Three Business Models for Public Access Wireless LANs

1
Three Business Models for Public Access Wireless
LANs

• Chris Marsden
• Annenberg School
• 19 November 2003
• Draft for comments to
• ctmarsden_at_yahoo.co.uk
• 44 777 926 0376

2
Case Studies in Property Rights in Free Spectrum

• Academic authors have typically concentrated on
• Standards Lehr McKnight, Croxford Marsden
  (2001)
• Spectrum Cave (2001)
• Developing technology in peer networks and mesh
  networks Shirkey, Benkler, Lessig (2001-2)
  Werbach, Sawhney, Sandvig (2003)
• This comparative law and economics study is of
  market developments

3
LANs and WANs

• Wireless public access markets are dominated by
  licensed oligopolists
• Typically voice-dominated even Euro SMS and
  DoCoMo Japan have only 10-25 data revenues
• WAP was crap, picture messaging stillborn
• Hutchinson 3 has 250,000 UK and 500,000 Italian
  subscribers Vodafone launching mid-2004
• Verizon launched San Diego and DC October
• Video phone and video download not killer
  applications - yet

4
Whats different about LANs?

• Short range high bandwidth 11Mb\s-54 Mb\s
• Mass market for base stations very cheap
• Backhaul on ADSL not dedicated leased lines
• dependent on country, e.g. 256Kb/s in Spain,
  8Mb/s in Japan, S. Korea, urban Sweden
• Security and roaming less advanced
• Note holes in WEP but look at USC security!
• Standards single, global, unified, American
• WiFi and WiFi5 with 802.11g interim
• European standards dormant both HIPERLAN and
  HIPERLAN2
• Spectrum messy but workable, and FREE

5
Economic Case for WLANs

• No spectrum cost
• Minimal backhaul cost varies with business case
• Minimal base station cost 400-700
• Seamless networking unnecessary
• Data not voice IP and hotspot use
• Network security, roaming and interface IP-based
  intelligent device
• Device simply add-on to laptop/PDA corporate
  user installed base

6
Case Against WLANs

• Extreme short range in-building effectively
• Sharing only 5Mb/s bandwidth in WiFi devices 20
  users maximum
• 5Mb/s dependent on premises having multimegabit
  backhaul leased line in US, EU
• Security still poor for most users
• Start-ups have no subscribers or billing
• No real alternative to 3G or wire broadband
  supplement model

7
3 ModelsWiFi as 3G Complement

• Parameters
• Partnership model
• With host locations and 3G networks
• Billing and subscriber management
• SIM-GSM interoperability
• Software integration
• User interface
• Hardware integration
• Security and QoS VoIP or video capable?
• Backhaul costing and integration

8
Boingo Classic Aggregator

• Earthlink philosophical foundation
• Santa Monica 1601 Cloverfield Boulevard
• Start-up with strong VC support Mitsui, Sprint,
  Infonet
• T-Mobile has 3314 locations in US 50 in UK!
• Claims 5100 hotspots (1900 live)
• 1700 US, 2500 UK, 500 other Europe
• but UK agreement is not roaming, just
  location-finding
• 468 California, 75 New York State
• 53 NYC, 25 cafes, 19 hotels
• 118 UK, 12 Ontario
• 47 hotspot partners including Telecom Italia
• Earthlink and Fiberlink ISP partners
• 3 months free for Centrino laptop purchasers

9
Boingo Unique Characteristics

• Earthlink model and financing secured
• Very California-centric culture
• Using network of WiFi enthusiasts for value
  proposition
• Is Silicon Valley duplicable in Santa Monica?
• Caffeine addiction and Starbucks focus
• Invented here!
• Intel and T-Mobile support
• Aggregator has roaming but no genuine national
  let alone international network

10
Boingo Transferable Knowledge

• Aggregation creates critical mass
• First mover advantage
• Very solid financial backing
• Simplicity focus on end user
• Software and systems integrator
• Branding of network and hotspots
• Boingo in a Box
• Additional activities solely to pump-prime market
• Verizon and T-Mobile using WiFi to stop DSL churn
  so why pay 22 a month for Boingo?

11
The Cloud Unique Characteristics

• Inspired Broadcast Networks uses gambling fruit
  machine installed base from Leisure Link
• 90,000 in 30,000 locations, 12,000 payphones
• 3000 hotspots end-2003 21,000 further orders by
  end-2006
• Pubs are European cafes so different?
• Critical mass of users creates scale economies
• Wholesale unbranded network
• Backhaul solution belongs to parent
• Expansion into Europe (probably France)
• Based on local network and presence

12
The Cloud Lessons for Others

• Backhaul costs critical
• Symbiotic relationship with telco each is the
  others largest customer
• Openzone is biggest retail customer
• MyCloud orders 20,000 DSL lines for franchisees
• Franchisees see WiFi as add-on to basic xDSL
  need updating pub quiz games
• No branding black box product
• High QoS
• Including VoIP to cannibalize 3G revenues
• Arguably only BTOpenzone would allow this

13
KTNespot Unique Characteristics

• Worlds most advanced broadband users
• Broadband must-have with universal appeal
• Triple play with 3G mobile and xDSL
• Note regulatory constraints in retail
• Backhaul on incumbent parent network
• VDSL at 8Mb/s available to consumer
• National coverage declared at outset
• First mover demolishes competition

14
KTNespot Lessons for Others

• Leveraging dominance
• Triple play replicable for e.g. Orange, KPN,
  T-Mobile, DoCoMo in French, German, Dutch and
  Japanese markets
• First mover already used by Swisscom Mobile and
  Austria Telekom
• Focus on low consumer price point requires
  massive subscription
• Difficulty of using terminal equipment holding
  back subscription

15
1. Partnership model -franchisees

• Boingo aggregator 5100 locations
• The Cloud wholesale network 20,000 projected
• Korea Telecom integrator 25,000
• Backhaul franchisee pays B C, KT uses parent
  network
• Role of fixed networks BT as sponsor through BT
  wifi initiatives

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1. Partnership model - backhaul

• Backhaul is highest cost
• Base stations ideally require dedicated 11 Mb/s
• That in UK costs 50,000 per annum
• In South Korea 50 per month
• Typically 512Kb/s ADSL dedicated business lines
  at 50-100 per month
• Franchisee pays

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1. Partnership model - wireless

• Boingo and Telecom Italia
• The Cloud and BT, NWP Spectrum
• Korea Telecom and regulators SKMobile
• Verizon-Vodafone and Orange fence sitters
• Whats the price point for mobile data?

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2. Billing and subscriber management

• Weroam GSM-SIM authentication from Togewanet
  clearing house
• TeliaSonera-Swisscom deal includes Megabeam UK,
  WLAN AG, Service Factory, Homerun.
• Note Nespot charges 9 a month above 27 DSL
  charge 250,000subs

19
3. Software integration

• Boingo interface 24 hour promise
• Systems integrator as primary business focus
• The Cloud using
• Service Factory (TeliaSonera interest)
• Sun Microsystems virtual WISP
• Nespot private network only

20
4. Hardware integration

• Centrino co-operation with all 3
• Boingo in a box
• The Cloud My Cloud

21
2004 Market Developments

• National networks in UK and Korea
• Centrino chipsets industry standard with critical
  corporate user mass
• 802.11g usable in East Asia and Canada
• Requires 50Mb/s xDSL for optimal use
• WiFi moving into PDAs
• 3G roll-out will they use hotspots?
• Having built the ballpark, will they come?