“Barnet in North London has much to recommend it but few would associate it with the history of UK technology. Yet Platform 1 of New Barnet station is home to a relic of an almost forgotten technology whose demise may hold lessons for anyone cashing in on the current craze for all things wireless. On the platform is a sign showing that it was once possible to use the Rabbit phone service on the station. Subscribers to the service, backed by Hutchison Whampoa, could make mobile calls when they were within 100 metres of a Rabbit transmitter.
Rabbit was one of four location-specific phone services given licences in Britain in 1989. The others were Phonepoint, Mercury Callpoint and Zonephone. Sadly, none have survived to the present day. Mobile phone services that let people roam were taking off at the same time and proved more popular. All that remains of Rabbit are a few lonely signs in places such as New Barnet and Brighton stations. Now another craze for location-specific technology systems has sprung up, although this time it is for wireless data networks rather than phones. "
From BBC News, 6/8/2002 (http://news.bbc.co.uk/1/hi/technology/2175804.stm)
Councils have been fairly vocal about what kind of wireless proposition works for them. Un-Rabbit-like contiguous coverage across the whole city (like mobile phone coverage) + a level of pricing which would allow them to make savings on their existing communications budgets. In this they have similar interests to any other large enterprise.
What makes Councils distinct from other businesses is that they have additional social and community objectives: encouraging tourism, tackling deprivation, managing public order. However, their funds for addressing these objectives are often restricted, which limits their buying power for wireless services, no matter that they are quite enthusiastic about their imagined utility. Finally, Councils seem more focused on initiatives which can be spun as public relations successes than other businesses are.
What this amounts to is that Councils are often keen to sponsor a local wireless initiative without necessarily having much of an idea of what in practice it would do, and often without having either the means or the desire to pay for it. From a supplier point of view, this means that possible early success at the higher, more visionary (or publicity-hungry) levels of the Council can be followed by stagnation at middle-management layers, where there is little incentive, interest, time or budget to do anything new, particularly if existing supplier arrangements would in any way be disturbed.
This has tended to derail a business strategy of effectively bundling a WiFi network build (at low-to-zero cost to the Council) with a commitment from the Council to buy specific applications and services. The idea is that the initial network investment is a loss-leader which opens the door to higher-margin wireless-enabled application services. There is nothing wrong with the concept, although there may well be issues in assigning revenue recognition across network and application services parts of a vertically-integrated supplier’s business. However, with Councils often unwilling to face supplier lock-in or legally unable to accept an overtly bundled offer due to public procurement rules, plus the lack of enthusiasm for the proposition in the middle management layers already alluded to, this particular method of improving the economics of early WiFi deployment has not proven a great success.
For almost all Councils, the prospect for suppliers is of several years of hard slog, with incremental progress-steps catalysed by major deployment improvements, such as fuller city coverage (via WiMAX) and the availability of mature vertical products and selling processes which make it easier for the Council to make purchasing decisions. Success will also be correlated with the effort and priority placed on selling wireless solutions to Councils.
There is of course an underlying reason to persist in the uphill task of engaging with Councils, and that is access to street furniture. Without the rights to connect to Council-controlled street furniture, any subsequent infrastructure build-out is stillborn. It is only a slight travesty of the truth to say that the whole object of the Council engagement is to craft a sufficiently-attractive proposition for the Council so that it will agree a solid contract to permit use of the street furniture. This can then be used to build a network to address all of the available market segments on a multi-year business plan.
If Councils are slow to utilise the advantages of an outdoors public-space Wireless Broadband network, what about businesses? With new technologies and products, it is often supplier practice to target the business sector first: they have the money and can make decisions fairly quickly.
Businesses in fact love connectivity. They have spent millions equipping their staff with high-speed networks at work, broadband at home and often 3G datacards for their ‘road warrior’ employees, while the business mobile phone is ubiquitous. And businesses are increasingly authorising use of WiFi hotspots in airports, hotels, coffee bars as they become more prevalent, and pricing has stabilised. Businesses are, however, price sensitive, as we see with periodic crackdowns on mobile phone usage and the limited deployment of 3G datacards due to their continuing high usage costs.
So why have public, outdoor-space WiFi suppliers failed to prioritise the business sector? I think the answer is obvious: they don’t yet see a significant usage model (apart from WiFi phones, where we’re not quite there yet). Business people don’t do laptop/PDA work, as a rule, in the streets. Extended business ‘campuses’ such as the open areas around Canary Wharf in London are perhaps a localised exception. If the pedestrian laptop/PDA-toting business person is not in general a very fruitful target, then what is? Two thoughts come to mind.
It is possible to use a PDA and a laptop (with more difficulty) in a car. Also more specialised devices. If there were designated areas with parking and with WiFi connectivity which were advertised as ‘business docking stations’ then we might have a viable ‘outside’ version of, for example, BT’s Openzone. Typical deployment areas would be business parks, and the service would be Internet access. Companies like the AA, British Gas, freight companies might be early targets.
It’s not just people that need ubiquitous network access, so do machines. There are vehicles which could benefit from even intermittent network connectivity to upload and download data. If the volumes are substantial, then WiFi might be a higher-bandwidth, cost-effective alternative to GPRS/3G.
Blue-Light and public transport services are an example, and the network synchronisation could be done while moving, without having to park. The proposition, though, is heavily dependent on the proportion of coverage, although contiguity may be less important.
If interior-space WiFi providers like The Cloud, BT Openzone and T-Mobile had had to sell vertical applications in order to justify their investment cases, they would have failed. By keeping costs low and providing simple horizontal products, they could be used by anyone for anything - the basic Internet model. By monetising the utility of a network connection (£6 per hour) they made a return once volumes climbed.
Since running a bit-transport business is well-known to be commoditised, returns are expected to be low, and therefore it makes sense to cherry-pick just the highest value locations where usage will be intensive. If the interior-space WiFi providers had had to cover very large areas, this would have increased their capital budget while dragging down average utilisation and therefore revenues. Business disaster.
By contrast, the mobile operators were forced into wide coverage by regulation, although their higher-powered equipment gives them far greater coverage per buck than WiFi is able to get. The reason the economics works is that the key application - mobile voice - is highly-valued and innelastic. People want to talk where they are and will even tolerate quite high prices. There are also ample opportunities for market segmentation (business, consumer, high/low volumes) and consequent price discrimination.
If WiFi was WiMAX (high power, large coverage) and there were no mobile operators, then there would be no worries about the public (municipal) WiFi business case. Suppliers would be rolling it out like there was no tomorrow and most people would use it for voice.
The mobile network operators (MNOs) are tough. They are used to a competitive environment and are adept at rolling new services out (although constrained by the complexities of their existing pre-IMS networks). The have a lock on mobile voice and their high prices are not a function of an inherently high cost-base but the consequence of their market power. With serious competition prices could drop. Call plans with a fixed subscription component and low-to-zero incremental costs (‘free minutes’) make usage-based price competition very difficult, however. There is an increasing tendency in the mobile data arena to move to flat-rate pricing, as with fixed broadband.
It is also hard to see a serious rationale for any new WiFi/WiMAX supplier to engage in destructive price competition with the mobile operators. The new supplier would have a large capital cost to recover (unlike the MNOs for whom towers and network equipment are now well-down their depreciation cycle) and the new supplier would probably prefer to compete on service differentiation, leveraging any technology advantages of the WiFi/WiMAX platforms.
Even here, though, there is trouble brewing. It’s relatively easy for 3G operators to upgrade their networks to HSPA (High Speed Packet Access) offering megabits per second to customers, comparable to or better than today’s WiFi shared networks. Further downstream there is the more expensive LTE - Long-Term Evolution - where 3G gets to look a lot like WiMAX in terms of technology, service and bandwidth. In fact the 3G guys may not even wait for LTE but may decide to go straight to WiMAX as their 4G play.
In this battle, a new WiFi/WiMAX supplier should not, therefore, assume it’s the low-cost low-price player. It’s real advantage is that it may occupy a time window where it has a genuinely optimised IP platform while its mobile competitors are still struggling to make the network and system transition from what are still fundamentally circuit-switched voice mobile networks, with all the inflexibility and complexity which results. The new supplier’s flexible and higher-performance network could support competition on bandwidth, features and service introduction velocity (the great promise of IMS).
Enough analysis. The case made here is that outdoors public space WiFi is by itself a difficult business in the short-term, with the classic problems of lack of capability (coverage, products and services, user devices); lack of effective demand (what’s it for?); and a too-high cost base (hard to cherry-pick coverage areas and market segments the way interior-space WiFi providers such as The Cloud, BT Openzone and T-Mobile, for example, can). While the addition of WiMAX to the portfolio can get coverage and costs in roughly the right place, a new supplier will face its own competitive problems as it forces the Mobile Operators to finally take it seriously.
Councils in the main will not return major, significant revenue streams any time soon. This is the stark evidence of 2006/7 across the world if one cares to take the experience seriously. Tailoring wider-scale coverage to the needs of specific early-adopter departments is probably the best tactic, as well as an acknowledgement that Councils repeatedly talk big (for PR purposes) and then fail to deliver their side of the bargain and drag their feet.
What else could you do with street-furniture or payphone-located WiFi? The WiFi phone story is a nice-to-have but offers difficult-to-quantify user benefits over 2G/3G phones and it’s not at all clear that the right answer is to wage a price war, or that such a war would be winnable. Assuming instead the strategy of product and service differentiation, then at a national level any new WiFi/WiMAX operator’s best hope in the UK is to secure a beachhead as the de facto sixth mobile operator (Vodafone, O2-Telefonica, Orange-France Telecom, T-Mobile- Deutsche Telekom, 3 - it’s a crowded market which rewards scale).
I think in the short term, 1-2 years, public WiFi operators will have to target high-value public spaces. That is the basis of the developing consumer market (voice over WiFi, networked computer games) which is in reality a few years away. However, alternative and earlier usage models, and their consequent favoured public spaces, are harder to find. The key spaces where most business people like to do work are inside buildings, which existing interior public WiFi operators like The Cloud, BT Openzone, T-Mobile have already covered. Cars are another interior location, but WiFi coverage has to be widespread and well-targeted for that to be useful: the 2G/3G networks got there first and have ample opportunity to lower prices, as discussed earlier, if they start to feel competitive heat. So valuable public space is likely to be patchy, and hard to find. And just blanketing the city centre, let alone outlier areas, lacks focus and struggles to earn an early return on the investment - a point lost, of course, on those Councils who would love extensive coverage, but who do not have to bear the costs.
So my conclusion is that an outdoors, public-space WiFi-only network cannot be made to work profitably in isolation, except perhaps as a low-cost niche play (niche as in either geographical localisation and/or choice of vertical market). Call it the curse of the Rabbit! A broader and more aggressive deployment strategy could make sense as an attempt to get a beach-head in an emerging broadband wireless market where WiMAX will then do the heavy-lifting. But making a market entry with WiFi-WiMAX will mean a head-on confrontation with mobile operators who have many advantages of incumbency. It will not be easy and will take great tactical skill, as well as deep pockets.
Nigel Seel
May 2007.
© Interweave Consulting 2007