By Jeff Goldman, Sep 03 2002, The Feature
Wireless hotspots are fast becoming a great boon for business travelers worldwide. In South Korea, users can connect at any of the more than 5,000 locations run by Korea Telecom. Called NESPOT zones, the access points range from the Ritz Carlton Hotel in Seoul to Cheju Halla College. If you’re a subscriber in Sweden to Telia’s HomeRun network, you can even stay connected to the Telia hotspot network while traveling to Italy, thanks to a recent roaming agreement between the Swedish carrier and the Italian provider Megabeam.
But in the U.S., similar commercial ventures, such as MobileStar, have failed. American hotspots have instead largely been the domain of community networks, like NYCwireless, which share bandwidth for free. Thanks to a number of new arrivals in the market, however, that disparity isn’t likely to last.
Three U.S. startups—Joltage Networks, Sputnik, and Boingo Wireless — are contributing to the growth of hotspots in distinct and innovative ways: Joltage through pyramid marketing, Sputnik through free services, and Boingo through an aggregation offering that’s focused on the needs of the consumer.
Joltage Networks is the brainchild of Andrew Weinreich, founder of a successful online community, sixdegrees, which expanded by virtue of a simple strategy: require each user, when signing up, to refer three friends to the service. Now Weinreich is bringing a similar marketing concept to Joltage, using pyramid marketing to multiply hotspots as fast as he can.
Use Joltage’s free software to set up a hotspot, and you get half of the revenue generated. Refer a hotspot operator to the Joltage network, or sign up a network subscriber, and you get a percentage of the revenue generated there as well. Incentives like these have helped to grow the Joltage hotspot network rapidly since its launch in March.
Then there’s Sputnik, which was founded by the trio of entrepreneurs who had previously founded the Linux services company Linuxcare. Their focus on open source solutions has continued with their new venture, which has offered both free hotspot software and free subscriber access to the company’s grassroots wireless network since its launch in March.
But David LaDuke, Sputnik’s CEO, says the free offering is simply a way of drawing attention to the upcoming Sputnik Enterprise Gateway, an enterprise-class server version of the network’s back end software. Regardless of the attention the free service has attracted, the company is focused on enterprise customers, not the consumer hotspot market. “We’re not in the business of running hotspots,” he said.
Wi-Fi aggregator Boingo Wireless, on the other hand, hasn’t had to worry about encouraging growth. Christian Gunning, the company’s Director of Product Management, says Boingo’s method of partnering with smaller hotspot providers nationwide has given them more than enough locations. “We get 300 inquiries a month from entrepreneurs interested in deploying,” he said. “Trying to figure out how to drive footprint just hasn’t been necessary.”
Instead, Gunning explains that the company is working to make the subscriber experience as user-friendly as possible—their aim, he says, is to become the AOL of wireless access. “We focus on the customer side: how to make it easy, how to get more people into these networks, how to keep them supported, and how to make sure that it’s a good experience,” he said.
Still, for anyone deploying hotspots, some significant concerns stand in the way. Significantly, most DSL and cable providers include clauses in their acceptable use policies that prohibit reselling of access services. While companies like Joltage do instruct their hotspot providers to obey those policies, such restrictions could put smaller locations in an awkward position, caught between the two providers.
Boingo’s Gunning points out, though, that most hotspots don’t use residential connections. “Seventy percent of our locations have full T-1 lines going into them, and our locations that are running DSL lines tend to run commercial lines, not residential lines,” he said. “A commercial line has drastically different terms of service than you would find with your typical residential DSL or cable service.”
But In-Stat/MDR analyst Amy Cravens notes that there’s nothing keeping carriers from adding restrictive clauses to business-level agreements in the future. “It might become an issue going forward,” she said. “There’s been action taken for reselling or repurposing residential connections, and I don’t see why the carriers would look differently at placing those kinds of restrictions on businesses.”
The opposite result could also ensue. Gunning suggests that carriers may well decide to jump on the hotspot bandwagon instead, forming supportive partnerships similar to Joltage’s agreement with Atlas Broadband, which offers users a free access point if they join both networks. “Some providers do see this as an opportunity to sell more broadband connections, as opposed to worrying that this will stop people buying bandwidth,” he said.
The other key concern for wireless users, as well as for hotspot providers, is security. The hotspot software solutions provided by Joltage, Boingo, and Sputnik all include effective methods of protecting the providers’ systems. For the user, however, media coverage of the holes in Wi-Fi security can be a major deterrent to using wireless—which is a particular concern for a consumer-focused company like Boingo.
Boingo’s Gunning contends that a lot of the concern about security has been unwarranted. “There was a lot of unnecessary hype in the media about six months ago that it was inherently insecure,” he said. “It is, but there are also ways to make it secure. In the public space, as soon as you make that connection and authenticate, the first thing you should do is roll up a VPN.”
Still, In-Stat’s Cravens notes that a lot of people just don’t take the precautions they should. “I still think that’s probably the premier concern from the corporate perspective in allowing public access,” she said. “A lot of companies are aware that, even though they have VPN available, not all of their travelers are using it. There’s just a lack of control once they leave the corporate premises.”
Regardless of the concerns about carrier restrictions and security, companies like Boingo, Joltage, and Sputnik, together with community initiatives like NYCwireless, make the future look bright. Still, for small startups like these, some powerful threats loom on the horizon, in the form of larger commercial offerings.
The latest large offering in the U.S. is T-Mobile HotSpot, which took over the bankrupt MobileStar network last year. Since then, T-Mobile has quietly reinstated service at MobileStar’s old locations—and last month, the company announced plans to grow to a total of 2,000 locations by the end of the year.
Laurie Stixrood, Executive Director and General Manager of T-Mobile Wireless Broadband, says T-Mobile’s ultimate aim is to offer hotspots for bandwidth-intensive activities, and mobile access for lighter usage—all on the same device, from the same provider. “They’re very complementary to one another,” she said. “And the benefit is going to be that it’s one customer, one bill—for both voice and data.”
Then there’s Project Rainbow, an initiative being discussed by Intel, IBM, AT&T Wireless, Verizon, and Cingular Wireless to create a company that would oversee a nationwide network of hotspots. It’s currently little more than a rumor, but such a company would bring many of the nation’s leading carriers into the hotspot business, working toward a seamless combination of hotspot and mobile access that would compete directly with T-Mobile’s plan.
In the end, Sputnik’s LaDuke observes, wireless carriers are the logical supporters for a nationwide hotspot network. “Ultimately, they’re the ones that have the infrastructure and the capital to build out massive hotspot networks,” he said. “I think there will be opportunities in niches for the startups, but at the end of the day, it’s going to be a carrier thing.”
Still, Joltage’s Weinrich suggests that all the competition only proves the effectiveness of smaller startups like his own: no matter who enters the market, the hotspot business in the U.S. is a good place to be. “Business models are changing so quickly that if someone’s not competing with you today, if they like what you’re doing, they’ll be competing with you tomorrow,” he said. “The more entrants in this space, the better off we all are.”
Reprinted with permission.