Free Wi-Fi—at a Price

Plans by cities to provide low-cost wireless Internet access could crimp sales for smaller providers and may spark a wave of consolidation

Slide Show >>

A plan by San Francisco to blanket the city with free wireless Internet access may come as great news to residents eager to save a few bucks on broadband. But for the companies already in the business of selling wireless fidelity, or Wi-Fi, Internet access in almost 200 spots around San Francisco, it's likely to be a bane.

Take Wayport, the operator of some 30 Wi-Fi access locations in hotels and McDonald's (MCD) restaurants. Dan Lowden, vice-president of marketing and business development at Wayport, says he doesn't expect "any type of impact from muni Wi-Fi networks" like the one being built by San Francisco. But analysts say operators like Wayport will feel a pinch from the hundreds of municipal Wi-Fi projects across the country that resemble the one in the City by the Bay.

RUFFLED FEATHERS.

A spate of providers, including Boingo and Deutsche Telekom's (DT) T-Mobile, now offer Wi-Fi access in places like Starbucks (SBUX) and other locales, charging as much as $10 a day for wireless Web access. Wi-Fi service providers generate about $500 million in revenue a year, says consultancy Parks Associates. Those sales could dwindle—or end up in the coffers of rivals—as city-run Wi-Fi takes off.

In the past three months alone, the number of municipal Wi-Fi projects underway has skyrocketed by some 50%, to more than 300, says Craig Settles, president of municipal wireless consultancy Successful.com. "We are moving from hot spots to hot zones to metro to nationwide and worldwide Wi-Fi," says Craig Mathias, president of wireless consultancy Farpoint Group.

The movement is already ruffling the feathers of some of the biggest telecom carriers, such as Verizon (VZ), which lobbied Pennsylvania to bar the creation of city-subsidized Wi-Fi projects in areas of the state outside Philadelphia. But the biggest impact may be felt by small hot-spot operators that offer service in cafes, hotels, convention centers, and airports. "They will fade or get acquired," Mathias says. After all, many cities will offer Wi-Fi access for $10 to $20 a month if not for free, while many hotels charge upwards of $10 a day for access. "[Existing providers] will have to cut prices or offer additional services," Mathias says.

NEW PLAYERS.

Boingo, founded by Sky Dayton, aims to benefit from the spread of city-run Wi-Fi programs. Many municipal plans include a free component that includes slower-speed access that won't be fast enough for "business travelers and broadband junkies on the go who depend on higher-speed connections," says a Boingo spokesperson. "Most municipal plans have provisions for higher-speed access at varying price points to the user, which provides Boingo with an opportunity to contract with the municipality to provide that higher speed access to our customers for a fee."

Another byproduct of the proliferation of municipal Wi-Fi projects is consolidation. The mergers may begin in earnest next year as more citywide projects get up and running, Mathias says. In the end, there may be only one or two Wi-Fi operators per city, he predicts. And the winners may or may not include today's largest Wi-Fi hot spot providers.

New players, specializing in muni Wi-Fi construction and operation, have entered the fray. One is EarthLink ( 2 Next Page

Before it's here, it's on the Bloomberg Terminal. LEARN MORE