Operators embracing WiFi, but how far will they go?

It's no secret mobile operators are now embracing WiFi, but will they go so far as to actively encourage customers to roam onto WiFi?

AT&T, through its acquisition of Wayport in 2008, has. It is using the network as a way to offload heavy mobile traffic primarily driven by iPhone users who are able to use AT&T's network of hotspots for free. The operator said it handled nearly 15 million WiFi connections on its network in the second quarter, a 41 percent increase over the first quarter. AT&T said 49 percent of the total connections were made by integrated devices.

That number should accelerate even faster now that AT&T supports auto-authentication for iPhone OS 3.0 users. The capability allows iPhone users to seamlessly switch from AT&T's 3G network to an AT&T WiFi hotspot without being prompted. The device seeks out a WiFi connection first.

Dennis Whiteside, AT&T assistant vice president for consumer markets, said all WiFi-enabled BlackBerry devices feature auto-authentication too, beginning with the BlackBerry Bold when it launched last year.

Selina Lo, president and CEO of Ruckus Wireless, sees big business in operators looking to WiFi hotspots as a way to offload the heavy 3G data traffic that is generated by flat-rate pricing and iconic devices such as the iPhone. Once the vendor was stonewalled when it requested meetings with carriers. Today, operators are calling Ruckus.

"The iPhone really changed the outlook for WiFi as a carrier service," Lo said. "Hotspots are not just about giving access but they are becoming a whole opex reduction scheme."

Indeed, Whiteside said AT&T benefits from owning hotspots and offering WiFi for free to smartphone users on a number of fronts: network savings, customer retention and value for the hotspot venue owners.

Dave Hagan, CEO with hotspot aggregator Boingo, said the same can be said for operators partnering with aggregators. The company's usage trends at its airport hotspots revealed earlier this year that about a quarter of all connections from January to May were mobile devices. Eighty-nine percent of those users were iPhone users. Moreover, Boingo mobile users are consuming an average of 114 MB of data over WiFi per month, Hagan said.

"And that's not data going through the cellular network," Hagan said. "I bounced that number off several different carriers, and they agree. If you extrapolate that number, subscribers are consuming 400 to 500 MB per month on the cellular network. That is an enormous amount of data. Right now it's really about iPhone users, but soon Android, Nokia and BlackBerry users are going to consume more. WiFi is a way to offload traffic and create a great user experience ."

Boingo recently expanded its existing relationship with Verizon Communications whereby Verizon is offering its Fios and certain high-speed Internet service customers free WiFi. It's unclear whether Verizon Wireless, which has long kept WiFi at arm's length, will eventually offer its subscribers free WiFi access.

The key to encouraging 3G offloading, however, is enabling seamless roaming between WiFi and 3G. "A single sign-on is the thing to master," Lo said. "People want WiFi if it's easy to use. If they have to re-authenticate every time, it's a big pain."

U.S. operators besides AT&T have yet to enable devices to seek out a WiFi connection before a 3G connection. PCCW in Hong Kong, a Ruckus Wireless customer, deployed that capability two years ago when it began rolling out hotspots and other operators in Asia and Europe are aggressively adding that capability.

Should operators necessarily follow AT&T's lead and own hotspots? Lo said money can be made as a managed hotspot service provider in addition to the benefits of reducing network capex and aiding customer retention.  

Already, companies like WeFi are coming up with app stores for use on WiFi only, while other companies like Bango are coming up with ways for operators to monetize apps via WiFi.

Moreover, AT&T's own venue owners are seeing value in WiFi beyond just paid access that in turn leverage AT&T's own mobile network strategy. Recently, the operator reached a new deal with book retailer Barnes & Noble to offer free WiFi to all of the store's shoppers, not just AT&T customers . The deal  includes an ebook component whereby WiFi users, along with iPhone and BlackBerry users, will be able to access 700,000 Barnes & Noble ebooks.

AT&T Park in San Francisco has created a Digital Dugout service that provides local content such as player stats and instant replays only available via WiFi. Video over 3G is not something a mobile operator like AT&T desires so it's desirable when video over WiFi is encouraged.

Since the iPhone sets the trends for the types of features we see in competing iPhones, it's only a matter of time until we see auto-authentication features on competing handsets outside of AT&T's network--both from a consumer demand standpoint and a 3G offloading one.--Lynnette

PS: Click here to check out our special report on the muni WiFi space.

A correction was made to this story on Aug. 13.