Subject: [NEXTEL-1] Wi-Fi Internet Access Is Hot, but Its Profit Potential Is Tepid

From: Marcel <[email-masked]>
Date: Mon, 09 Dec 2002 15:54:24 -0500

December 9, 2002

Wi-Fi Internet Access Is Hot, but Its Profit Potential Is Tepid

With the Wi-Fi wireless Internet access standard becoming a bandwagon that even big
players like AT&T, I.B.M. and
 Intel are joining, equipment companies big and small are hoping to ride along. But many
industry analysts say it could be
hard to make money in Wi-Fi, which is unlikely to represent more than a tiny fraction of
the overall telecommunications
equipment market for at least several years.

Many of the early leaders in Wi-Fi are obscure companies like Proxim, Buffalo, Linksys and
Dlink. And those that do not sell
gear directly to consumers must rely on selling to Wi-Fi service providers that are
themselves start-ups still trying to find their
way, companies like Boingo Wireless, HereUAre Communications, FatPort and Surf and Sip.
The service providers set up "hot
spots" at places like airport lounges or Starbucks coffee shops, where anyone with a
laptop computer or other device equipped
for Wi-Fi can go online.

While analysts hesitate to predict that any of these companies will survive to become
widely recognized brands like Netscape,
the resemblance to the Internet craze of the 1990's has been widely noted.
"There is a bit of a bubble here," said Dylan Brooks, a wireless communications analyst at
Jupiter Research. "We've had more
than $2 billion in venture capital money flowing in, more than total revenues."

Most of those ventures are destined to flop, analysts say. Even established technology
companies — like Cisco Systems, the
leading seller of Wi-Fi gear; Symbol Technologies; and the Hewlett-Packard Company — face
an uphill battle to earn profits
with Wi-Fi because competition is driving prices down so rapidly.

Meanwhile, specialty chip makers like Intersil, Broadcom and Agere have been facing
growing competition in the Wi-Fi market
from their counterparts in Asia. And with Intel leading the charge to make Wi-Fi part of
every device that carries an Intel
processor, business may be tough for companies like Intermec Technologies and Linksys,
which have been making some of their
money from Wi-Fi adapter cards sold separately to computer owners.

With prices of Wi-Fi chips and networking equipment plummeting even as unit sales are
soaring, the industry's revenues are not
expected to top $3 billion — 1 percent of the worldwide market for telecommunications
equipment — before 2006, according
to Synergy Research.

Wi-Fi received perhaps its biggest publicity push yet when Cometa Networks, a new company
whose backers include Intel,
AT&T and International Business Machines, said last week that it would roll out a
nationwide wireless network for Internet
access based on Wi-Fi.

The term Wi-Fi is shorthand for wireless fidelity. Wi-Fi covers a set of design rules
formally known as 802.11, which were
developed by the Institute of Electrical and Electronics Engineers, a nonprofit group.

The 802.11 standards differ from another fast-growing new wireless standard called
Bluetooth in that they are best suited for
transmitting data over distances of up to a few hundred feet instead of just a few feet.
The most popular Wi-Fi variant at the
moment, 802.11b, is also much faster than Bluetooth, operating at up to 11 million bits
per second — or about eight times the
speed of D.S.L. and cable modems. But today's Wi-Fi chips are power-hungry, making them
less practical for small devices like hand-held computers or cellphones.

Companies are racing to come up with innovative antennas that extend Wi-Fi's range, chip
designs that increase its speed and,
by adapting software developed to make free phone calls over the Internet, methods to
carry voice as well as data traffic on
Wi-Fi networks. But whether the innovation can be translated into profits is far from
clear. As with other forms of high-speed, or broadband, communications, consumers may
embrace Wi-Fi only to the extent that they can figure out how to pay little or
nothing for it.

Nearly all major business users are experimenting with Wi-Fi, but they are not buying
nearly as many Wi-Fi installations as small businesses and homeowners are. That is bad
news for vendors because a big corporate customer often pays $1,000 or more for an access
point, compared with $200 or less for the simpler setups.

"Most corporations are holding back because the suppliers cannot provide good security or
tools for closely monitoring how the networks are performing," said Stan Schatt, a
wireless analyst for Giga Information Group, which advises many large companies on
communications technology.

So far, of an estimated two million potential Wi-Fi sites at commercial sites like stores,
gasoline stations and restaurants, only
about 3,000 have been installed, according to Sky Dayton, Boingo's founder, who spoke last
week at an industry conference in
Santa Clara, Calif. Some entrepreneurs say the potential market includes apartment
buildings and small office buildings.

HereUAre, which is based in Menlo Park, Calif., intends to locate Wi-Fi access sites in
apartment buildings and charge residents
$29.95 per month. "It costs us an average of $7 per customer to set up," said Benedict
Van, president and chief executive of the eCapital Group, the investment firm that
controls privately held HereUAre.

"There is no way the cable and phone companies can compete," said Mr. Van, who wants to
take the company public and then
sell it to a large broadband provider. But Mr. Van is not confident enough to borrow
heavily to finance a rapid expansion.

Many analysts initially predicted that Wi-Fi would undercut the expensive effort of major
carriers to build out new cellphone
networks capable of delivering video and other streams of data to hand-held devices. Now
some are arguing that Wi-Fi and
cellphone technologies may end up working together to spur demand for such services and
cut the costs of delivering them.

In such a world, the communications giants that operate wide-area networks may very likely
become controlling partners, if not
the outright owners, of localized Wi-Fi networks in order to manage their broadband
business efficiently.

"The more attention it gets, the more the big players get involved," said Andrew Seybold,
an analyst whose company, Outlook 4Mobility, follows wireless communications. "It's not an
industry that is going to create the next Netscape or the next Microsoft."

http://www.nytimes.com/2002/12/09/technology/09WIFI.html?ei=5040&en=ef718fafbf484ffb&ex=1040101200&partner=MOREOVER&pagewanted=print&position=top

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