Wi-Fi hotspots burn Toshiba’s fingers

Toshiba Corp. has exited the Wi-Fi hotspot business after just over a year, and will sell most of its network to rival Cometa Networks Inc., the company has announced.

Several hundred wireless LAN installations will be handed over to Cometa in a move Toshiba attempted to sell as a “strategic alliance”. Toshiba America Information Systems will continue to make wireless LAN hardware, but its decision to jump out the hotspot market is just the latest implosion in what is beginning to look like a shakeout, say industry observers.

Hardware vendors, mobile and fixed network operators and start-ups are all rushing to roll out large networks of hotspots, but it is not yet clear how many users will even be willing to pay for hotspot use, analysts say.

Toshiba will stop building new hotspots after activating just 350 — far short of the 10,000 it had originally promised to have online by the end of last year. It is giving individual hotspot locations the option of switching over to Cometa or other service providers if they prefer.

Cometa does not have a very ambitious plan either — it has said it plans to have 800 hotspots running by September, not including the Toshiba network. By contrast, competitor Wayport Inc. last week clinched a deal to install Wi-Fi in 6,000 McDonald Corp.’s restaurants. Toshiba and Cometa had been Wayport’s main competitors for the McDonald’s contract.

Toshiba tried to put a positive spin on the deal, saying its network — SurfHere — had fulfilled its purpose.

“Having helped stimulate the emerging hotspot industry, we believe we can best continue with the strategic intent of the SurfHere Network through this alliance with Cometa Networks,” said Chris Harrington, vice-president for TAIS strategy and business development, in a statement.

The collapse of U.K.-based MyZones, which launched with great fanfare at around the same time as SurfHere, illustrates the difficulty of making Wi-Fi into a paying business, analysts said. “This is part of a consolidation process that is certainly inevitable,” said Robin Duke-Woolley, director of technology consultant E-principles.

Users want to be able to use a single Wi-Fi account at whatever hotspot may be nearby, and consolidation is one way of moving in that direction, Duke-Woolley said. Roaming agreements are another. BT Group PLC’s Openzone, T-Mobile International AG & Co. KG, AT&T Corp., Sprint Corp. and others have all entered into major roaming agreements. Nevertheless, the Wi-Fi world is still a patchwork of incompatible sites, which can mean a frustrating experience for users, Duke-Woolley noted.

Wi-Fi operators are still in the midst of quickly rolling out as many hotspots as possible. T-Mobile said on Wednesday it had activated hotspots in more than 100 Texaco service stations along main U.K. roads; the operator last month more than doubled its network of Starbucks Corp. sites to 154. The Cloud has a large network of hotspots in U.K. pubs, which it provides wholesale to service providers such as BT, Vodafone Group PLC and Orange SA.

Gartner Inc. expects 43,000 hotspots will be in use in Europe alone by 2008. Worldwide there were 40,000 hotspots last year, according to a study from market research firm In-Stat/MDR. So far, hotspot supply has vastly exceeded demand.

In-Stat/MDR’s 2003 survey of business users found that more than half had used a public wired or wireless network, but most had done so less than six times a year.

That situation is likely to change this year, with Gartner predicting 30 million will use hotspots in 2004, up from 9.3 million last year, according to a February report.

Heavier usage won’t necessarily translate into profits. While hotspots in hotels and airports may be able to rake in fees from business users, other sites will find it difficult to charge, industry observers predict. “Some of these (hotspots) will decline, while others will be used heavily. There is going to be a dynamic situation over the next couple of years or so,” said Duke-Woolley.

“Those that don’t pay for themselves could be offered free, as a promotion for the site where they’re based. Others could be taken out. It’s a part of the evolutionary process.”

He said locations in pubs, McDonalds and shopping malls would probably not be able to charge fees.

Besides roaming and consolidation, service providers are also trying to smooth out the user experience by offering WAN and WLAN bundles and aggregate payment services. T-Mobile, for example, recently launched a 3G, GPRS and Wi-Fi bundle for a flat monthly rate. Aggregation companies such as Boingo Wireless Inc. and iPass Inc. offer a single payment system for many different hotspot networks.

For hotspot providers that get the business model right, the rewards could be big. “There is still plenty of money to be made from commercial Wi-Fi revenues,” said Pyramid Research LLC in a report earlier this month. In the U.S. alone, Pyramid said direct Wi-Fi access revenues could exceed US$1.5 billion by 2008.

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