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JANUARY 30, 2003 NEWSMAKER Q&A A Wi-Fi Payoff from Pay Phones? John Donavan of wireless consultancy InCode Telecom explains how these relics can provide an ideal way for carriers to enter the market
Carriers are in a great position to take advantage of the Wi-Fi phenomenon, since much of the operating cost comes from offering customer service and doing billing, says Craig Mathias, president of wireless consultancy Farpoint Group. The carriers also already own some of the real estate that can be used to offer Wi-Fi access -- and real estate charges account for up to 30% of Wi-Fi hot-spot costs. The big question, however, is: What's the best way for carriers to get into the Wi-Fi business? RICH MARKET. In December, Bell Canada and wireless consultancy InCode Telecom unveiled a Wi-Fi pilot service that combines the new technology with an almost quaint vestige from telecom's past: They converted selected pay phones in Canadian airports and train stations into Wi-Fi access points, allowing multiple customers to access the Internet from up to 300 feet away. If the service, which is free for now, proves popular, Bell Canada will install more access points throughout Canada, says John Donovan, president and CEO of InCode, based in La Jolla, Calif. The trials, which will last through the spring, "are going extremely well," Donavan says. And he expects other carriers, particularly in the U.S., to look into converting their pay phones into access points as well. That would allow carriers to enjoy a substantial cost advantage over specialized ISPs, Donovan says. Plus, they'd be able to turn a money-losing business into a highly profitable one, he argues. With cell phones proliferating, pay-phone use is way down -- as is the number of pay phones. So, installing access points into some of the remaining machines could be the carriers' first step into the Wi-Fi business, which promises to be rich. Public Wi-Fi hot spots will generate $1.63 billion in revenue in North America by 2007, up from $82 million in 2003, according to marketing consultancy Yankee Group. Donovan talked about Bell Canada's project with BusinessWeek Online Reporter Olga Kharif on Jan. 23. Edited excerpts of the interview follow: Q: How much does it cost to convert a pay phone into a hot spot and operate it, vs. a hot spot created from scratch? A: A traditional Wi-Fi hot spot in the U.S. gives 30% of its revenue to the real estate owner. But with a pay phone, that won't be required, because the phone company already has a right to do business. Plus, the minimum telecommunications charge for carrying the traffic to a Wi-Fi hot spot can be as much as $500 a month. We won't have that cost, either. These are two of the most significant costs to deliver the service. Q: When you convert a pay phone into a hot spot, does it still continue to function as a phone? A: Because these pay phones are deployed mostly in locations with multiple pay phones, and because the volume of pay phones has gone down, we disable just one of the available pay phones and replace it with an access point. We could offer both the capabilities of a pay phone and a hot spot, but we want to make sure that people can very quickly find where a hot spot is. So we've chosen to brand them as AccessZones and make them very visible. Q: Many specialized wireless ISPs, like Wayport, have been offering Wi-Fi in airports and train stations in the U.S. for several years. How are service providers, moving into this field late, going to be able to catch up? A: Actually, the startups are going to have a hard time competing with the service providers. The startups have to establish new billing relationships with customers. Also, oftentimes, these are not well-branded companies. With many of them, the coverage isn't great. But, most important, a CIO [chief information officer] can't just go and select one of these companies for a broad set of computing and communications needs -- and [that's what most CIOs want]. Service providers offer that. They can also install hot spots on corporate campuses. Service providers also have more flexibility when it comes to pricing. The startups have to pay freight to the real estate owner. If you put a Wi-Fi hot spot into a hotel, you pay that hotel 30% of your revenue. But service providers will have much lower costs of deployment -- and much more flexible pricing. More important, Wi-Fi will be part of their overall offering to an enterprise and not a new service. Q: How do you choose the phones on which to install Wi-Fi? A: We chose the phones by simply going to the largest customers of the Bell Canada phone business and asking them where they want them. We polled the top-20 customers and found the points where we could serve the most customers. There was a lot of demand for locations where people wait: convention centers, train stations, airport terminals. Within a given train station, we would select the pay phones for hot spots in the areas where we think customers congregate, where they'll be able to sit and access data. At the airport it would be, for instance, international flight terminals, where people have to arrive two hours early and want to download that last bit of e-mail before they get on that eight-hour flight. Q: Why are you doing a pilot instead of a full-blown installation? A: With new services, there's often a difference between what customers say and what customers do. That's why the trial is a free trial. We want to do customer interviews on-site. We have the technology in place to monitor usage, so we could get a sense as to whether people find greater value in few bigger sessions -- a one-price, [unlimited] plan -- or if they'd simply like to pay for usage. We didn't want to guess and guess wrong, and frustrate the customer. The trials are going extremely well. Q: What are some of your findings so far? A: We're finding that our customers see hot spots as an extension of their enterprise network -- and use the same applications. Many [Wi-Fi operators and analysts promote] new video applications and those sorts of things, but we find that it's much more about office functionality, such as e-mail. People also tend to need longer sessions and lower bandwidth [vs. analysts' who expected that customers would use Wi-Fi only for quick downloads of bandwidth-thirsty applications like video]. Q: Are you seeing a lot of interest in deploying Wi-Fi from any other carriers, particularly in the U.S.? A: Yes. After [we announced this pilot], we've seen a lot of activity by phone companies. I think that you'll find that most wireless carriers will begin to evaluate their involvement in hot spots as a strategy to augment their high-speed wireless networks. They might affiliate with a startup already offering Wi-Fi services or buy some of these emerging wireless ISPs. Every regular phone service or wireline company will also establish a Wi-Fi strategy. The average corporate customer is picking up the phone and calling his wireline carrier and asking for mobility solutions for his workforce that's out and about. Q: Which carriers -- wireless or regular phone companies -- are in a better position to make money off of Wi-Fi? A: They both have the ability to benefit from it. But there are certain natural benefits that accrue to wireline carriers. The first is their distributed network. The second is the ability to send out maintenance and installation crews. If you're going to serve an enterprise customer, much of the servicing has to occur on that client's campus, and many of the regular phone carriers already have organizations that provide land services. If you're a wireless carrier, you have to go out and acquire that capability to be able to install hot spots in your customers' offices. Q: Do you think replacing pay phones with access points would be the way to go for most wireline carriers? A: I think they're the best answer for hot spots. But there are some technical challenges. Canada is beautiful because Bell Canada has such a broad coverage and because it has data capabilities in all of its pay phones. But if you go to Chicago's O'Hare International Airport, it's not as straightforward. Many of the phones would be older models with just voice capabilities. If I had to speculate, probably about a third of the phones in the good locations -- such as airports and train stations -- are old, voice-only phones.  Edited by Patricia O'Connell Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | JANUARY |
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