Chapter 8: Economic Aspects of Wi-Fi

Can using 802.11 applications save subscribers money? Can it make money for service providers? Does it significantly lower barriers to entry to the broadband Internet market? The absence of cabling and obtaining rights-of-way are the first indications of potential savings in the installation of a network. Perhaps one of the strongest arguments in favor of 802.11 is that it presents a potential cost-effective means of offering broadband Internet service to a mass market with the least expense in infrastructure relative to wired technologies (twisted-pair copper, coax cable, and fiber to the home). This low cost in infrastructure promotes the deployment of 802.11 services by less well capitalized entrepreneurs, municipal networks, and even free-net community networks built and maintained by volunteers. The growth of 802.11 networks is often described as being "viral" (that is, unplanned) or "grassroots."

The Economics of Wireless in the Enterprise

The economics of 802.11 in enterprise applications should be assessed in two ways: (1) by comparing applications where the wireless network is simply less expensive to deploy than the wired network where both applications perform the same function and (2) by examining situations where a wireless network enables employees to be more efficient. Money saved is money earned.

You Can Take It with You when You Go

802.11 has gained wide acceptance as a technology in enterprise networks. This is because of many reasons, including cost savings, mobility, employee productivity, and possibly layering. The origin of wireless networks rests in the convenience of not having to run Category 5 (CAT 5) wiring in an enterprise environment. The cost of the wire is not so high; the labor to perform the installation, bore holes in the walls, and deface other property to run the wire increases the cost of a wired local area network (LAN) as compared to a wireless LAN (WLAN).

Recall the timeless wisdom regarding death and personal wealth: "You can't take it with you when you go." Although Table 8-1 may not point to an overwhelming financial advantage of wireless over wired networks, one point to remember is that enterprise tenants that deploy wired networks can take it with them when they go. That is, most commercial lease agreements in North America hold a proviso that wired infrastructure must remain in the building when an enterprise tenant vacates the premises (most do so for more advantageous rent). This is a sunk cost that enterprise tenants lose when they move to another building space. A wireless network, on the other hand, is something that is largely, but not entirely, portable. The deployment of a wireless enterprise network gives enterprises greater flexibility when they are shopping for more advantageous rents because they can take their LAN with them when they go.

Table 8-1: A comparison of installation costs: Wired LANs versus WLANs

Cost Component	Cost per Unit	Number of Units Required for a Wired Network	Total Cost for a LAN	Number of Units Required for a Wireless Network	Total Cost for a WLAN
Cisco 1721 Router	$2,000	1	$2,000	1	$2,000
Cisco 3524 Switch	$2,000	1	$2,000	1	$2,000
Dell server	$2,500	1	$2,500	1	$2,500
Laptop with built-in 802.11	$1,500	10	$15,000	10	$15,000
Desktop 802.11 card for a PC	$1,000	1	$1,000	1	$1,000
Printer	$2,000	1	$2,000	1	$2,000
Cisco 350 Access Points	750	0	$0	2	$1,500
Virtual private network (VPN)/encryption	$1,500	0	$0	1	$1,500
T1	$500	1	$500	1	$500
Installation CAT 5 wire drops/runs	$250	10	$4,000	3	$750
Totals			$29,000		$28,950
Note: WLAN equipment pricing may fall faster than LAN gear as technology matures.

Moves, Adds, Changes

Wired enterprise networks are expensive when it comes to moves, adds, or changes for employee seats. For a LAN, the estimated cost for a MAC is upwards of $150 for a computer on the network. When circuit-switched telephony is included, the cost can climb to $500 per seat. As a WLAN recognizes almost any device at almost any location on a network, the costs associated with moves, adds, or changes are largely eliminated.

The Productivity Benefits of WLANs

A recent study conducted by Sage Research revealed that the economic reward of 802.11 networks may not come from a comparison of the costs of infrastructure. Instead, the economic reward comes from the improved productivity of employees using wireless technologies over those who use wired networks. Through interviews with actual WLAN users, this study uncovered WLAN productivity benefits-particularly time savings, flexibility, and quality of work. The following sections detail each of these productivity benefits.

Time Savings In today's high-pressure world, no one can dispute that time is money. The strongest, most quantifiable benefit to using WLAN is time savings. Based on primary research, actual WLAN users indicate that, on average, a WLAN user can save up to eight hours per week versus a wired LAN user. Of course, time savings equates to monetary savings. Using these figures, on average, a WLAN user saves his or her organization $260.50 per week due to time savings.^[1]

WLANs enable users to save the most time when responding to e-mail. This is especially true for IT professionals. In fact, an employee within the IT department could receive over 100 e-mails each day. By accessing the WLAN while in meetings, in the cafeteria, or at other locations, employees are often able to catch up on their e-mail while doing other things.

Not only does the WLAN user save time, but other hard-wired employees also save time indirectly. For example, a mobile employee may not need to call a colleague to obtain information. Instead, the mobile user can access the LAN via a wireless connection and obtain the information. Likewise, a nurse working on one floor of a hospital may need access to patient information. Instead of calling the administrative assistant or receptionist, the nurse can access the patient's file on the LAN by using a wireless device. As discussed in the following two sections, by using a WLAN, both the quality of work and flexibility improve in this scenario. These soft benefits that drive WLAN adoption often cannot be quantified.^[2] Table 8-2 provides some examples of organizations that are saving time by using WLANs.

Table 8-2: Time and money saved using wireless networks

Organization Type	Types of WLAN Users	Average Time Saved	Average Money Saved
Government	Executives and IT	5 hours a week per user	$150 a week per user
Healthcare	Nurses	15 hours a week per user	$472 a week per user
Finance	Executives and IT	15 hours a week per user	$750 a week per user
Source: Sage Research

Flexibility Another benefit to deploying WLANs is the flexibility they offer users. WLAN users are able to access the LAN from a variety of traditional areas inside their building(s) as well as nontraditional areas-sometimes even outside their building(s). Table 8-3 shows the various locations, in order of the most common to the least common, where users access their organization's LANs wirelessly.

Table 8-3: Locations where 802.11 access enhances employee, visitor, and vendor productivity

WLAN Access Inside the Premises	WLAN Access Outside the Premises
Conference room	Home
Offices	Another job site
Meeting room	Warehouse
Shipping and receiving room	Train
Inventory area	Bus
Distribution center	Library
Cafeteria	Airport
Training room	Athletic field or gym
Classroom	Restaurant or coffee shop
Vendor lobby (guest access)	Hotel
Source: Sage Research

This broad coverage gives users the flexibility to work at their desks or move unencumbered throughout the organization while remaining fully linked to the network. It should be noted that WLAN deployment varies from organization to organization.

Quality of Work In addition to flexibility and time savings, many users report that the quality of their work has improved by using a WLAN. The greatest benefit on this front is accuracy. For example, let's say a government employee is responsible for keeping track of drums of nuclear waste. In the days before WLANs, a scientist would need to count the drums by hand and record the number on paper. An administrative assistant would then enter the data into a server-based application at a later date. This produces an incredibly large margin for error. Now, with access to the WLAN, the scientist can use a handheld scanner to read bar codes that are placed directly on the waste drums. By doing this, a great deal of data is fed in real time directly to the server. This has increased accuracy tremendously-instead of knowing where 70 percent of the waste is located, they are now able to know where 99.9 percent of the waste is located.^[3]

Another Economic Aspect of Wireless Networks: Vo802.11 in the Enterprise

Efficiencies introduced into a workplace by wireless networks should not be limited to data applications. Vo802.11 introduces some aspects that also save significant time and effort in the workplace, as discussed in the following sections.

Responsiveness to Customers Customers inevitably expect quick answers to their questions about order status and desire flexibility in responding to changes in orders. Companies with Vo802.11 telephones (one of many 803.11 applications) have found that those telephones improve their service to customers. One method of documenting this value is to estimate the value of retained customers. Companies often know the average profit per customer per year. Through interviews with employees, they estimate the number of customers they anticipate retaining as a result of improved responsiveness to customer concerns. Often, if they can retain one or two customers per year, they will achieve significant dollar savings. This is illustrated in the following example:

• 2 customers retained a year × $5,000 average profit per customer = $10,000 savings

Many companies do not have this high average dollar profit per customer. However, those companies usually have many more customers, so their estimate of the number of customers retained tends to be higher. See the following example:

• 1 customer retained a week × 52 weeks a year x $100 average profit per customer = $5,200 savings per year

Supervisor Time Savings It takes supervisors a significant amount of time to get to an available wall or desk phone within large facilities. For example, 20 seconds lost walking both to and from a wall phone is not a lot of time, but when it happens 20 to 30 times per day (not unusual), it adds up. Companies have conducted time and motion studies like the following:

• 20 seconds to and from the wall phone = 40 seconds saved per call

• 25 calls per day × 40 seconds saved per call = 1,000 seconds saved per day

• 1,000 seconds saved per day per 3,600 seconds a hour = .278 hours per day per supervisor

• .278 hours per day per supervisor × 8 supervisors = 2.22 total hours saved per day

• 2.22 hours saved per day × $15 salary per hour = $33.30 saved per day

• $33.30 saved per day × 300 workdays per year = $9,990 saved per year

In this example, $9,990 is saved per year just because supervisors did not have to find an available wall phone.

Efficiencies in the Maintenance of the Production Line Maintenance personnel are some of the most enthusiastic users of Vo802.11 telephones. Vo802.11 telephones enable them to be notified and respond to production line malfunctions immediately. They also enable the maintenance supervisor to repair machinery using both hands while receiving instructions on the Vo802.11 telephone directly from the machinery manufacturer's technical specialists. This eliminates errors and wasted time spent walking to and from a wall phone after each repair instruction. The continuous operation of production lines is vital to companies. Most companies know what the value of production is per hour. For example, one manufacturer claimed that if the production line goes down, the company loses $1,000 of production per hour. To attach specific dollar savings, supervisors asked their maintenance engineers to highlight specific instances where the Vo802.11 telephones have been utilized and then estimated the number of minutes saved. Their valuation of this benefit looked like this:

• The minutes saved per repair = 15 minutes = .25 hours

• The frequency of repairs where wireless telephones made a significant difference = 1 time per week

• The value of production per hour = $1,000 per hour

• The dollar value of efficiencies = 25 hours × 1 time per week × $1,000 per hour = $250 per week × 52 weeks a year = $13,000 total savings per year

Vo802.11 Telephone System Cost Justification in the Workplace

The following paragraphs describe how Vo802.11 saves enterprises money. Vo802.11 makes managers more efficient and thus saves their employers money.

Cost Savings from Immediately Answering Calls from Long-Distance Customers When customers or suppliers are statewide or national in scope, their long-distance telephone bills are significant. By immediately answering incoming calls from customers and suppliers, companies save the cost of returning those long-distance calls later. The following calculations illustrate this cost saving:

• Average dollar cost per long-distance call = $2.50

• The number of long-distance calls per day per supervisor not made due to the use of SpectraLink Wireless Telephones = 2

• The number of supervisors = 6

• The number of workdays per year = 300

• Dollar savings = $2.50 × 2 × 6 × 300 = $9,000 per year

Savings in Interoffice Telephony: A Case Study of Amber-Waves WISP Vo802.11 AmberWaves is a WISP in northwest Iowa. One of their clients has 3 offices with 35 employees, which are linked by an 802.11 network. The greatest distance between the offices is 19 miles. Calls between the offices are long distance, which retails at 10 cents per minute in this rural community. Data circuits are not inexpensive here either.

AmberWaves has equipped customers with 802.11 wireless bridges to connect the LANs in the three offices. By adding a voice over Internet Protocol (VoIP) gateway, the company was able to route their interoffice phone traffic onto the 802.11 network between the three offices. This meant all traffic that previously went over the Public Switched Telephone Network (PSTN) was diverted to their internal 802.11 network, saving them money on both local phone bills (no need for a large number of lines to serve the 35 employees) as well as eliminating their interoffice long-distance expenses.

This wireless network enables the firm to be its own internal data and voice service provider. The use of Vo802.11 frees the firm from local and long-distance telephone bills (see Figure 8-1). The end users report that the quality of service (QoS) on the network is better than the frame relay circuit they previously used.^[4]

Figure 8-1: Using Vo802.11 in interoffice telephony saves on both local and longdistance phone bills.

It is useful to apply Figure 8-1 to Table 8-4 to see how this company has saved money on their telecommunications expenses in bypassing local telephone service providers.

Table 8-4: Worksheet for determining potential savings in bypassing local and long-distance telephone service providers

Number of Phone Lines (T1 and DS3) per Office That Could Be Replaced with Vo802.11	Cost per Month of Phone Lines That Could Be Replaced by Interoffice Vo802.11	Total Savings per Office per Month
Office A
Office B
Office C
Total Savings

Enterprise Conclusion

One can save money in many ways in an enterprise environment using 802.11. Although many economists might focus on the hard and fast comparison of wired versus wireless, the real savings initially appear less tangible, making a return on investment (ROD or net present value (NPV) analysis a little more challenging. When employee mobility and efficiency are taken into account, the savings quickly add up. In situations where Vo802.11 can be employed, an even more tangible financial case for deploying 802.11 can be made when comparing the costs of wired versus unwired phones on the corporate LAN or wide area network (WAN).

^[1]Interviewees were asked to estimate the amount of time WLANs save an average user per week. Interviewees were also asked to estimate the average annual salary of a WLAN user. Based on this data, the average WLAN user saves $260.50 per week in time savings, although savings ranged from $30 per week per user to $750 per week per user. This data is for directional purposes only and should not be considered statistically significant due to the small number of interviews that were conducted.

^[2]"Wireless LANs: Improving Productivity and Quality of Life," a white paper from Sage Research, www.sageresearch.com, May 2001.

^[3]"Wireless LANs: Improving Productivity and Quality of Life," a white paper from Sage Research, www.sageresearch.com, May 2001.

^[4]Brent Bierstedt (CTO of AmberWave Communications), telephone conversation, November 20, 2002.