Does a Dynamic Duo Make Good Business Sense?

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Until recently, providing wireless data connectivity was brutally difficult, but thanks to Wi-Fi, now it's relatively simple. The technology exits to support the architecture for a dynamic duo relationship. But is there a good business model for such a pairing? Many within both industries are asking themselves just that question.

While there are many different business models for HotSpots and their integration with cellular networks, there are many issues that need to be settled. How will the cellular operators price Wi-Fi services? How will they integrate Wi-Fi connectivity into their marketing and telecom infrastructure? How should wireless operators and other vendors in the Wi-Fi "value chain" bundle Wi-Fi airtime with complementary hardware, applications, and other telecom services? Finally, how can Wi-Fi's with its limited range provide a pervasive communications network?

Here's how the Dynamic Duo might work. Comprehensive Wi-Fi coverage will be provided in densely populated areas, but in rural areas coverage will be more porous. Wi-Fi has a limited transmission range, so in less populated areas, establishing base stations every few hundred feet or meters is not feasible.

Wi-Fi will provide stationary "sit-down" broadband access while cellular networks will offer voice calls and narrowband data services. For example, a Sprint PCS subscriber could log onto the Boingo Wi-Fi network and see a Sprint PCS splash page and vice versa. John Stanton, CEO of Deutsche Telekom (DT) subsidiary T-Mobile, thinks that a dynamic duo makes perfect business since, "It's coverage where they want it and speed where they need it."

Perhaps the biggest challenge to a pairing of these two technologies is the establishment of a new value chain where all the partners are adequately compensated-a particularly tricky undertaking given the flat-rate and free nature of many Internet services. "There has been tremendous value erosion. One of the biggest challenges for operators is finding a financially viable model," at least according to Umesh Amin, director of new technologies and planning for AT&T Wireless. In the end, traditional cellular carriers will aim for an uneasy truce between the two industries with the hope that upstart Wi-Fi operators will rescue the future of their 3G networks.

South Korea, home of some of the most advanced and popular wireless data services, is already seeing the effect of the dynamic duo. In February 2002, Korea Telecom (KT), the nation's largest telecommunications company, started selling Wi-Fi access in addition to its regular cell phone service. The company has installed 1000 access points in major cities and plans to put in thousands more. In order to stay competitive, Hanaro Telecom installed numerous access points in places such as Burger King restaurants.

According to Hahn Won Sic, managing director of the fixed-mobile convergence business team at KT, Koreans expect high speed Internet in their homes and offices. He says, "They want to be able to get it everywhere." But Wi-Fi subscriptions haven't skyrocketed, although KT is forecasting 3.6 million Koreans will by using the networks by 2005.

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