Over the past two years, the tremendous growth and optimism witnessed throughout the Wi-Fi industry has been the one bright spot in an otherwise depressed technology sector.
Semiconductor and equipment sales have soared, and hardware deployment within both residential and enterprise markets is robust.
Wi-Fi increasingly resembles a bona fide disruptive technology and the hotspot, which uses Wi-Fi to provide wireless Internet access at public locations, will expand this disruption outside the confines of the home and office.
A land grab in now underway, with hotspot operators competing to secure venues that they regard as being the best locations. ARCchart's survey of 206 hotspot operators worldwide - which forms the core data set for this report - indicates that at the end of March there were a total of 18,381 commercial networks around the world.
Analysis of these operator's individual rollout forecasts suggests there will be some 91,000 networks worldwide by the end of 2003.
This aggressive deployment campaign is occurring against a backdrop of low service usage by the end-user, leading to predictions of the hotspot's imminent demise from some corners of the communications industry.
This report sets the record straight - the wireless LAN hotspot is here to stay and the market will continue to grow.
However, our discussions with operators have identified a sense of realism entering the market. There is an acceptance that, for network deployment to be sustainable, it must switch from being supply-driven to being predominantly demand-driven. To defend their position while demand remains low the report outlines the case for hotspot operators to deploy wireless LAN services at near-zero cost by exploiting aspects of a venue's existing infrastructure.
We model global hotspot deployment as a function of end-user demand from 2003, estimating that the number of deployed hotspots will grow to 203,000 worldwide by 2007.
By tracking the industry's evolution since the first hotspot operators emerged in 1999, we identify and discuss four growth stages the market has undergone - experimental, infancy, adolescence and the present stage, maturing.
Maturing of the industry has forced the hotspot value chain to disintegrate (a trend observed to a lesser extent in the Asia Pacific region), with companies taking advantage of scale and efficiencies to specialise in specific areas of the market.
Edge Consult analyses each of these value chain elements: the venue host network management and installation providers turnkey hardware and software vendors hotspot operators network aggregators and the network, infrastructure-free wireless ISP.
The report also discusses the hybrid strategies being pursued by a number of operators, such as Swisscom Eurospot and Wayport.
This disintegration of the value chain is making it easier for carriers, in particular the cellular operators, to enter the market. Wi-Fi and cellular are converging at both a service and a device level. The report analyses the impact the entry of cellular operators has made on the hotspot industry as a whole, in particular to customer ownership and roaming strategies.
We present the case that, of all the companies presently playing in the industry, the cellular carriers are the best positioned to own the hotspot end-user relationship. This is being facilitated by innovations such as SIM authentication and unified billing using platforms such as Excilan. These are well positioned to sit between the Wi-Fi networks and the cellular operators.
The ability for the hotspot user to access the networks of multiple operators through a single billing relationship would undoubtedly drive network traffic. However, as the market stands today, there are barriers to the formation of roaming agreements amongst operators.
The report identifies the three key variables that determine a hotspot operator's prospect of roaming and 16 leading operators are analysed under this construct. Unfortunately for the sector, this demonstrates that the short-term, profit maximising strategy for the individual operator will not always produce the outcome most beneficial for the market, or the end-user.
Effect of competition on the Edge Consult coffee shop model
Traditionally, information asymmetry has given hotspot operators a negotiating advantage over venue owners in the development of the Wi-Fi market. We have found that this gap is now closing and location proprietors are appreciating that the localised nature of 802.11 coverage places them in the position of strength when deciding the venue's hotspot strategy.
To determine the affects of various hotspot strategies on a venue's revenue stream, Edge Consult models the business of an imaginary coffee shop and five hotspot scenarios are applied - three where the service is charged for and two which offers the service for free.
The results show that, on average, profits under the free schemes are 533 percent higher than the paid for services - a result of the higher indirect sales of coffee and food generated by the increased customer traffic lured to the location by the free hotspot service on offer.
Finally, we examine the potential of Bluetooth as a hotspot access technology and the impact this will have on hotspot deployment.
Compatibility issues with Bluetooth are finally being ironed out, and it is seeing integration into a greater range of devices - far greater than Wi-Fi. Mobile phones in particular will see a much higher penetration of this wireless technology than Wi-Fi.
Edge Consult conservatively estimates there will be 617 million portable devices by 2007 with either Bluetooth or Wi-Fi, or both, versus 402 million if only Wi-Fi devices are considered. Integrating this into the network deployment forecast model, Edge Consult estimates that there will be a total of 238,000 Bluetooth and Wi-Fi hotspots worldwide by 2007.