Free Web access with Wi-Fi poses challenge for business

It's lunchtime in Bryant Park in mid-town Manhattan and situated to the hordes of professionals on their break are dozens of laptop computers, accessing the internet at high-speed rates without a wire, or a cost, in sight.

The scene is just one of hundreds of public wireless internet connections, known as Wi-Fi hotspots, cropping up around New York.

Thanks to the enthusiasm buzzing about a technology still in its infant stages, companies here and across the US are scrambling to make sense of what has been dubbed the "Wi-Fi revolution".

But with so many of these hotspots not charging for service, a nagging question among executives and analysts is how do you compete with free? And as Wi-Fi takes off worldwide, the US is not alone in the search for the best business model.

Wi-Fi, short for Wireless Fidelity, relies on a single standard called 802.11, which uses a low power radio frequency to reach computers within a hundred-foot range. Though a popular use is in home and corporate networks, enhancing the signal lets commercial providers offer net access in public spaces.

So laptop users walking into a coffee shop, for instance, can download MP3s while downing their mochas.

Retailers like McDonald's and coffee shop chain Starbucks have been the most visible in offering consumers this service in the US.

Customers pay for access much like they would in a cyber café, while stand-alone providers or phone companies like Deutsche Telecom-owned T-Mobile handle the connection.

In fact, it's the phone companies that are emerging as the major players as the industry evolves, with T-Mobile alone rolling out over 2,000 hotspots nationwide and AT&T following suit.

Before the phone giants got involved, the only Wi-Fi service around was from neighbourhood users pointing their aerials out the window.

Fuelled by the intense novelty interest since then, the price of Wi-Fi equipment has plummeted since its inception in 1999. Recently, Forrester Research predicted 53 million Wi-Fi devices worldwide by 2008. And computer chip-maker Intel plans to ship Wi-Fi enabled processors by early next year.

Even now, the average laptop user in New York can rely on Bryant Park for their sole source of Net access.

According to NYC wireless, a community Wi-Fi group in New York, there are almost 200 free hotspots around the city.

With access available in so many public places, why would anyone bother to fork out the average $30 (€26) a month which commercial providers demand?

"They have to offer a service they promise will never go down," says Mr Eric Griffith, editor of Wi-Fi Planet, an online magazine. Seeing as the consumer market is affected by these free services, companies are moving their focus to the corporate haunts of airports and hotels.

"It's not really about consumer revenue for the bulk of business models any more," says Ms Julie Ask, a senior analyst at Jupiter Research in Connecticut.

Now the focus is on the mobile professional, she says, someone much more willing to pay. So what does this mean for the companies that have invested so heavily in the consumer market already?

Analysts say that when the market gets used to a service being free so early in its development, it puts future revenues in jeopardy.

"Here's the basic problem with free: if I get it for free now, why would I ever want to pay for it?" says Ms Lisa Pierce, an analyst with Forrester Research in Massachusetts. But she says companies are pinning their hopes on the need for quality service and security.

Enthusiasts say the industry should thank free providers for the industry's success. "If they hadn't pushed this in the beginning, nobody would be providing it now," says Wi-Fi Planet's Mr Griffith. Thanks to the buzz of internet access becoming as available as a TV or radio signal, the business world took notice.

The idea has even inspired some local governments here to experiment with free access. Jacksonville, Florida is one of a handful of towns that offers unlimited service to its citizens. And with this sort of competition, some businesses have gotten creative with their models.

One company called Airnet is rolling out a service for suburban and rural areas that don't have cable or DSL access.

In New York, phone giant Verizon made hotspots out of 1,000 of its payphones and now bundles the service with its internet package.

And in a bid to recruit its own customers, a company called Speakeasy lets users resell their broadband access to their neighbours via Wi-Fi as long as the company gets a 50 per cent cut.

For all its hype, the service has been lost on much of the public here. A recent poll by Intel said one-in-10 business users had never tried Wi-Fi, while a Jupiter online survey said just 6 per cent had used it. Analysts say before widespread penetration can ever happen, roaming agreements must be in place, something woefully lacking at present. "It's the number one thing that'll decide if the industry will or won't make it," says Forrester's Ms Pierce.

Though the free hotspots may well show the potential for Wi-Fi as a public benefit, critics say the excitement does not mean long-term viability. Much like internet service providers at their infancy, endless numbers of vendors seem to be vying for a piece of "the next big thing".

A recent headline in Newsweek magazine summed up the sentiment, asking, "Is Wi-Fi just a bubble?" And with brazen spending like Intel's own $300 million marketing campaign, they may have a point.

But if the consumer market proliferates, even if the model is providing a bonus service for coffee-drinkers and hotel guests, then the absence of Wi-Fi will be the anomaly here and in other countries where it's developing.

"It will be to an extent like a phone line," says Wi-Fi Planet's Mr Griffith. "If you're in a place and they don't have Wi-Fi you're going to be pissed off."

And with that much reliance on the service, maybe it won't be so hard to pay for it either.