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The Money Is There

By | July 26, 2004

      The profit potential of offering a Wi-Fi hot spot is substantial. If a retailer charges an average of $6 per use, beginning with three users a day in the first year and growing to eight per day within three years, a revenue stream of $122,580 would be produced. That revenue would more than offset $62,173 in equipment and other site costs, according to HNS. The per-site margin of $60,407 would generate an internal rate of return (IRR) of 341 percent. Because 85 percent of the site costs are variable, the risk is low, Gandolfi said.

      The DirecWay Wi-Fi system is a proven technology used by Wal-Mart [WMT], Shell, Shoney’s and others to carry communications traffic to more than 350,000 enterprise locations and 200,000 consumer homes. An end user would gain access to the network through an access point that interfaces directly with a laptop, so no internal computer setting adjustments are needed. A quick self-registration process would allow a user to choose the service plan and pricing that best suits his or her needs for Internet access.

      All operational activities associated with a hot spot are handled from HNS’ Network Operations Center (NOC) in Germantown, Md. Billing, collection and customer-service processes also would be performed by HNS, leaving retail personnel to focus on their jobs. Perhaps most importantly, DirecWay Wi-Fi service is considered a “total mile” solution that can deliver 100-percent coverage, Gandolfi told us.

      Broadband access in a retail store adds value to existing customers, it entices new customers and it differentiates one’s brand. It also attracts business users between appointments, and it results in additional traffic and supplemental revenue during non-peak hours.

      Retailers can gather information online about their customers, and they can create a profile of each e-commerce and Wi-Fi patron. Electronic commerce allows the gathering and managing of data to facilitate customer service. The enhanced service will help to build public identity as a “connected” business.

      A wireless local area network (WLAN) and related satellite technology can be used effectively at coffee shops, airports and other hot spots to provide Wi-Fi services. Wi-Fi’s 802.11b wireless Ethernet standard transmits as much as 11 megabits per second. WLANs cost 13 percent of what a 3G network costs, and they provide 11 Mbps versus 2 Mbps for 3G, according to Farpoint Group.

      To roll out Wi-Fi, Starbucks partnered with T-Mobile, while Barnes & Noble began working with Cometa. However, Cometa recently announced plans to suspend operations.

      Internet Engine

      The Internet has been one of the most sensational innovations in history. As of the end of 2003, the International Telecommunication Union (ITU) reported 303.4 million Internet service subscribers worldwide, with 64.7 million of these having broadband access. Although the total number of broadband satellite users is fewer than 300,000, significant growth may start in the near future.

      Satellite broadband became a hot topic when the proposed Spaceway and Teledesic satellite broadband ventures were cleared to proceed by the Federal Communications Commission (FCC), said Roger Rusch, a satellite consultant with TelAstra in Palos Verdes, Calif.

      “It could be said that these proposals were like Helen of Troy,” Rusch said. “They launched 1,000 spaceship notifications at the ITU. Most of the spectacular systems have withdrawn, including once-famous names like Astrolink, Celestri, Cyberstar, GE*Star, Millennium, M-Star, SkyBridge and Teledesic.”

      Early attempts to provide high-speed data services by satellite have been disappointing, Rusch conceded. A number of systems are in service today, including Aramiska, DirecWay, Divona, Hispasat, Intelsat, Satlynx, and StarBand. Eutelsat is filling holes in broadband service by using satellite transmission coupled with Wi-Fi.

      Several dedicated-broadband satellite systems are scheduled for launch in the next year. WildBlue will launch a Ka-band package with 38 Ka-band transponders on the Anik F2 that was injected into space by an Ariane rocket July 17 from Kourou, French Guiana. Spaceway and iPSTAR will be launched within the next year. The DirecTV Group [DTV] plans to use Spaceway for direct-to-home (DHS) broadcasting of HDTV signals into local broadcast markets in addition to providing broadband services.

      Additionally, the European Commission expects to promote broadband services to unserved areas by 2008.

      Business Fundamentals

      New satellite systems face an awkward dilemma, Rusch said. They need to offer low transmission prices but they also must recover large costs.

      “Although players in the value chain are rapidly forging business models to drive the public access market, there remain numerous barriers to mass adoption that must be addressed before ubiquitous mobility can be achieved,” according to the Wi-Fi Alliance, a non-profit group with a worldwide membership. The alliance, formed in 1999 to certify interoperability of WLAN products based on the IEEE 802.11 specification, said the barriers include limited public awareness of Wi-Fi links, inconsistent technical standards at different hotspots and a lack of single-bill roaming agreements.

      Costly problems exist that must be solved if the Wi-Fi market is to grow and prosper, the alliance says. In a report released Feb. 2, it pointed out the Wi-Fi sector also needs to identify and define billing models.

      (Jim Gandolfi, HNS, 858/452-4616; Roger Rusch, TelAstra, 310/373-1925)

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