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Posted on Mon, Jul. 17, 2006 Langberg: The overbuilding of wireless networks lingers in the air By Mike Langberg Mercury News You can't feel radio waves moving through the air, despite what you might hear from a few wild-eyed people in tin-foil hats. That's a good thing, considering how many wireless bits of data will soon be flying around Silicon Valley. Everyone from corporate giants such as Intel and Cisco to ambitious start-ups to local governments are chasing a big opportunity: unplugging the Internet. The goal is to provide a high-speed connection wherever you roam with a laptop computer, smart phone or future gadgets such as wireless digital music players. But there's a problem with such big opportunities: Everybody sees them, resulting in a tidal wave of potential overbuilding. I count at least five current and possible wireless Internet projects in the area: • Smart Valley Wireless, a coalition of 40 local cities and other government agencies, received seven bids in late June to blanket the entire region with WiFi wireless service. • Google said last week it has begun testing a free WiFi network covering Mountain View and expects an official ``wire cutting'' ceremony within a few months. • MetroFi is looking to expand its existing free ad-supported WiFi network, which covers Cupertino, Santa Clara and Sunnyvale, including a recent deal to provide WiFi in downtown San Jose. • Intel in early July invested $600 million in Clearwire, which is using a rival technology called WiMax and will tap Intel's money for nationwide expansion that could include the Bay Area. • Cellular carriers Verizon Wireless, Sprint and Cingular continue to aggressively market their high-speed wireless data services. None of these services is irrational by itself, but it's highly unlikely all of them together could find enough users to survive. The Wireless Communications Alliance, a local tech group, is sponsoring a debate on the topic Tuesday night at the office of Cadence Design Systems in San Jose. I called the two speakers -- Andy Seybold, editor of the wireless industry newsletter Outlook4Mobility; and Monica Paolini, founder of the wireless research firm Senza Fili Consulting -- and found both are skeptical that consumers and businesses will flock to wireless data services. ``Broadband (Internet access) is a business where scale is very important,'' said Paolini, who lives in Seattle. ``You need to use every weapon to reduce cost.'' But it's difficult to achieve scale when demand is low and struggling competitors are driving prices down below the cost of doing business. Seybold is somewhat famous in the wireless industry for repeatedly insisting that any standalone wireless network devoted to data is ``doomed to complete failure.'' ``Voice pays the bills,'' declared Seybold, who lives in Santa Barbara. Even in nations such as Japan, where wireless data services are far more advanced than the United States, Seybold said wireless carriers make all their profits from voice calls. Clearwire shows how tough it can be to build a wireless business. The company, backed by cellular pioneer Craig McCaw, started operations three years ago and now covers U.S. markets with a combined population of 4.8 million. Yet Clearwire, based in Kirkland, Wash., had only attracted a paltry 88,000 subscribers as of March 31. Building wireless networks is very expensive, forcing Clearwire's backers to accept losses of $175 million through the end of last year, so the company filed for a public stock offering in May to raise more money. Clearwire has said its plans include nationwide expansion and serving ``a range of different categories of subscribers, from individuals, households and small businesses to market segments that depend on mobile communications, including police and fire personnel, traveling professionals, field salespeople, contractors, real estate professionals and others.'' Those market segments sound much the same as what Smart Valley Wireless, MetroFi and others are pursuing. Instead of risking a less than enthusiastic greeting from the stock market, Clearwire reached into Intel's deep pockets and as a result shelved the proposed share offering. Intel is pushing WiMax hard because it expects to sell many of the chips for WiMax-enabled computers and other devices. But there's a huge chicken-and-egg dilemma: Computer makers aren't eager to adopt WiMax when there aren't WiMax networks in operation, and wireless companies don't want to build WiMax networks when there aren't yet any WiMax-ready computers. Then there's the looming competitive threat of high-speed data service from cell carriers. Verizon Wireless, Sprint and Cingular now sell unlimited wireless data service for about $50 to $60 a month at about half a megabit per second. That's twice the cost and one-third the speed of wired home DSL service. So the demand for cellular data service has been limited to businesses willing to pay the bills for workers in the field. But the cell-based data services will get faster and cheaper during the next few years, just as the competing WiFi and WiMax networks -- which in many cases won't work in as many places, and don't already have relationships with millions of customers -- are looking for a way into the market. Consumers will almost certainly get inexpensive, robust, widely available wireless data service once all this gets sorted out. But anyone looking to profit by investing in these networks will need to be smart and lucky to come out on top. --~--~---------~--~----~------------~-------~--~----~ TELECOM-CITIES Current searchable archives (Feb. 1, 2006 to present) at http://www.mail-archive.com/telecom-cities@forums.nyu.edu/ Old searchble archives at http://www.mail-archive.com/telecom-cities@googlegroups.com/ -~----------~----~----~----~------~----~------~--~---
