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News for the Hospitality Executive |
| By Vikas Bajaj, The Dallas Morning News
Knight Ridder/Tribune Business News Jul. 16, 2003 - In the great Wi-Fi land grab playing out across the country, Wayport Inc. is planting a few big stakes. Last week, the Austin-based company said it would put the popular high-speed wireless technology in 75 McDonald's restaurants in Northern California. MCI said it would tap into those sites, as well as Wayport's hotel and airport networks, to offer corporate customers high-speed access on the road. The deals, experts say, meet the two key challenges facing providers of the short-range wireless data service: securing choice locations that business users will frequent and obtaining more paying customers. For all the attention it's received of late, Wi-Fi has struggled to prove it can generate profits for the operators that provide service in cafes and other so-called "hot spots." Wayport has taken among the most conservative and measured approaches to the nascent and still undisciplined sector, analysts say. For starters, most of Wayport's revenue still comes from much less glamorous wired, high-speed Internet connections in hotel rooms, for which guests pay $9.95 a day. Until recently, the company's Wi-Fi service has been limited to the lobbies of its 565 hotel partners and a dozen airports. "They have been extremely wise in the type of hot spots they have gone after," said Daniel Sweeny, an analyst at Forward Concepts, a research firm. "They have gone after the highest-value, most reliable venue in the hot-spot business. Their success speaks for itself." The firm has also won kudos for letting other phone and data companies use its network in an arrangement akin to cellular-phone roaming. That approach is in marked contrast to bigger rival T-Mobile USA, which has so far kept its network of 2,700 hot spots closed to other companies. Wayport's presence "in a lot of these early locations that other hot-spot locators want to tap puts them in a good position," said Charles Golvin, an analyst with Forrester Research. But Wayport may not find itself in the catbird seat for long. After initially ignoring Wi-Fi, the telecommunications industry's giants have taken a keen interest in the last several months. AT&T Corp. has invested in Wayport rival Cometa Networks Corp., along with Intel Corp. and International Business Machines Corp. AT&T also has signed a deal with Gric Communications Inc. to allow its customers access to 2,000 hot spots worldwide -- including Wi-Fi locations -- by the end of the year. Verizon Communications Inc., the parent of Wayport partner Verizon Wireless, is installing Wi-Fi equipment on top of 1,000 New York pay phones and giving the service away to its high-speed Internet users. San Antonio-based SBC Communications Inc. has said it's planning to install hot spots, too. The intense deal-making over Wi-Fi service has led experts such as Mr. Sweeny and Mr. Golvin to question whether the telecommunications industry is caught up in another unjustifiable hype cycle. They say most hot spots don't generate enough revenue to even cover the cost of connecting them to the Internet, let alone administrative, marketing and other expenses. Others note that for all the hype, Wi-Fi remains a niche technology. Only 3 percent of U.S. Internet users have tried Wi-Fi hot spots, and 64 percent have either never heard of or were unfamiliar with them, according to a recent study by Dallas-based Park Associates. Wayport's backers say they share naysayers' skepticism, and the firm is proceeding cautiously. Of the 200,000 connections users make to the firm's network a month, fewer than 13 percent of them are wireless, said Jackie Kimzey, a partner in Sevin Rosen Funds, a Wayport investor. "Here is what people don't realize: Wi-Fi is not ready for prime time," Mr. Kimzey said. "The connectivity at the hotel venue is growing very rapidly, but it's all on the wired side. Wireless will be ready in a year or two, but it's not ready now." That's why experts familiar with Wayport's track record were surprised by its deal with McDonald's Corp. Hotels and airports are clearly superior to retail locations such as restaurants and coffee shops, because travelers are more likely to carry laptops and they're more willing to pay for Internet access, Mr. Sweeny said. Wayport has until now avoided installing Wi-Fi in retail locations. Wayport's chief executive, Dave Vucina, has said many stores and restaurants don't draw enough laptop users to justify Wi-Fi, including the hundreds of dollars a month for a high-capacity Internet connection. But last week, he said McDonald's might prove an exception to those challenges. Why? The Golden Arches dot America's highways and are a natural pit stop for salespeople, insurance adjusters and others who have to drive extensively for work. Mr. Vucina calls these folks "windshield warriors." "There is somewhere between 12 [million and] 15 million windshield warriors, and they don't have anyplace to connect," said Mr. Vucina, who splits his time between the firm's Irving and Austin offices. "If I am a salesperson based in Dallas and travel all over Texas and I would like to check my e-mail three times a day, well, how do I do that?" Mr. Vucina contends that if travelers are willing to pay $6.95 for a day's access at airports, they'll pay $4.95 for two hours of service at McDonald's. (Wayport also has corporate and individual subscription packages.) He also said that Wayport isn't financing the entire installation and operational cost of the 75-restaurant network alone. But Mr. Vucina and McDonald's declined to discuss the details of their arrangement. "It's a partnership versus one party taking 1,000 percent of the risk and being hung out to dry," Mr. Vucina said. For now, the Bay Area network is a trial. The fast-food giant is also testing Cometa's service in 10 New York locations and an undisclosed number of restaurants in Chicago with a third provider. By the end of the year, McDonald's hopes to have data on how its customers are using Wi-Fi. It will then decide whether it wants to offer the service in more restaurants and which carrier it will contract with, said Lisa Howard, a spokeswoman for the fast-food chain. To McDonald's, Wayport's big advantage was its deals with other carriers. "The reason we chose Wayport as a partner in the Bay Area is they have the largest number of roaming partners," Ms. Howard said. "McDonald's favors an open network for our customers." T-Mobile officials have said they are open to roaming, but it's not a strategic priority because the carrier operates the country's biggest Wi-Fi network. T-Mobile entered the business when it bought the assets of bankrupt Richardson-based MobileStar Corp. in 2001. "We are open to roaming and will engage in roaming agreements when it makes sense in a business, economic and technical perspective," said Bryan Zidar, a T-Mobile spokesman. A Starbucks Corp. executive who has worked closely with T-Mobile said Wi-Fi roaming will become commonplace over time. "I would speculate that the same kind of trends in the cellular industry will happen here," said Anne Saunders, vice president of Starbucks Interactive. But Ms. Saunders, a former AT&T wireless executive, noted that companies that have a head start often don't put a big emphasis on sharing their assets with others. "It's not the first thing they turn their attention to," she said. Whereas T-Mobile sees size as a key advantage, Wayport touts its ability to knit together the industry. Mr. Vucina said Wayport can win over hotel, airport and retail chain managers by being a "neutral host" that will attract not just its own customers but also those of giants such as AT&T and Verizon. "I just will never be able to have the reach that they have," he said. To further that expansion, Wayport is raising $10 million to $15 million in venture capital, mostly from existing investors. The firm has raised more than $100 million since its 1996 inception. Wayport is also building a 20-person sales team to sign up more hot-spot locations. Eventually, Wayport wants to be in 15 of the nation's 50 biggest airports. It already has service in Dallas-Fort Worth International and New York's LaGuardia. So where does Mr. Vucina sees Wi-Fi going next? Truck stops. "They are like hotels," he said. Truckers spend hours sleeping, resting and recharging while their rigs are parked there. "They can't sit on cellphones for 2 or 3 hours. They have things that they have to access: communicating with family as well as CNN.com." -----To see more of The Dallas Morning News, or to subscribe to the newspaper, go to http://www.dallasnews.com. (c) 2003, The Dallas Morning News. Distributed by Knight Ridder/Tribune Business News. MCD, MCWEQ, DT, IAAC, IBM, T, GRIC, VZ, SBC, SBUX, |