"The Beginning of a Broader Roaming Era"

Ken Denman, chief of wireless ISP iPass, says business needs are driving providers to widen the reach of Wi-Fi's patchwork quilt

While most big mobile-phone outfits are only now looking to Wi-Fi as a way to attract customers and make money, Ken Denman has been playing this game for years. The CEO of wireless Internet service provider iPass (IPAS ), Denman has built an innovative system that pulls together wireless hot spots to build a virtual network of 5,000 access points in 30 countries.

In 2003 iPass posted net income of $13.9 million, down 53.4% from the previous year's $29.8 million, when it realized a one-time tax benefit of $24.3 million. Excluding that benefit, 2003 net income was up 153% on total revenues of $136.1 million, a 49% gain from the previous year. At the end of 2003, iPass had 450,000 paying subscribers, making it the largest Wi-Fi service provider.

Those subscribers include dozens of the largest companies around the globe, which are using virtual private networks -- encrypted data tunnels -- to let employees connect to corporate networks from remote locations. On Feb. 11, Denman talked to BusinessWeek Online Technology Editor Alex Salkever about Wi-Fi's prospects. Here are edited excerpts of that conversation:

Q: You posted robust growth in 2003. What are the trends boosting your business?


We continue to enjoy a strong relationship with a blue-chip customer base. That's at the heart of our financials. The fact that we have more than 1,500 enterprise customers and have signed up 200 of the world's largest companies is key. And we have signed up 50 of those companies only in the last year. For these customers, mobility combined with secure connectivity contributes directly to productivity, so even in tough times they continue to invest in their mobile workforce.

Q: So you do well with the big guys. But how do you attract smaller businesses and consumers?


We think that will happen after more big businesses sign up. It's going to be just like the mobile voice sector.

That market was solidified by the enterprise being willing to use it and pay for it. This willingness funded construction of better networks and led to improvements in handsets. That allowed wireless companies to begin targeting the consumer market, where revenues per user are lower, [but] they had already built a platform of profitability.

Once that happens in Wi-Fi, we're going to see several things contribute to anybody being able to connect wirelessly and have it be very simple.

Q: Can you elaborate?


The first big wave will be the proliferation of Wi-Fi-enabled devices that can be used by people who don't know anything about wireless. Such devices will be ready to go right off the shelf and out of the box.

The second will be a footprint that covers all the places people will want to connect. At those venues, customers will need only a simple user interface to log on. They won't have to go to a walled garden or present a credit card. And they'll be able to roam seamlessly. Their service interface would be all they would need -- it would act like a cell-phone handset. You jump off a plane, and it registers you and your profile. There's no need to update anything.

Q: How do you create a more seamless network?


It's still patchwork quilt. We're just beginning to see roaming relationships form.

Originally, a number of monopolies and providers were trying to sell their network on a daily basis or a monthly subscription. That's painful for a customer who's moving between multiple locations and switching between network providers. In the fourth quarter of last year, we saw some of those operators begin to understand that, and now they want to solve the problem.

Some of the leading players have stepped up. Our corporate customers can move seamlessly, with their company-provided smart client on their laptop, between hotspots at Starbucks (SBUX ), Borders (BGP ), Kinkos, and plenty of other access points. All they need is our client, their user name, and their password. That's the beginning of a broader roaming era that will extend across borders and oceans.

Q: The Wi-Fi service-provider business remains highly fractured between hotels, airports, convention centers, and all the various companies that are helping them build commercial-grade wireless networks. Will it be hard to turn those hot spots into viable networks?


It could very well move more quickly from here on because the infrastructure is inexpensive. But you also can run into the problem of variability of user experience because of the number and diversity of providers.

Ultimately, we'll all compete based on the quality of the user experience. Over time we will see alliances between the most highly trafficked, business-oriented service providers. As markets consolidate even further, we'll see other players coming in to sign up consumers.

Q: What will drive consumers to subscribe to services like yours?


The speed [of Net access] is addictive, and so is being untethered. Once we get used to that at home, we get spoiled. So when we travel we expect that same experience.

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