Cautionary Notes on Wi-Fi

Can you say overhyped? At least one expert at the CeBIT show says the technology has miles to go. Plus: Can VoIP be profitable?

BusinessWeek Telecom Editor Steve Rosenbush is spending the week roaming the halls of CeBIT, the big European tech show that launched in New York on May 25. Here are excerpts from his notebook:

What's up with Wi-Fi? I hate to be a curmudgeon. No, actually, I love to be a curmudgeon. So as a matter of principle I went exploring CeBIT in search of someone who was willing to say something bad aout Wi-Fi. Now, I don't consider myself a Luddite. I own a Wi-Fi router myself. But a little caution is in order about the rise of this technology.

It wasn't easy, but I finally found my man: Analyst Crawford Del Prete of researcher IDC. At the morning press briefing, he reported that big companies have been slow to adopt the high-speed wireless networking technology.

Corporations have two reservations. Right or wrong, they're still worried about security. The people who make info-tech spending decisions recoil at the idea of releasing proprietary data into the ozone. And on a deeper level, CIOs and CTOs just aren't convinced that Wi-Fi is worth it. "They don't see the return on investment yet," Del Prete says.


 Del Prete also says it'll take years for Wi-Fi to work the bugs out. Sitting in his hotel room before CeBIT began, he was able to detect more than half a dozen nearby Wi-Fi hotspots. But he wasn't close enough to actually use even one. It makes you wonder: For all the Wi-Fi gear that's being sold, how much is really being used?

So what's Wi-Fi's future? Del Prete believes the technology is here to stay and that it'll play an increasingly important role in corporate networking and telecom. But he thinks Wi-Fi is unlikely to displace more traditional forms of networking anytime soon.

Instead, he believes that they'll work together. In the real but perhaps not-so-glamorous future, Wi-Fi and its faster version, WiMax, will be used for crucial functions such as backhaul (high-capacity trunks that form the backbone of phone networks). Wireless WiMax links will replace many of the cables that connect homes to the nearest phone pole. And WiMax will be used to aggregate signals from Wi-Fi hotspots and connect them to the network backbone. Wi-Fi may yet fulfill grander visions of carrying wireless voice over Internet protocol (VoIP) all over the world, but it will take a long time to get there.


  Speaking of VoIP... Industry leader Vonage's recent decision to cut the price of unlimted VoIP phone service to $29.99 from $34.99 a month is great for consumers. But it's another troubling sign for the telecom industry's financial health. Making voice calls over the Internet is an exciting and innovative development, but that doesn't protect it from the deflationary economics that have troubled telecom's more conventional sectors for years.

Vonage argues that it's scale and scope allow it to withstand such jarring price cuts. But Vonage has only about 160,000 or so customers. AT&T expects to add a million VoIP subscribers over the near term. Even if Ma Bell misses that market by 50%, it could more than match Vonage's scale and scope.

How will anyone make money selling VoIP? In this brutally competitive market, new products and services will soon be matched by rivals, making it hard to set oneself apart with new features. VoIP may very well kill telecom as it is today. Whether the new technology creates a financially sound alternative is the real issue. The telecom and networking industries are suddenly awash with innovation. Now they need a Michael Dell to come in and make money in a world of cutthroat competition and razor-thin margins.

By Steve Rosenbush

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