YE06, three out of five broadband (DSL or cable modem) customers will be able to access the Internet via neighborhood or public WLAN hot spots as a value-added service (0.7 probability). Exploratory investments by hot-spot owners and carriers are also being pursued through channel partnerships. ATT Wireless and Verizon Wireless have signed agreements with Wayport. Nextel and Verizon Wireless have been the most active in providing systems integration services to enterprises that need to enhance their WLAN and, in some cases, their WWAN infrastructures. Cingular Wireless and Nextel remain on the sidelines with sharing/marketing agreements as their only method of providing hotspot connectivity. These diverse investment strategies will eventually lead to market consolidation as winning players and business models emerge. Boingo Wireless is pursuing the WLAN aggregator role, reselling services to enterprises and through management service providers (MSPs), Internet service providers, LECs and cable providers. Its strongest MSP partner to date is Fiberlink Communications. Sprint PCS has invested in the early stages of Boingo Wireless service, but remained passive during 1H03. Boingo's pricing for single session or unlimited access is $7.95 per session or $49.95 per month. Boingo Wireless has successfully sold Enterprise packs to approximately 50 customers. Pricing for sessions (sold in bundles of 100 to 10,000) are $2.50 per 24-hour session, plus $4.70 for per-overage session. "Hot-spot in a box" initiatives have made little impact on the market. Boingo Wireless is placing little emphasis on hot-spot-in-a-box. It is relying heavily on buildout by wireless Internet service providers and 3 July

3 wireless service providers (WSPs). Toshiba America's announced plans to introduce 10,000 hot spots by YE03 has had little impact on user buying patterns. Users are making commitments to other MSPs rather than waiting for Toshiba America. There has been no reaction from other MSPs. Cometa Networks spent 1H03 building the operational foundation of the company. To fulfill its objectives, it now faces the challenge of rolling out 5,000 hot spots in 10 months, concentrating on 10 major metropolitan areas, a daunting task for a player that has no long-term deals with any venue owner. In the long term, its business model is extremely suspect, considering the competitive situation that it will face from many LECs and cable service providers. MSPs will play a crucial role in consolidating hot-spot offerings. The MSP hot-spot market (in terms of WLAN subscribers) is led by ipass. In the No. 2 spot is Gric Communications, which is catching up with ipass' scale of offerings. Gric has signed 35 roaming agreements with hot-spot network operators in 24 countries. Some of the signed agreements are clever, two-way roaming agreements allowing these hotspot network operators to interconnect with the Gric global mobile broadband network and to resell Gric mobile broadband. Gric has implemented 1,600 WLAN hot spots in 15 countries. Third-tier players Fiberlink and QPass will be credible challengers to Gric by YE04. Fiberlink is the strongest of the stand-alone, full-service MSPs, and it offers the most new growth potential for wireless connectivity. Fiberlink is also developing relationships with WSPs worldwide, and facilitating bringing those providers and their coverage into the Boingo network for use by Fiberlink and Boingo customers. QPass, a niche MSP virtually unknown to most enterprises, is cultivating future clientele through a relationship with AT&T Wireless. Table 1 shows pricing for three MSPs. Table 1 MSP Pricing for WLAN and Broadband Access MSP Summary of Pricing Gric Gric's WLAN connectivity, bundled with dialup and broadband access, offers entry-level pricing and 50 hours of connectivity with unlimited dialup and ISDN in North America for $49.95 per month. ipass U.S. pricing is 10 cents per minute ($6 per hour) capped at $13.50 per day. European pricing is higher at 18 cents per minute, $10.80 per hour and $24 per day. Fiberlink Fiberlink offers per-day pricing starting at $29.95 per user for 10 interconnects. Pools of interconnect days are also available for as low as $2 per day when purchased in mass. Source: Gartner Research (July 2003) Gric and ipass have the lowest entry price points compared to Fiberlink, but enterprises will save significantly on volume purchases from all three vendors. Activity for hot spots is limited in Mexico. South America Activity in South America has been limited to independent hot spots established at high-end venues, such as luxury hotels in Brazil. The Asia/Pacific Region 3 July

4 Until mid-2002, the limited hot-spot deployments in the Asia/Pacific region were undertaken mostly by small startup WSPs that had little capital and no established customers. Business user interest in and awareness of hot spots was low. The startling exception is South Korea. Due to strong government policy support and massive investment by the Tier 1 telephone companies (telcos), South Korea has led the way with more than 8,500 public hot-spot deployments by mid-2003 and plans for another 8,000 by YE03. The high-level community awareness for the value of wireless broadband access in South Korea can be attributed to: Aggressive pricing High broadband penetration into the home Bundling of wireless access points with broadband service A program encouraging broadband curriculum development Equipping schools and teachers with wireless broadband Since late 2002, there has been a dramatic increase in hot-spot deployment in the rest of the Asia/Pacific region, due to the entry of the Tier 1 telcos in the hot-spot markets in Singapore, Malaysia, Hong Kong, Taiwan, Australia and Japan. Smaller operators have belatedly started to form roaming agreements with global aggregators, such as Gric and ipass. The large telcos have a stronger business model because they already have the customers and they own almost all of the pieces of the WLAN business value chain. Consolidation of the smaller operators thus is expected as the telcos begin marketing WLAN services to their installed base and announce aggressive hot-spot deployment plans. Leading telcos in Australia, China, Singapore and South Korea recently announced the Asian Wireless Broadband Alliance. It plans to develop branding, roaming and billing solutions covering 20,000 hot spots in the region. Pricing is highly variable, with little movement toward aggregation. Enterprises must use services tactically and introduce accounting policies to measure usage. Europe After a slow start, hot-spot coverage is expanding in most European countries. Telia in Scandinavia has been joined by BT (United Kingdom), France Telecom, T-Mobile (Germany), Swisscom and a large selection of smaller operators. Enterprise users who frequently travel by air and stay at five-star hotels can take advantage of hot-spot coverage today. However, enterprises will have to wait until YE04 before there are enough hot spots for the majority of knowledge-based workers to take advantage of these services. The most-aggressive future European expansion plans come from U.K. operator mmo2, which announced on 1 July 2003 that it would expand services and owned hot spots in Ireland, the United Kingdom and Germany. It has signed roaming deals with GlobalAirnet and WLAN AG, which will provide roaming access to another 1,000 European public access points. It has also signed up Luxembourgbased Excilan to provide its roaming billing and payment platform for roaming in Europe and worldwide. For the remainder of 2003, however, prices for hot-spot access in Europe will remain high, and roaming agreements will be sparse. In 2004, increasing user demand will improve pricing by encouraging competition. Carriers will start to bundle hot-spot access with other service offerings, such as GPRS, 3 July

5 remote access services and DSL subscriptions. Prices are expected to fall through 2004, approaching those in the North America and the Asia/Pacific region by As with the Asia/Pacific region, pricing in Europe is highly variable, with little movement toward aggregation. Enterprises must use services tactically and introduce accounting policies to measure usage. Bottom Line: North American enterprises can expect further sharp reductions in prices (and thus should sign only short-term contracts for hot-spot services). Local exchange carriers, cable service providers and startups, such as Cometa Networks and Wayport, that attempt to "jump-start" the market will prompt the shift in pricing. North American enterprises should have their users adopt the pay-as-you-go plan, unless travel for employees is predictable and they can access offerings, such as T-Mobile hot spots, frequently enough to justify an ongoing $20 per month expense. Enterprises should consider management service providers to control hot-spot costs. Enterprise users in Europe and the Asia/Pacific region must avoid exorbitant pricing for wireless LAN hot-spot coverage; prices in those areas will fall during the next two years to encourage mass adoption. 3 July