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Three Business Models for Public Access Wireless LANs

Chris MarsdenAnnenberg School

19 November 2003Draft for comments to:

ctmarsden@yahoo.co.uk+44 777 926 0376

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Case Studies in Property Rights in ‘Free Spectrum’

Academic authors have typically concentrated on: Standards – Lehr & McKnight, Croxford & Marsden

(2001) Spectrum – Cave (2001) Developing technology in peer networks and mesh

networks – Shirkey, Benkler, Lessig (2001-2) Werbach, Sawhney, Sandvig (2003)

This comparative law and economics study is of market developments

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LANs and WANs Wireless public access markets are

dominated by licensed oligopolists Typically voice-dominated – even Euro SMS

and DoCoMo Japan have only 10-25% data revenues

WAP was crap, picture messaging stillborn Hutchinson ‘3’ has 250,000 UK and 500,000

Italian subscribers – Vodafone launching mid-2004

Verizon launched San Diego and DC October Video phone and video download not killer

applications - yet

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What’s different about LANs?

Short range high bandwidth 11Mb\s-54 Mb\s Mass market for base stations – very cheap Backhaul on ADSL not dedicated leased lines

dependent on country, e.g. 256Kb/s in Spain, 8Mb/s in Japan, S. Korea, urban Sweden

Security and roaming less advanced Note holes in WEP but look at USC security!

Standards: single, global, unified, American WiFi and WiFi5 with 802.11g interim European standards dormant both HIPERLAN and

HIPERLAN2 Spectrum – messy but workable, and FREE

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Economic Case for WLANsNo spectrum costMinimal backhaul cost – varies with

business caseMinimal base station cost – $400-700Seamless networking unnecessaryData not voice – IP and hotspot useNetwork security, roaming and interface

IP-based – intelligent deviceDevice simply add-on to laptop/PDA –

corporate user installed base

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Case Against WLANs

Extreme short range – in-building effectively Sharing only 5Mb/s bandwidth in WiFi

devices – 20 users maximum 5Mb/s dependent on premises having

multimegabit backhaul – leased line in US, EU

Security still poor for most users Start-ups have no subscribers or billing No real alternative to 3G or wire broadband –

supplement model

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3 Models:WiFi as 3G Complement

Parameters:1. Partnership model

With host locations and 3G networks

2. Billing and subscriber management SIM-GSM interoperability

3. Software integration User interface

4. Hardware integration Security and QoS – VoIP or video capable? Backhaul costing and integration

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Boingo; Classic Aggregator

Earthlink philosophical foundation Santa Monica: 1601 Cloverfield Boulevard Start-up with strong VC support & Mitsui, Sprint,

Infonet T-Mobile has 3314 locations in US – 50 in UK! Claims 5100 hotspots (1900 ‘live’):

1700 US, 2500 UK, 500 other Europe but UK agreement is not roaming, just location-finding

468 California, 75 New York State 53 NYC, 25 cafes, 19 hotels 118 UK, 12 Ontario 47 hotspot partners including Telecom Italia Earthlink and Fiberlink ISP partners 3 months free for Centrino laptop purchasers

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Boingo – Unique Characteristics

Earthlink model and financing secured Very California-centric culture

Using network of WiFi enthusiasts for value proposition Is Silicon Valley duplicable in Santa Monica?

Caffeine addiction and Starbucks focus Invented here! Intel and T-Mobile support Aggregator has roaming but no genuine national

let alone international network

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Boingo – Transferable Knowledge

Aggregation creates critical mass First mover advantage

Very solid financial backing Simplicity focus on end user

Software and systems integrator Branding of network and hotspots Boingo in a Box

Additional activities solely to pump-prime market Verizon and T-Mobile using WiFi to stop DSL churn – so

why pay $22 a month for Boingo?

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The Cloud – Unique Characteristics

Inspired Broadcast Networks uses gambling ‘fruit’ machine installed base from Leisure Link 90,000 in 30,000 locations, 12,000 payphones

3000 hotspots end-2003; 21,000 further orders by end-2006

Pubs – are European cafes so different? Critical mass of users creates scale economies

Wholesale unbranded network Backhaul solution belongs to parent

Expansion into Europe (probably France) Based on local network and presence

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The Cloud – Lessons for Others

Backhaul costs critical Symbiotic relationship with telco – each is the

other’s largest customer Openzone is biggest retail customer MyCloud orders 20,000 DSL lines for franchisees

Franchisees see WiFi as ‘add-on’ to basic xDSL need – updating pub quiz games

No branding – black box product High QoS

Including VoIP to cannibalize 3G revenues Arguably only BTOpenzone would allow this

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KTNespot – Unique Characteristics

World’s most advanced broadband users Broadband must-have with universal appeal

Triple play with 3G mobile and xDSL Note regulatory constraints in retail Backhaul on incumbent parent network VDSL at 8Mb/s available to consumer

National coverage declared at outsetFirst mover demolishes competition

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KTNespot – Lessons for Others

Leveraging dominance: Triple play replicable for e.g. Orange, KPN, T-Mobile,

DoCoMo in French, German, Dutch and Japanese markets

First mover already used by Swisscom Mobile and Austria Telekom

Focus on low consumer price point requires massive subscription

Difficulty of using terminal equipment holding back subscription

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1. Partnership model -franchisees

Boingo – aggregator = 5100 locationsThe Cloud – wholesale network = 20,000

projectedKorea Telecom – integrator = 25,000Backhaul – franchisee pays B + C, KT

uses parent networkRole of fixed networks – BT as sponsor

through BT wifi initiatives

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1. Partnership model - backhaul

Backhaul is highest costBase stations ideally require dedicated 11

Mb/sThat in UK costs $50,000 per annumIn South Korea $50 per monthTypically 512Kb/s ADSL – dedicated

business lines at $50-100 per monthFranchisee pays…

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1. Partnership model - wireless

Boingo and Telecom ItaliaThe Cloud and BT, NWP SpectrumKorea Telecom and regulators – SKMobileVerizon-Vodafone and Orange – fence

sittersWhat’s the price point for mobile data?

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2. Billing and subscriber management

Weroam – GSM-SIM authentication from Togewanet ‘clearing house’

TeliaSonera-Swisscom deal – includes Megabeam UK, WLAN AG, Service Factory, Homerun.

Note – Nespot charges $9 a month above $27 DSL charge – 250,000subs

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3. Software integration

Boingo interface – 24 hour promise Systems integrator as primary business focus

The Cloud – using: Service Factory (TeliaSonera interest) Sun Microsystems – virtual WISP

Nespot – private network only

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4. Hardware integration

Centrino co-operation with all 3‘Boingo in a box’The Cloud – ‘My Cloud’

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2004 – Market Developments

National networks in UK and KoreaCentrino chipsets industry standard with

critical corporate user mass802.11g usable in East Asia and Canada

Requires 50Mb/s xDSL for optimal useWiFi moving into PDAs3G roll-out – will they use hotspots?Having built the ballpark, will they come?