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Joe Madden |
High-tech business is normally pretty simple: End users pay big bucks for a service. The service provider pays medium-sized bucks for equipment. The OEM pays a few bucks for semiconductors.
Everybody is happy and well fed.
The carrier Wi-Fi market doesn't follow this pattern. In Mobile Experts' recent survey of the carrier Wi-Fi market, we found that $900 million dollars were spent last year on carrier Wi-Fi infrastructure with only $270 million in service revenue.
That's a business model designed by Tweedle-dum and Tweedle-dee on the other side of the Looking Glass.
Cable operators are deploying massive networks, including hundreds of thousands of hotspots and millions of "homespots." When asked, the big cable operators will say that they simply want to improve customer satisfaction and retain customers. That sounds good, but in the USA the cable consortium is a monopoly. We don't believe they are only doing this to retain customers. We think that they have multiple monetization plans in mind:
1. All of the cable operators are watching Cablevision's "Freewheel" service to see whether direct service fees are possible. At $9.95 per month ($29 for non-customers), users get access, and using Wi-Fi calling, it's cheaper than a mobile phone. This offering is very new, so it's too early to know whether it will succeed.
2. Hotspot 2.0 has been available for years, and we now have service in many major airports, as well as some interesting roaming in Asia through SIM authentication. This technique is growing very slowly, but we believe that Hotspot 2.0 will represent a viable source of revenue for carriers, as well as for venues that invest in Wi-Fi gear. If Cablevision's experiment fails, look for the cable operators to move in this direction.
3. Managed services will be a big deal. Millions of businesses around the world are learning that maintaining their Wi-Fi equipment is not easy. Even the meatheads down at my gym realize that they need a better Wi-Fi network. MSOs are in a good position to offer Wi-Fi services in the venue and collect fees from the enterprise directly. We're projecting a rapid growth profile for this segment.
Will the carrier Wi-Fi market ever turn right-side-up? On its own, we don't think that carrier Wi-Fi will generate enough revenue to pay for all the equipment put in the field. However, by tying into the LTE market we believe that carrier Wi-Fi can achieve a good ROI. Today, more than 70 percent of mobile data is actually carried by Wi-Fi over the unlicensed bands. By 2020, more than 90 percent of data will be unlicensed, and the cost avoidance of LTE offloading will easily justify the cost of Wi-Fi infrastructure. The nearby chart shows that by spending about $2 billion per year on Wi-Fi equipment, the industry can save $10 billion or more in LTE equipment.
This seems like a no-brainer. But consider this: The root of the problem is that MSOs are investing the money for Wi-Fi, but LTE operators will enjoy the benefits of cost avoidance. The real issue here is that LTE operators and Wi-Fi operators need to work together.
Here's the point of this article: The carrier Wi-Fi market isn't healthy, and major changes in the business model are necessary. MSOs cannot continue spending billions of dollars per year for Wi-Fi equipment without a bigger stream of dollars coming in. Managed services should grow quickly, but the best solution to a revenue problem is to exploit a market with existing revenue. By latching onto mobile operators through LAA or LWA, the carrier Wi-Fi world can capture some of the trillion-dollar mobile revenue stream.
Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.