Why Wi-Fi Wont Fly - Page 2

Investment Worries

Having watched numerous broadband operators crash and burn, venture capitalists are reluctant to plunk down the money it would take to build these networks. Howard Anderson, senior managing director of YankeeTek Ventures in Cambridge, Mass., has already lost a few million dollars on one Wi-Fi investment and doesnt want to try another. "Its an interesting technology, but I dont think theres a viable business model," he says.

Meanwhile, the public markets are in no mood to fund commercial Wi-Fi services either; not after having seen hundreds of billions of dollars evaporate with the collapse of WorldCom, Global Crossing and the like. And cellular carriers, whom many in the Wi-Fi industry believe will come to their rescue, are too busy holding their own heads above water to spend money creating an entirely new national service any time soon.

Several large companies—including IBM, Intel, AT&T Wireless, Verizon Communications and Cingular—are said to be discussing the possibility of creating a national Wi-Fi service. But the talks, dubbed "Project Rainbow," have not been publicly confirmed by those involved. A spokesman for AT&T Wireless says the company is looking at Wi-Fi, but one of the challenges of creating a national Wi-Fi service is that no one has put together a financial model thats economically feasible.

That hasnt stopped a number of entrepreneurs from trying. Austin, Texas-based WayPort is one of the largest Wi-Fi operators, with sites in the public areas of 450 hotels and four airports. But expansion has slowed considerably in the last nine months. WayPort used to build and operate Wi-Fi networks in hotels at no cost to the hotels, even kicking back a portion of the subscription revenue to the hotel. "Who wouldnt take that deal?" asks Dave Vucina, CEO of WayPort. Turns out that model is no longer viable. Now WayPort will put in a new hot spot only if the hotel pays the cost of the T1 line and base stations. "The capital markets changed, which caused us to revisit our business," says Vucina. Other casualties include MobileStar Network Corp., once one of the fastest growing Wi-Fi operators, which was forced into Chapter 11 bankruptcy last fall after failing to secure additional financing.