Wi-Fi's Business Model: Not What Was Expected

New technologies sometimes wind up being used in ways not originally envisioned. It might sound odd today, but there was a time when public Wi-Fi was seen by some as a replacement for fixed broadband used by residential customers, or as a competitor to wireless 3G networks.

These days, with a couple of notable exceptions, public Wi-Fi lives by indirect revenue models. It is an amenity for retail or hospitality operations that make money some other way. Coffee, food, lodging or memberships are some of the revenue models.

The notable exception is "for fee" Wi-Fi in global markets where the cost of 3G access is very high, making a for-fee Wi-Fi connection a better deal.

In recent years, the typical revenue model for public Wi-Fi has been that it is a valuable amenity for sales of fixed broadband connections and retention of customers. More recently, public Wi-Fi has become an important component of the value of some smartphones, which can use hotspots for VoIP even when it is not allowed on the 3G networks.

AT&T, for example, says that its customers made 25.4 million Wi-Fi connections in the third quarter of 2009, exceeding the 20 million connections made in all of 2008 and nearly equaling the 25.6 million connections made in the first half of 2009.

Wi-Fi usage has been increasing significantly each quarter, up from 5.2 million connections in the third quarter of 2008. Smartphones and other Wi-Fi enabled devices are the reason, AT&T says.

For the first time, the number of Wi-Fi connections made by smartphones and other mobile devices in the third quarter surpassed connections from laptops, AT&T notes.

About 60 percent of all AT&T Wi-Fi connections were made from mobile devices, up from 49 percent in the second quarter of 2009, AT&T says.

Public Wi-Fi seems destined to play a bigger role in the smartphone market going forward, as it is a great way to offload video and other bandwidth-intensive applications from the mobile network to the fixed network.

So aside from its value as a feature that supports an indirect revenue model for retailers, it is a value-enhancing way for service providers to differentiate and add value to their mobile and fixed broadband services.

In the future, it likely will assume a greater role in allowing mobile networks to better manage bandwidth. None of those initially were thought of as the "value" of public Wi-Fi.