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LONDON—A few interesting events made last week a great one for Europes Wi-Fi boosters.
Monday started with BT announcing a hefty expansion of its hotspot network in London and across parts of the United Kingdom; and the product-free launch of 3, the U.K. and Europes first 3G operator.
Next, Broadcast Networks and Leisure Link, provider of amusement machines to pubs, announced a 30,000-location network of hotspots across Britain in what is to be called The Cloud. Finally, on Friday, Swisscom announced its acquisition of Megabeam, one of the earliest pan-European WLAN backbone operators offering service in hotels, airports and other public spaces, to build its Swisscom Eurospot business.
In the space of a week, progress in this sector, which had lagged in Europe, achieved the sudden burst of popular interest currently in the United States; Wi-Fi seems to have jumped from dirt track to autobahn.
With the Swisscom move, operators are sure to begin laying their Wi-Fi cards on the table throughout the spring months, especially since interest in 3G operator 3 has been muted. Now a battle of big regional operators is shaping up, reminiscent of what we saw in the mobile phone and data markets in the past three years. Big operator battles of this sort are usually accompanied by infrastructure spending and heavy marketing—two things the marketplace needs in the current economic climate.
The mishmash of business models is likely to be layered, as it has been in the U.S., with direct competition between charging operators business services and a melee of different “free” public models mixed with regional pay offerings.
Theres been much talk of Wi-Fi being a complement to 3G. However, the dearth of users currently clamoring for 3G means large operators may deem packages that bridge GPRS and Wi-Fi an expensive sidetrack, at least for the time being.
A Substitution Effect
The problem that Europe faces with Wi-Fi, along with 3G and other mobile data services, is that it is a complex patchwork of user behavior, both business and personal, that occurs within a geographically fragmented area. Penetration rates of data-ready mobile devices, availability of comprehensive suites of application services for businesses, and business practices that accommodate widespread usage of both, vary widely from country to country. Europe lacks the sort of sizeable entrepreneurial small-business class that in the U.S. equips and seeks out solutions itself, the kind of mobile professionals who are propping up T-Mobiles relationship with Starbucks in the US, for example.
Instead, the market is comprised of small tribes of creatives or professionals in urban centers that may not have the disposable income to afford wireless laptops and iPaqs, along with an equally small and fragmented number of DIY road warriors–estimated at 6 percent of the market by one data house. Most of the potential market for “pay” Wi-Fi has been anchored to the increasingly capable, data-enabled mobile phones on offer across Europe.
This may be about to change. The magic bullet? At the top of the market, it will take time for business Wi-Fi usage to spread, as companies wait for some stabilization of the market and where the networks of hotspots materialize. Hotspots arent ubiquitous enough yet to give the kind of predictability needed to encourage the investment in access and hardware for many companies.
However, interesting things are happening at the level of “free-to-user” public Wi-Fi. In the same way the advent of the free dial-up access model jolted the industry into growth here in the late 1990s, free public Wi-Fi, combined with innovative usage models and locally packaged services, could stand to give the industry a similar kick start.
Despite the harrumphing coming from the fixed-line incumbents and large mobile operators, the free-to-user model for Wi-Fi in Europe is sustainable enough for the foreseeable future, say small operators and retailers who are currently partnering to offer it in limited rollouts. In addition, making broadband so easily available in public places as an amenity should spread the value of the technology, much as satellite TV in pubs and bars did for that sector. It has the potential to educate the public about the benefits of broadband, fill geographical gaps where it is still not available, and put it closer to the millions of potential users who still cant get broadband to the home in parts of Europe.
Two U.K. players are pushing versions of the free-to-user model in the U.K. at the moment, and they are taking aim at market segments that dont want to pay $50 to $80 a month for access. Wialess.com, based outside London in St. Albans, is building its business around wiring pubs and bars. In central London, an area dense with young, mobile professionals, café chain Benugo has partnered with service provider Broadscape to offer competition to the nearby branches of coffee houses Costa Coffee and Starbucks that offer pay models. Around Europe, similar businesses are popping up to wire the innumerable public gathering spots where professionals and students gather.
Strange Bedfellows
While they may ultimately be competitors, both companies have a common raison dêtre: Broadscape director Theo Platt agrees with Wialess.coms marketing director Brian Parker that public Wi-Fis user base mainly comprises DIY road warriors and work groups from local offices at the moment. This works against large national operators, who hope users will want a national name and network but are currently placing their hotspots in “destination” locations such as hotels and airports, rather than local gathering areas or on the way to local meetings. And both are seeing happy customers in the café and bar—clients who are finding the systems easy to swallow and quick to pay for themselves with minimal fuss.
Love them or hate them, what the large operators are doing (along with Intel, Microsoft, McDonalds, Starbucks and their ilk) is providing marketing budget for the entire nascent Wi-Fi industry, both in the U.S. and Europe. Brand-name recognition is very important in the European market as a whole, since users in this region are less likely, in general, to make a large investment in a service run by an unknown name, but do feel comfortable making free or low-cost usage of a service that is associated with known names.
As happened with the free ISP boom of the late 1990s in Europe, there is still plenty of room for free public Wi-Fi to take off and grow; the economics of running these services remain favorable thanks to low equipment costs for both provider and user—costs likely to drop as usage increases. And, like the free ISP wave, these independent operators probably have two to three years to grow their businesses, spreading Wi-Fi as a model along the way.
The smart ones will do as their fixed-line predecessors did: grab good real estate and build a user base, then wait to sell out to the big operators when the time is right. In the meantime, the European market will get a needed shot in the arm from a new source, and most importantly, usage will be stimulated.
Scott Smith is Managing Partner of Cumulus Research Partners, a London consulting firm that specializes in helping companies understand the social impact of new technologies.