WATPA: FW: WSJ - "‘Wi-Fi’ gives cell carriers static"

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From: Norm Jacknis (norm@jacknis.com)
Date: Mon Dec 02 2002 - 22:36:03 EST

An interesting article, passed along by Anthony Townsend of NYU, who is
mentioned in it.


-----Original Message-----

‘Wi-Fi’ gives cell carriers static

Wireless firms’ expensive bet looks increasingly risky

By Jesse Drucker and Julia Angwin

Nov. 29 — At first glance, software executive John Baron would seem to
be a cellphone company’s dream. He subscribes to the slow Internet
browsing option on his cellphone, painfully pecking away on the dial
pad to type in Web addresses. Lately, though, he has found a better
way: When on the road, he uses Wi-Fi, the technology that gives him
wireless access to the Internet on his laptop computer, at blazing
speeds. “It’s brilliant,” he says. “The phone stuff is pretty clunky.”
ONCE VIEWED as little more than a toy for tech hobbyists, Wi-Fi —
short for wireless fidelity — is starting to emerge as a serious force
in the Internet business. Chip maker Intel Corp. is integrating it into
new microprocessors it’s building for laptop computers. Philips
Electronics NV is planning to build it into remote controls and stereo
systems. And Dell Computer Corp. is similarly seeding its PCs with
Wi-Fi. Airports, hotels and Starbucks Corp. outlets are increasingly
awash in Wi-Fi radio signals.

      While Wi-Fi poses problems for cable companies and conventional
phone carriers selling high-speed Internet access, it has the potential
to be a major headache for the cellphone business. Cellular carriers
have spent billions of dollars over the past two years upgrading their
networks to accommodate higher data speeds, and they are betting that
consumers will send e-mail, browse the web and make use of other
applications from their new phones, laptops and hand-held devices.

       But now an insurgent technology has come along to threaten that
strategy — just as Napster and the Internet itself sprang up from
grass-roots followings to challenge the economic models of giant media
and technology companies. Wi-Fi equipment works like a cordless
telephone. It invisibly extends a fast Internet connection as much as
1,500 feet to any computer equipped with a wireless receiver. That
means that, for a small investment in equipment, many users in the same
home or neighborhood can theoretically share the same stationary
Internet connection, while only paying for a single hook-up. More
importantly, the speeds offered in such Wi-Fi “hotspots” are so much
greater that many users say they’re reluctant to make use of the
cellular carriers’ offerings.

       “What [Wi-Fi] hotspots do is they really kill about 80% of the
good near-term applications that the cellular providers were expecting
to make money off of,” says Danny Briere, chief executive of TeleChoice
Inc., a telecommunications consulting firm. One example of a place
where Wi-Fi is already supplanting cellular networks: browsing the
Internet wirelessly in an airport lounge.

       Now cellular providers are scrambling to offer paid Wi-Fi
services before others beat them to it. For instance, Sprint Corp.,
whose Sprint PCS group is the nation’s fourth-biggest wireless
provider, has invested in Wi-Fi firm Boingo Wireless and has announced
plans to deploy Wi-Fi hotspots with Wyndham International hotels.

       Cellular carriers aren’t the only ones grappling with Wi-Fi.
For the cable television industry, the advent of the fast-growing
technology provides a spooky reminder of a problem that has dogged
cable companies for years: the piracy of cable television signals.
According to a survey by the National Cable Television Association in
2000, cable operators lost an estimated $6.6 billion, or 10% of total
revenue, from people who jack into the cable system.

       Wi-Fi presents just the same quandary, allowing one user to
share the connection with nonpaying users. Jeff King, president of Road
Runner, the high-speed Internet unit of Time Warner Cable, calls the
practice of advertising shared Wi-Fi connections “cable theft.” His
company has cracked down on some people who were allegedly sharing
their connections.

       Meanwhile, the conventional telephone business, an industry in
feeble financial condition, is trying to take part in the Wi-Fi boom.
The two biggest players, Verizon Communications Inc. and SBC
Communications Inc., are selling Wi-Fi systems directly to their
high-speed Internet customers. At first, SBC was worried about the
possible abuses, says Alyssa Williams, a product manager for SBC. But
eventually, she says, the company decided that “to fight something
that’s available to someone is kind of fruitless.”

       Wi-Fi dates back to the early 1990s, when a band of engineers
focused on the use of “junk” radio-wave spectrum to devise a way for
computers to share data without the twist of cables typical of
corporate networks. In 1997, after years of experiments with the
technology, the Institute of Electrical and Electronics Engineers
established a standard for wireless computer networking. Much like the
Internet, the technology divides up data into little packets and sends
them over the airwaves using radio frequencies. Antennas put in
computers “catch” the data packets and reassemble them at the

       At first, the technology was too expensive for most home users.
Wi-Fi antennas used to cost $500 apiece and transmitters cost $1,000.
Still, it started to catch on slowly among corporate users. Car-rental
companies bought wireless hand-held computers to use when checking in
returning vehicles. And some companies used Wi-Fi to transmit data from
their delivery trucks to their offices. Apple Computer Inc. made one of
the earliest bets on consumer adoption of the technology, equipping
their laptops with Wi-Fi technology in 1999.

       The prices for Wi-Fi equipment have since fallen to about $200
for the whole set-up. Now sales are taking off. In the third quarter of
this year, shipments of Wi-Fi equipment nearly doubled to 4.8 million,
according to In-Stat/MDR. Sales at the leading maker of home Wi-Fi
equipment, Linksys Group Inc., jumped to one million units in the first
half of this year from one million during all of 2001.

       In the past two years, self-proclaimed “wireless guerrillas”
have started a movement to bring free Internet access to the masses,
building shoestring Wi-Fi networks that allow people to get access to
the Web at no charge. They are a motley band of neighbors and activists
whose wireless “footprints” cover a portion of a city block or small
city parks in places such as New York and San Francisco.

       In midtown Manhattan, Bryant Park is wired for Wi-Fi, and the
group that operates the free hotspot estimates it generally gets 60 to
70 users a day. Further downtown, the Chelsea Market, an indoor food
and cafe market, is also a free Wi-Fi hotspot — across the street from
a Starbucks that requires users to pay. In Portland, Ore., Pioneer
Courthouse Square, the city’s main downtown plaza, is also wired for
free use. And on the island of Hawaii, a former high-school physics
teacher has strung together a 300-square-mile free Wi-Fi network using
people’s homes, schools and small businesses as hotspots.

       The potential of such ad hoc wireless networks isn’t lost on
U.S. national cellular carriers, who have spent roughly $6 billion
upgrading their networks to beam data at high speeds through the ether.
And they’re already out billions of dollars more for spectrum licenses
they acquired years ago.

       Wi-Fi, on the other hand, uses spectrum that was set aside by
the Federal Communications Commission for oddball devices that happen
to use radio frequencies such as some cordless phones and older
microwave ovens and hospital equipment. So long as products that use
the spectrum live up to some technical requirements, anything goes.
Moreover Wi-Fi, piggybacking on high-speed Internet connections, is far
faster than cellular carriers’ latest-generation offerings.

       Wi-Fi technology isn’t perfect. Interference from cordless
phones, ham radios and microwave ovens is a problem because Wi-Fi uses
unlicensed airwaves. If someone creates interference in a traditional
cellular network, “I can have them removed,” says Jim Straight, the
vice president for wireless data and Internet services at Verizon
Wireless, a joint venture of Vodafone Group PLC and Verizon. But “if
you go into unlicensed spectrum, it’s a free-for-all,” he says.

       What’s more, cellular works better than Wi-Fi when the user is
walking down the street or riding in a car. Wi-Fi is also subject to
obstruction by everything from chimneys to elevator shafts.

       Even so, John Stanton wasn’t going to wait for his high-speed
wireless business to be eaten away before it even got started. The
chairman of wireless carrier T-Mobile USA Inc., formerly called
VoiceStream Wireless, who once viewed Wi-Fi “both as a threat and an
opportunity,” now prefers the latter option. At an investment
conference in Sun Valley, Idaho, in 2001, Michael Dell, the chairman
and CEO of Dell Computer, shared some surprising information: All of
the company’s newly manufactured laptops would soon be enabled for
Wi-Fi. Mr. Dell’s view, Mr. Stanton recalled, was that the speeds
offered by wireless carriers simply weren’t fast enough for their
customers, a common complaint about the cellphone data networks. Wi-Fi
turns out to be faster for consumers, and cheaper for carriers to

       “The conversation with Michael kind of planted a seed for me
that [Wi-Fi] was more real than I had realized,” he said.

       In January, T-Mobile, a unit of Deutsche Telekom AG, bought
MobileStar Network Corp., a bankrupt Wi-Fi provider that had deployed
wireless hotspots in more than 500 Starbucks around the country. Mr.
Stanton insists that MobileStar’s problems don’t bode poorly for his
own Wi-Fi efforts: MobileStar ran out of money and didn’t have an
existing infrastructure to support its Wi-Fi network, he says. T-Mobile
has expanded the hotspots to 2,000 locations and recently announced
plans to go into 100 airline lounges and 400 Borders bookstores. Mr.
Stanton says the company has committed to spending more than $100
million for this nationwide build-out of Wi-Fi hotspots, which he
considers money well spent. With T-Mobile’s regular networks, “I can’t
get a couple major markets built for $100 million,” he says with a

       T-Mobile users can pay for the Wi-Fi service in a variety of
ways. The company offers monthly subscriptions with prices starting at
$29.99 — as well as prepaid and pay-as-you-go plans starting at $2.99
for 15 minutes of access.

       Plenty of other wireless carriers are racing to get a piece of
the action. Nextel Communications Inc. is working with Motorola Inc. to
develop a Wi-Fi handset, and also backs RadioFrame Networks Inc., a
company that deploys dual Wi-Fi/cellular networks in corporations.

       AT&T Wireless Services Inc. has wired Denver International
Airport for Wi-Fi access, and says it is interested in marketing a PC
card by Nokia Corp. that would use Wi-Fi networks when available or
switch to AT&T Wireless’s cellular network when out of range of a Wi-Fi
hotspot. Says AT&T Wireless’s chairman and chief executive, John
Zeglis: “We’re going to be real friendly to Wi-Fi.”

       Cellphone companies insist that Wi-Fi presents no threat to
their current plans and contend that there’s a place for both systems.
But some experts are skeptical that Wi-Fi will ever become profitable.
“I’m not convinced [Wi-Fi] is a great business,” says William G.
Crawford, a former telecom analyst at U.S. Bancorp Piper Jaffray.
“Water is a wonderful thing, but selling water may not be. It’s a
commodity business.”

       Anthony Townsend, co-founder of free Wi-Fi network provider
NYCwireless who is trying to spin off a for-profit company, says the
telecommunications companies are taking the wrong approach by trying to
charge for wireless Internet access at airports and coffee shops. Mr.
Townsend’s start-up, Cloud Networks, is hoping to make a business out
of designing, building and maintaining Wi-Fi networks for owners of
apartment and office buildings. “Their model is to put a quarter in
your chair to get a light turned on over your chair,” he says. “Our
model is that the cost of providing light should be part of the cost of
your coffee.”
Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.

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