The Ovum View: The end of paid-for public WLAN?

Some venues are starting to lay on free internet access via wireless LAN to attract customers or improve their relationships with them. But, asks Ovum senior analyst Richard Dineen, that doesn't make sense...

There are two basic business models for public WLAN (PWLAN) service provision: you charge folks for using it or you don't. Those businesses offering PWLAN services free-of-charge generally provide them as a 'value add' to their customers, offsetting costs against increased competitive advantage or the prospect of recouping the investment through some other channel. For hotspots in bars or cafés, for example, the idea is that offering wireless internet services will encourage customers to linger a little longer and order another beer or caramel frappuccino.

There are a number of managed service providers who are targeting products and services specifically at this value-added PWLAN segment. Some have even modelled opex in their brochures in language the hotspot owners can easily understand: "You can pay back your wireless LAN running costs by selling an extra three beers per day" - that kind of thing.

There is, however, a secret fear in the 'paid-for' service provider community that 'value-added' public wireless LAN services - not to mention community-based free networks - will gradually become so pervasive and of sufficiently high quality that they will erode the coverage and service level benefits associated with paid-for services. Ultimately, in this scenario, wireless LAN would become like air conditioning: lots of places have it, some places might occasionally gain additional custom because of it but no-one charges extra for it.

No one is concerned about the odd café or library offering its loyal patrons a free ride on the internet - it's the prospect of whole sectors migrating en masse to the value-add model that's got the paid-for guys worried. For example, if 50 per cent of all the hotels with PWLAN hotspots began to offer services free-of-charge it would become extremely difficult for the remaining 50 per cent that do charge to attract or retain customers.

Slowly, due to this competitive pressure, all hotels would migrate to offering free public WLAN services. This might happen equally in airports or coffee shops. This chain of events all but obliterates the prospect of a profitable commercial public wireless LAN business case. But just how likely is it?

We are sceptical about the threat of value-add and free network public WLAN becoming so pervasive that they destroy the value-proposition of paid-for services. This is principally because we see little business logic in airports, hotels and other premises owners going down this path. Undeniably, providing charge-free wireless internet access in hotels or cafes will be popular with customers, may improve a venue's competitiveness and may even provide an indirect return on investment through generating more business.

Offering charge-free services will simplify the network design, installation and management task and its associated costs. However, it does not alter the fact that premises owners are not telecoms service providers - network management and maintenance lies way outside their core competencies and must be paid-for from a third-party. And remember that fat pipe to the internet doesn't come cheaply either.

Besides, why would an airport, a hotel or a coffee shop turn down the opportunity to make money? No other telecommunications services are offered to users free of charge. Dial-up PSTN or Ethernet from hotel rooms, DSL access from airport business centres and even in airline club lounges are all invariably provided as chargeable services, so why should wireless LAN be any different? No reason.

These businesses are not philanthropic organisations - they are there to make money. And which businesses, if offered the chance of an additional revenue stream (and in time, a potentially lucrative one), would turn it down? Very few.

For more information email info@ovum.com or visit http://www.ovum.com/research. Public Wireless LAN: The Business Opportunity - An Ovum Report