For more than two years now, the telecommunications industry has been stuck in financial quicksand. You know the story: Amid a global economic funk, telecom carriers have seen revenues and profits decline. So they've put the pinch on capital expenditures. Spending on telecom gear should decline 7.8% in 2003, to $128.9 billion, according to JP Morgan Securities.
Leading the downturn: North American companies. Wireline carriers like SBC (SBC ) and AT&T (T ) will decrease spending by 14.9%. For wireless carriers -- including Verizon Wireless, Sprint PCS (PCS ), and T-Mobile -- spending will fall 16.6%. As outlays spiral downward, telecom equipment makers such as Motorola (MOT ), Lucent Technologies (LU ), and Nortel Networks (NT ) are seeing their pocketbooks shrivel.
Not long ago, with the promise of speedy data services looming, wireless growth was hotly anticipated. But reality has darkened the picture. Data now accounts for only 1% to 2% of the average revenue per user that U.S. wireless carriers reap. Growth in telecom has been harder to come by than light during an Alaskan winter.
No wonder American telecoms are angling to join the Wi-Fi movement. A year ago, they were mum, dismissing the technology as a grass-roots trend without legs. But like a late night party among ravers, Wi-Fi has caught fire. And the titans of telecom are not longer standing idly by. "There's an appeal to it in the same way that cellular appeals to businessmen in cars," says Marty Singer, CEO of PCTEL, a Wi-Fi software company in Chicago. "You don't have to look for a phone booth."
For telecom execs, Wi-Fi has the potential to evolve into today's killer app. Why? It brings broadband to more than your desktop PC. Suddenly, laptops, PDAs, cell phones, and more have the capacity to connect to the Net at speeds of 10 megabits or higher -- some 20 times that of most dial-up computers. Here's a roundup of what telecom execs have to say about the most pressing issues related to Wi-Fi:
On Wi-Fi phones:
Marty Singer, PCTEL: Right now, there's not enough [Wi-Fi] data traffic for lots of businesses to justify the cost of building a Wi-Fi network. That's a problem. There's no voice capability. But if they start delivering [Wi-Fi] phones capable of handling voice calls, then all sorts of traffic will occur.
Nicholas M. Labun, Motorola vice-president for wireless network seamless mobility [Motorola in partnership with Avaya (AV ) will unveil a WiFi phone by the middle of 2004.]: We're developing a dual-mode phone that will work off the Wi-Fi network while inside an enterprise, and then sniff out a cellular network when the phone is outside of the office. Inside the office it becomes more like your desk phone, a sophisticated desk phone that has access to all the directories and files from your PC network. If you walk outside the enterprise, then the phone hands off to a cellular network.
When it's outside the enterprise, this thing still can connect to mission-critical data. This will create a whole new market category. We think it will change the way an enterprise functions. There is a growth opportunity, but it's at the stage where it has to prove itself in the market.
On the cellular operator advantage:
Cole Brodman, senior vice-president for product development, T-Mobile [T-Mobile has Wi-Fi available in more than 2,300 locations in 23 states, mostly in Starbucks (SBUX ) coffeehouses, but also airports and Borders Books & Music (BGB ) stores]: With cell phones we had to give people devices to use it. Here [with Wi-Fi], people already have the devices. We just give them new areas where they can log on. So we see a huge trend.
We see an opportunity to provide a one-bill type of environment. A single point to buy your voice needs, messaging needs, and broadband needs. We can leverage all the assets that we already bring to the wireless business.
Marty Singer, PCTEL: A cellular carrier knows exactly who the mobile customers are in the world. They know who among the customer base would be interested in wireless broadband. Also who knows roaming better than cellular carriers? They're experts in this area. They have accounting systems and billing systems associated with the roamers, and they're good at teasing out who is using the service. [Note: In addition to T-Mobile, all of the major cellular carriers in the U.S. plan to roll out Wi-Fi networks over the next 12 to 18 months.]
Rose Klimovich, vice-president for managed Internet access services, AT&T: For enterprises to allow their financial team to use [Wi-Fi], they want it to be secure. You need a carrier to put those kinds of security systems around this. For enterprises, having it in one secure location, say a hotel, is not a good proposition for them. We need to make it into a business-class service so enterprises can allow a financial team to use it at hotels all across the country, and they can know it will be secure.
David Murashige, vice-president for strategic marketing of wireless networks, Nortel: Our strategy is to break through the security barrier that impacts Wi-Fi's growth. Our gear provides a single log-in for users. The service authenticates the user and allows the user to log in to the service. Plus enterprises always have some sort of VPN [virtual private network], which is a secure tunnel that encrypts the transmission from the PC to the enterprise server.
Cole Brodman, T-Mobile: Wi-Fi is the access network. VPN provides the security on top of the network. [To set up a VPN], a conversation between T-Mobile tech professionals and a corporation's tech professionals isn't necessary. You simply click on the VPN client, and it establishes a secure connection.
On interoperable Wi-Fi networks:
[Today, users cannot roam from T-Mobile's service to another provider's. So...]
Rose Klimovich, AT&T: "We need to make sure that Wi-Fi service is more seamless than it is today. We need to have standards that make it seamless. [AT&T and many others are now working on such standards, expected to be at least partly set later this year.] But even if we have standards, then it doesn't mean the service providers will operate seamlessly.
On the wireline carriers' edge:
Edward Cholerton, vice-president for Internet product management, SBC Communications: "What makes these [Wi-Fi networks] work is the T1 and DSL lines [that run underground and connect to businesses]. We provide those lines, so we obviously play a pretty big role in this. Plus, it's expensive to acquire customers. Those things are very difficult to do on a stand-alone basis.
Wi-Fi "hot spots" themselves are very inexpensive, say they cost $200, but the ongoing costs of operating the networks behind them and to acquire the end users of the service are very expensive. That's difficult, but we have wires in all those places right now. We can make this service an extension of the existing relationship that we have with users.
It's a nice way to extend the broadband you get in the house and in the office. Our intention is to treat Wi-Fi as an extension of the service you have in the home and office.
David Murashige, Nortel: This is not a replacement for DSL, but it's a good appendage to DSL. DSL is about bringing it to a specific location. Wi-Fi is about increasing the availability of broadband. It's broader than the home or the business. Wi-Fi is full of potential to fill a growth need.
By Roger O. Crockett in Chicago