[FoRK] NYTimes.com Article: Where Entrepreneurs Go and the Internet Is Free

khare at alumni.caltech.edu khare at alumni.caltech.edu
Sun Jun 6 17:28:22 PDT 2004

The article below from NYTimes.com 
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khare at alumni.caltech.edu

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Where Entrepreneurs Go and the Internet Is Free

June 7, 2004


SAN FRANCISCO, June 6 - Linda Branagan would seem to be the
ideal customer for entrepreneurs and telecommunications
companies looking to make money selling wireless Internet
connections. But, like thousands of business road warriors,
Ms. Branagan often does not pay for the service because she
gets it free. 

At cafes, malls and downtown business districts, there has
been an explosion of Internet access points, or Wi-Fi hot
spots, that let computer users log on to the Internet for
free. That growth is a fundamental reason - though not the
only one - that technology start-ups, investors and
industry analysts who had high hopes for Wi-Fi are
scrambling to find sustainable business models. 

Ms. Branagan, a director of a medical device research
company, pays T-Mobile, a unit of Deutsche Telekom, $6 an
hour for a wireless Internet connection when she is in
airports if there are no free access points. But it is
another matter when she is working outside the office in
San Francisco. 

"The Internet is free here," she said, as she sat doing
research at The Canvas, an art gallery with a lounge and
cafe setting in San Francisco's Sunset district. "Why would
I pay T-Mobile?" she asked, when the cafe owners provide
free Internet access to attract patrons. 

The number of Wi-Fi hot spots has grown rapidly in the last
year, with as many as 15,000 in operation in public
locations, according to the Yankee Group, a market research

But the difficulty of making a profit was made evident last
month with the demise of Cometa Networks, a well-heeled
Wi-Fi start-up backed by I.B.M., the Intel Corporation and
the AT&T Corporation. Cometa, founded in 2002 to build a
network of access points at retail outlets, announced on
May 19 that it would suspend operations because it was not
providing a suitable return to investors. Verizon Wireless,
which said last year that it would build 1,000 Wi-Fi hot
spots in Manhattan, has cut that number to around 500. 

Meanwhile, thousands of free hot spots have been
established by public agencies, mom-and-pop businesses
hoping to attract customers and individuals working to
build a grass-roots based network. A handful of city
governments, some in cooperation with local businesses, are
deploying free Wi-Fi networks in parts of Jacksonville,
Fla., lower Manhattan and Portland, Ore., among other

"It's going to be hard for commercial carriers to make a
profit," said Dewayne Hendricks, the chief executive of
Dandin Group, a wireless Internet service provider based in
Silicon Valley, who serves as technical adviser to the
Federal Communications Commission on wireless Internet

Mr. Hendricks said the remarkable spread of free networks
was forcing commercial carriers to rethink their

"The infrastructure is being built from the bottom up," Mr.
Hendricks said, referring to a municipal and grass-roots
effort to deploy wireless connections. "How that plays out
is potentially monumental," he said in affecting the way
Internet access is provided. 

Each Wi-Fi hot spot has a radio transmitter and receiver
that is connected to the Internet through a broadband
connection like a digital subscriber line, or D.S.L. The
transmitter communicates with personal computers and
enables them to send information to, and receive
information from, the Internet. The transmitters typically
have a range of 150 to 1,000 feet, though there is new
technology emerging that could send a signal over several

Because transmitters can be on different networks, a dozen
or more hot spots can operate simultaneously in any given
area, providing overlapping coverage. The connections do
not interfere with each other because they are working on
different radio channels. For users in big metropolitan
areas like New York City and San Francisco, a free
connection can almost always be found on blocks where hot
spots are dense. 

Even so, not all companies selling Wi-Fi service are
struggling. T-Mobile, for one, has a well-established and
profitable business model, said Roberta Wiggins, an analyst
with the Yankee Group. 

T-Mobile has 4,650 Wi-Fi hot spots in Kinko's, Borders
Bookstores, hotels, airports and Starbucks cafes, and it is
adding 35 a day, the company said. Last week, it announced
plans to deploy hot-spot connections in 122 Hyatt Hotels in
North America. Users pay $9.95 for single-day access,
$29.99 for a monthly access to all hot spots in the network
or $19.95 a month if they are customers of T-Mobile's
cellphone service. 

The company would not disclose how many customers it has,
or its revenue or profits. But Joe Sims, general manager of
T-Mobile's Wi-Fi business, said, "We fully expect to make
money in the public hot-spot business." He noted that the
company has learned some important lessons - namely, that
the hot spots need to be in locations with heavy traffic
from business customers and that a profitable Wi-Fi
business needs to build a national network and brand that
will give users the ability to log on at a variety of
locations using the same service. 

In the case of T-Mobile, he said, the company is keeping
costs low by having the Wi-Fi division and its mobile-phone
business share an underlying data network, as well as the
network operation and customer call centers. Mr. Sims also
he said the company is exploiting its brand name by
marketing the wireless connection service to its existing
cellphone customer base of 14.3 million users. 

Mr. Sims said he is not worried about the growth in free
hot spots because he believes commercial networks can offer
more reliable, more secure Internet access. Free service is
fine for casual and periodic use, he said, but "when you
absolutely, positively have to get that report downloaded
or get access to your company system to conduct business,
free probably isn't going to cut it." 

Indeed, when Ms. Branagan, 37, travels for business, she
said she pays T-Mobile on an hourly basis for Internet
access, mostly while waiting in the United Airlines Red
Carpet room, where there is no free option. She added that
she probably would sign up for a longer-term plan if the
service were less expensive. 

Sitting beside her at the San Francisco cafe was Paul
Hagen, 39, who runs a technology consulting company. Mr.
Hagen said he would consider subscribing to a Wi-Fi plan if
there were a provider that offered universal access to hot
spots everywhere. 

That challenge - giving consumers the ability to pay for a
single plan that covers hot spots in a variety of locations
- may be essential to growth in the service, according to
industry analysts. 

In the cellphone industry, universal access is accomplished
by "roaming agreements" that let the customers of one
mobile-phone provider use the network of a competitor. Most
roaming agreements in the Wi-Fi business, said Mr. Sims of
T-Mobile, are still relatively limited. 

In other respects, too, the Wi-Fi business may well go the
way of other telecommunications services, said Ms. Wiggins
of the Yankee Group, in that it could become dominated by
telecommunications companies that already sell cellular,
Internet and landline phone services in bundled plans. 

SBC Communications Inc., the regional phone company based
in San Antonio, previously said it would roll out 3,000 hot
spots by the end of next year, largely at UPS retail
outlets. And in an announcement planned for Monday, SBC
said it plans to offer access in 6,000 McDonald's outlets
around the country. 

The cost is $19.95 a month for unlimited access. But
Michael Coe, an SBC spokesman, said the company ultimately
planned to offer a substantial discount to its existing
customers. He said that SBC did not expect its hot spots to
become a stand-alone business, but rather an offering along
side cellular, Internet and land-based telephone service. 

While Wi-Fi "offers a revenue generating opportunity," he
said, "it's real benefit to SBC is as a customer retention
and acquisition tool." 



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