When Wi-Fi (or wireless fidelity) appeared two years ago, it was mostly the province of startups. They provided the "hot spots" where anyone could piggyback onto an already established broadband connection and get on the Net wirelessly, as long as they had a wireless card or a Wi-Fi chip built into their laptops. Since then, Wi-Fi has expanded from a grassroots movement into a mainstream way to reach the Net from airports, hotels, cafés, businesses, and homes -- and big tech companies have taken notice.
Back in 2002, chipmaker Intel (INTC), phone company AT&T (T), and computer giant IBM (IBM) created a consortium to provide hot-spot service. More recently, established phone companies have started to play catchup: Today, every self-respecting carrier has a Wi-Fi strategy and sells the service, usually for around $30 a month.
Now, the phone giants are hatching a strategy to dominate Wi-Fi service, a business that market researcher Pioneer Consulting expects to reach $4.75 billion in worldwide annual revenue by 2007. They're entering the game with advantages such as large numbers of customers already using high-speed digital subscriber line (DSL) service at home -- and who thus may pay extra for a DSL modem that includes a Wi-Fi antenna.
The phone companies will play their real trump card this year, when several of them -- including Verizon Wireless and SBC Communications (SBC) -- will begin offering widescale Wi-Fi service combined with access to new cellular networks they're creating for data services such as e-mail.
Starting this summer, says Ross Ireland, chief technology officer at SBC, the nation's largest DSL provider, his company will allow many customers to switch between networks -- Wi-Fi or cellular -- when working on their laptop or personal digital assistant (PDA). How would this work? What else is cooking in SBC's labs? Ireland answered these and other questions from BusinessWeek Online reporter Olga Kharif on Feb. 3. Here are edited excerpts of their conversation:
Q: Where is Wi-Fi technology going?
A: While Wi-Fi already offers tremendous value in the home and the office, the real value comes in the next evolution. The next change we'll introduce is an integrated way to use Wi-Fi with an advanced wireless network we call GPRS-Edge.
Today, it's nice having high-speed wireless Internet access, but the coverage isn't ubiquitous. I can't get service unless I'm near a Wi-Fi hot spot. Starting sometime in the summer, however, you'll be able to buy a package from us that includes not only this capability but also our cellular service. So then, you'll have ubiquitous coverage: cellular service, with speeds of 100 to 200 kilobits per second, will be nearly everywhere, and Wi-Fi, with speeds of perhaps 2 megabits per second, will be in your home and office and in some public locations.
We think that's the best value proposition for customers. Using cellular networks for data-rich tasks such as sending PowerPoint presentations might be too expensive. For those, it might make sense for our customers to use the Wi-Fi part of their service package.
Q: How would this work?
A: Many people already have Wi-Fi-capable wireless devices, such as laptops and PDAs. We'll make a special piece of software available for download onto these devices. The software will tell you when you're in a Wi-Fi hot spot and when you're in the GPRS coverage area.
Initially, if you move from one location to the other, the software won't automatically select a connection -- you'll have to manually choose the connection you want. But what I'd really like to have -- and what we're working on -- is seamless transfer, so the move from Wi-Fi to cellular is automated, and the customer doesn't have to do anything. You'll simply have an icon pop up that tells you that you've moved out of a hot spot and are now on a cellular network. My hope is that this will be available later in the year.
Q: Verizon Wireless has also made plans to roll out such an integrated Wi-Fi-cellular service. Why do you think you're better positioned?
A: We're in a better position because we are the largest DSL provider in the nation. We outsold Verizon by about two-to-one in DSL in the fourth quarter -- and broadband is a prerequisite for having a Wi-Fi network and Wi-Fi service.
We see Wi-Fi not really as a wireless service but as a wireline-transport product that has a small wireless component. The way Wi-Fi works, the radius of the Wi-Fi device is fairly small: Indoors, it's about 150 feet. The real opportunity here is putting this on existing wireline service: a pay phone, a DSL-enabled phone in your home, your business line -- to enhance that service, if you will, by allowing customers to use their broadband access while walking around the house, for instance.
Q: So, is there any extra money in Wi-Fi for SBC?
A: We sell products, like DSL, that can be Wi-Fi-enabled into the home and businesses. We also play in the public hot-spots market: We'll have 20,000 hot spots built in 6,000 venues by 2006. Plus, we've partnered with existing Wi-Fi networks, such as Wayport. And we have an ownership position in No. 2 U.S. wireless service provider Cingular.
We can make all these products more valuable to the end user by offering them as a bundle, so the customer sees a seamless service. We think that's where the real business opportunity is. That's the superglue.
Q: How do you differentiate your Wi-Fi offering?
A: The way we differentiate our offering is through our capabilities to deliver a great customer experience. These can be little things. For instance, many people who build Wi-Fi networks don't turn the security feature on. But we check for this, and we can help a company [that has such a network] manage security. We have a laboratory of some 200 engineers, including wireless engineers. So we can help customers use Wi-Fi technology most effectively.
Q: As you try to enhance your customers' experience with Wi-Fi, are you also working on improving Wi-Fi's speeds? There seems to be a lot of buzz surrounding that.
A: You have to remember that Wi-Fi technology today is running in unlicensed spectrum. Because of that, it has relatively low power and a relatively small footprint. I actually think that's O.K.: It's the reason it's so cheap.
The current technology is capable of running as high as 10 or 11 megabits per second, but a lot depends on the speed of your underlying broadband pipe -- your DSL. In a business environment or hot-spot environment, the cost of running Wi-Fi beyond 10 megabits per second is going to be pretty steep, and it's not clear to me that that's the best value proposition.
Q: Many businesses seem to also be looking at using Wi-Fi for voice applications -- basically, to make calls over the Web instead of using a cellular network. Are you looking at that?
A: Voice over Wi-Fi is an interesting technology that we like quite a lot. We're testing a couple of different manufacturers' dual-mode phones that support voice over Wi-Fi as well as voice over regular cellular networks.
The one piece that's missing is that the current Wi-Fi technology isn't equipped for the quality of service that would allow you to guarantee, under all conditions, the voice connection. So you would have to either build something that's proprietary or overengineer the network to allow for better service quality -- which we've also looked at.
Or, you could wait for some of the newer Wi-Fi technologies that include the type of quality parameter that's required for a voice connection. So voice over Wi-Fi is something we're looking at, but it's at least one year away.