A hot spot of Wi-Fi disappointment in China

Despite an initial wave of hype, Wi-Fi hotspots, which let users access the Internet using 802.11 wireless LAN technology, haven’t turned into the lucrative revenue source that Chinese fixed-line telecommunications operators expected.

“On the whole, Wi-Fi is not going to be the immediate cash cow everyone thought it would be,” said Glyn Truscott, a consultant at BDA China Ltd., a Beijing consultancy that tracks China’s telecommunications industry.

China isn’t the only country where Wi-Fi hotspots have fallen short of bullish expectations. In many Asian markets, including China, hotspots just haven’t drawn large numbers of consumer users, said Tim Crowley, research manager for broadband research at IDC in Hong Kong.

“It’s region-wide, for the consumer market the movement (towards using hotspots) is not as strong as people thought it would be,” Crowley said, noting that South Korean operators have bucked this trend, drawing large numbers of consumer users to their hotspots.

In Beijing, China Network Communications Group Corp. (China Netcom) offers Wi-Fi access at Starbucks coffee shops dotted throughout the city. But the service is hampered by a lack of familiarity with the service among Starbucks staff and a poorly-designed payment system that first requires users to buy an access card, Truscott said.

“In many cases, Starbucks staff don’t know if they have Wi-Fi and even if they do you can’t buy the cards there,” he said.

Instead, users must first visit a China Netcom customer service centre to buy an access card, at a cost of 30 renminbi (US$3.62) per hour, before they can access the Internet from a hotspot. Since there aren’t many of these customer service centres around, users are more likely to stumble across one of the hundreds of Internet cafes in Beijing before they find a shop that sells hotspot access cards.

“You’d have to be a very good customer to use their Wi-Fi services,” Truscott said.

Things didn’t have to be this way. China Netcom should have struck a deal with Starbucks to offer wireless Internet access for a limited period of time, perhaps 30 minutes, with the purchase of each cup of coffee. “If they had done that instead of making people pay 30 renminbi for a cup of coffee and another 30 renminbi for Wi-Fi access, I’d buy two or three cups of coffee instead of just one,” Truscott said.

Wi-Fi hotspots were supposed to be a valuable revenue source for Chinese fixed-line operators faced with declining appeal for traditional wireline services. China Netcom had rolled out 120 hotspots by September of last year but has added just 29 more hotspots during the last nine months, Truscott said.

This slowdown in hotspot deployments is the result of several factors, including low adoption rates and uncertainty over Chinese government plans, now shelved, to introduce a national standard for WLANs that was not compatible with 802.11, Crowley said.

China Netcom isn’t the only fixed-line operator that has struggled with Wi-Fi hotspots, but at least the company has had a unified strategy for rolling out wireless Internet services. Rival operator China Telecommunications Corp. (China Telecom) has relied on local subsidiaries to roll out hotspots and doesn’t track exactly how many hotspots the company offers in China, Truscott said.

The China Telecom hotspots that have been established are spread throughout southern China, with the greatest concentration located in Shanghai.

In Shanghai, the local China Telecom unit, Shanghai Telecommunications Co. Ltd. (Shanghai Telecom), has done a relatively good job of rolling out wireless Internet services, setting up a total of 339 hotspots in the city, up from 129 in September 2003, Truscott said. The service offering received a boost from an early promotion that offered free hotspot access for Shanghai Telecom’s asynchronous digital subscriber line (ADSL) users.

For 20 renminbi per month, Shanghai Telecom would rent a Wi-Fi router and access card to ADSL customers who could then access the Internet for free from the company’s wireless hotspots. That promotion has since ended and the rollout of additional hotspots in Shanghai — which has more hotspots than any other Chinese city — has slowed, Truscott said.

“They’ve seen some good growth but they haven’t seen any migration from the home users to hotspot users,” Crowley said, noting that hotspots are used mostly by business users.

“That market is not as big as you would think it would be,” Crowley said.

If fixed-line operators haven’t been able to build a successful business around Wi-Fi hotspots, China Mobile Communications Corp., the country’s largest mobile operator, has demonstrated that it can be done.

While other operators have slowed rollouts of Wi-Fi hotspots, China Mobile has added 518 hotspots nationwide over the past nine months, bringing its total to 1,431 hotspots, Truscott said, noting the operator has been more aggressive than expected in rolling out Internet hotspots.

The key to the success of China Mobile’s hotspot business is its payment system, Truscott said. Users that want to access the Internet from one of China Mobile’s hotspots simply enter their China Mobile telephone number. The operator then sends an Short Message Service (SMS) message with a password to the user’s cell phone. The cost of accessing the hotspot is billed to the user’s phone account, Truscott said.

Looking ahead, mobile operators like China Mobile and China United Telecommunications Corp. (China Unicom) are likely to roll out more hotspots as handsets that offer Wi-Fi access become available, Crowley said.

For now, the future of hotspots in China remains unclear. While deployments have slowed down in recent month, the market for these services could grow as the number of hotspots increases and operators refine and improve their service offerings.

“I don’t really think (hotspots have) been a disappointment, but I was kind of conservative,” Crowley said, adding he doesn’t expect to see hotspots take off in China until operators can work out roaming agreements that will allow users to access the Internet from different hotspots — something that has yet to happen.

“It’s a market that still could have a lot of potential, we’ll just have to wait and see,” he said.

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