Sprint, Google, Microsoft, Huawei, TWC and others tap into aggregated Wi-Fi - but revenues remain lethargic


A wide range of major companies including Sprint, Google, Time Warner Cable, Huawei and potentially Microsoft are collecting Wi-Fi hotspots as a way to further their respective business goals. In the case of Sprint and TWC, it's to expand and improve coverage. For Huawei, it's to help sell more phones. And for Google and Microsoft, it's likely a way of making their respective digital services stickier and more accessible.

Whatever the reason, companies in the technology space are increasingly seeing Wi-Fi as an important piece of their long-term corporate strategy. And that in turn is creating new demands for more and more public Wi-Fi hotspots that can be aggregated together to form a rudimentary, patchwork, nationwide wireless network.

However, some of the companies that are doing the actual work of aggregating those hotspots don't have much to show for their efforts--at least, not yet.

Sluggish revenues for Wi-Fi aggregators

Founded in 1996, iPass has aggregated close to 20 million Wi-Fi hotspots around the globe into a network access pass that it sells to large companies, governments and even wireless carriers--indeed, the company in 2010 inked a cellular offload deal with MetroPCS. But iPass CEO Gary Griffiths said recently that iPass' cellular-to-Wi-Fi offload business never did gain much traction. "I would say that the carriers have been a bit schizophrenic about Wi-Fi offload," he said. "It's still viable, but to be candid it's tough for us because the margins are so slim for us" because iPass doesn't own Wi-Fi hotspots and instead just resells them.

Lowenstein

Wi-Fi offloading is "not really where the [wireless] operators want to be," said Mark Lowenstein, an industry analyst who is managing director of Mobile Ecosystem and a FierceWireless contributor.

Lowenstein said wireless carriers' business models are completely geared toward encouraging users to buy larger and larger buckets of cellular data. Thus, there's little reason for them to embrace Wi-Fi offloading since it generally gives users more data that they don't have to pay extra for. Lowenstein said that those operators that have made use of Wi-Fi--Sprint and T-Mobile US--have done so to either improve their coverage or to ease the strain on their cellular network. Thus, wireless operators generally have used Wi-Fi "dynamically," Lowenstein said, or when it best suits their strategy--rather than as a core element of their offerings.

Partly due to its inability to build a Wi-Fi offload business, iPass put itself up for sale last year, but the company failed to find any willing buyers. "The most important learning we've taken from it is that it was too early in the development of our Open Mobile Platform and the broader market opportunity over the long term to attempt to sell iPass at this point," said iPass Chairman John Beletic in a surprisingly candid February press release announcing that the company had finished its "strategic alternatives review process" and would remain an independent company.

As part of its efforts to remain an independent company, iPass announced in May it would cut 14 percent of its workforce.

Boingo is another major player in the Wi-Fi business. The company owns and operates a network of roughly 1 million Wi-Fi hotspots across the country, and it sells access to that network directly to businesses and consumers as well as to wireless carriers and other players under a wholesale model. So far, though, Boingo's wholesale Wi-Fi business hasn't generated much traction: The business accounted for just 14 percent of the company's revenues--or around $4.2 million--in the first quarter of this year, significantly trailing Boingo's distributed antenna system business and its direct-to-consumer Wi-Fi sales.

Towerstream is another company hoping to build a business around renting out Wi-Fi hotspots. The company manages around 1,000 hotspots in New York City, Chicago and Miami with the goal of renting those hotspots to other corporate customers as a "neutral host provider." However, Towerstream reported just $788,000 in revenues from its "shared wireless" business unit during the first quarter, far behind the $7.2 million in revenues it earned from its core fixed wireless business.

But Wi-Fi still seen as a growth market

Despite the relatively paltry revenues that some players are earning from Wi-Fi, those in the industry continue to argue that the future is bright.

"As Wi-Fi continues to be viewed as a long-term platform for the delivery of mobile data in voice traffic, we expect to see continued interest in our Wi-Fi network," said Joseph Hernon, Towerstream's CFO, during the company's recent quarterly conference call with investors. Seeking Alpha offers a transcript of the event.

Indeed, iPass in just the past few months has signed major Wi-Fi deals with the likes of HP, Huawei and Microsoft. Specifically, HP is giving its notebook and tablet customers in Asia Pacific and Japan free access to the iPass global Wi-Fi network, with the potential to expand that offering to the rest of the world. Similarly, Huawei is embedding iPass service into its smartphones, starting in Asia and potentially expanding beyond--Huawei was the world's fourth largest smartphone vendor in the first quarter, according to IDC.

And in February, iPass and Microsoft inked a "long-term agreement to offer global connectivity to users of certain Microsoft products and services." Griffiths declined to provide details on the agreement, but it's reasonable to assume that it will play a part in Microsoft's rumored "Microsoft WiFi" service, which has been described as offering "hassle-free Internet access around the world" so users can be productive on the go."

Griffiths

"There's a lot of stuff going on with Microsoft," acknowledged Griffiths.

Griffiths attributes part of iPass' renewed vigor to its introduction earlier this year of unlimited Wi-Fi service (the company previously billed Wi-Fi customers based on their usage).

"People were worried about running up the bill," Griffiths said of iPass' metered pricing. "You want your users using your product as much as they can."

He said that, by changing to an unlimited model, iPass can generate more traffic on Wi-Fi hotspots and then negotiate better deals with hotspot owners like Towerstream. "It was very much a scale argument," he said, explaining that, with increased usage, iPass could, for example, negotiate Wi-Fi access contracts down to 2 cents per MB rather than 6 cents per MB.

"We think that we can dramatically improve increased costs across the industry," Griffiths said. He added that, when iPass adds free Wi-Fi hotspots into its network, it can then offload its high-usage customers onto those access points if they are available. iPass plans to roughly double the number of hotspots in its network by the end of this year by adding free hotspots to the mix.

Towerstream too sees a bright future in Wi-Fi. "Our Wi-Fi traffic has grown at a rapid pace. Our traffic was approximately 16 TB per month a year ago and is now at 32 TB and growing. We believe we are becoming an important part of the mobile network traffic in New York City," said CEO Jeffery Thompson during the company's recent quarterly conference call, as noted by Seeking Alpha's transcript of the event.

Towerstream's main Wi-Fi customer is Time Warner Cable, which resells Towerstream's Wi-Fi hotspots in New York City to its own TWC customers.

"We manage the entire Wi-Fi network," explained Towerstream's Arthur Giftakis, SVP of the company's engineering and operations. "You'd be surprised by the amount of players that are either on our [Wi-Fi] network or interested in getting onto our network." However, beyond TWC, Giftakis declined to disclose Towerstream's Wi-Fi customers.

Giftakis explained that Towerstream's Wi-Fi business is much like the cellular tower business: The company first builds an access point in a specific location and then offers that to a service provider. Towerstream's customers "can rent Wi-Fi on a per AP [access point] basis or you can pay for the tonnage, the usage," he said. "The majority of our [Wi-Fi access point] deals are rent based, similar to a Crown Castle or an American Tower."

Giftakis said Towerstream continues to build out new Wi-Fi hotspots based on customer demand, though he declined to provide details.

Boingo too said it is seeing increased interest in its Wi-Fi wholesaling business. In April, Sprint inked a major offloading deal with Boingo that will allow up to 40 million Sprint handsets to auto-authenticate with Boingo Wi-Fi hotspot connections at no additional charge to the user.

Wi-Fi is now "a complementary fourth layer of our network (the first three layers being our 1.9 GHz, 2.5 GHz, and 800 MHz spectrum bands)," according to outgoing Sprint CTO Stephen Bye.

Boingo has also pointed to American Express as an important Wi-Fi customer; American Express offers its credit card users access to Boingo's 1 million Wi-Fi hotspots.

Of course, any discussion of Wi-Fi aggregation must make mention of the nation's cable companies, which in 2012 announced the CableWiFi Alliance that offers roaming among their respective public Wi-Fi hotspots. And the companies continue to build out their respective public Wi-Fi footprints--Charter Communications CEO said that part of the company's proposed $56.7 billion bid to buy Time Warner Cable involves expanding its Wi-Fi footprint in homes and public spaces. "I think that's a long-term opportunity of the industry and one that's enhanced by this combination," Charter CEO Tom Rutledge told Bloomberg recently.

Specifically, Charter has promised to build 300,000 public Wi-Fi hotspots if its purchase of TWC is approved.

Another recent entrant into the space is Google. The company said its new Project Fi MVNO "automatically connects you to more than a million free, open Wi-Fi hotspots we've verified as fast and reliable. This technology helps keep your speed high and your data bill low--whenever you're on Wi-Fi, you're not charged for data usage." Google hasn't provided details on its Wi-Fi network, including whether it is relying on one or more Wi-Fi aggregators for access to those hotspots. However, Google does have experience building its own Wi-Fi hotspots based on its 2013 move to steal Starbucks' Wi-Fi business from AT&T.

And that's just in the United States. Internationally, companies including Fon and others continue to build global Wi-Fi networks via deals with ISPs and other hotspot owners. Recently, Fon announced partnerships with Vodafone in Spain and Italy and Telstra in Australia. However, as PCWorld notes, Fon's efforts to crack into the U.S. market have so far failed to catch fire.

Wi-Fi business hampered by a wide range of challenges, obstacles

Despite the increasing interest in Wi-Fi from the likes of Sprint, Google, American Express and others, there remain some serious obstacles in the move toward aggregated, nationwide, ubiquitous Wi-Fi.

First and foremost, of course, is the fact that a Wi-Fi network is not comparable to a cellular network. Wi-Fi coverage can be counted in yards, while cellular coverage can be counted in miles. And Wi-Fi works in unlicensed spectrum, which means that interference from other nearby users is a distinct possibility. Cellular networks, on the other hand, run in licensed spectrum, meaning that wireless carriers can take legal action against anyone interfering in their transmissions.

And every time a Wi-Fi user moves, they may have to deal with a completely new Wi-Fi network and login process, whereas cellular roaming is relatively seamless. (Though, to be clear, the Wi-Fi Alliance's Hotspot 2.0 technical specification, dubbed Passpoint, is intended to smooth the Wi-Fi roaming and login process.)

Lowenstein said that the Wi-Fi market also suffers from a somewhat crude user experience. Some services--like Google's Project Fi, Republic Wireless and Cablevision's Freewheel--require users to purchase specialized handsets. And oftentimes users must negotiate ads and other obstacles, particularly when accessing free hotspots. And even if those issues are addressed, some Wi-Fi hotspots (usually free ones) are simply overloaded because they don't have the backhaul or RF design necessary to handle traffic from multiple users.

"I think we're still very much in the experimental stage" in the Wi-Fi industry, Lowenstein said. "There's still a lot of work to be done to deliver an easy, seamless, best-connected experience."

"I think it's early days and it will take quite a while to figure this out," he concluded.

Sprint, Google, Microsoft, Huawei, TWC and others tap into aggregated Wi-Fi - but revenues remain lethargic
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