Hotspots: The next Generation Consumers- Handsets- VoFi

The business market for hotspot usage is well understood, but how do hotspot operators drive usage to the next level The hotspot market is moving beyond just business travelers accessing airport and hotel hotspots on a laptop. There is an impending revolution in the hotspot market characterized by consumer usage, handheld access, and new applications, especially Voice over Wi-Fi (VoFi).

But hotspot services, as they exist today, are a barrier to such evolution. Providers must redesign hotspot offerings, everything from pricing to device interface, to cater to the consumer market. How can providers embrace consumers without discounting their existing, high margin, business offering How can providers capitalize on the $5 billion revenue opportunity MMI forecasts by 2011?

The hotspot market is also challenged with the potential competitive threat presented by WiMAX initiatives. What effect will WiMAX have on hotspot offerings How will the introduction of VoFi change the competitive balance of cellular and hotspot services With the hotspot market on the cusp of significant transformation, many of the standards in the hotspot market are being brought into question again. This report will provide a perspective of the hotspot market, where it began and where it is now. It will examine issues of venure, pricing, and marketing strategies and provide perspective on moving hotspot services into the new generation. This report will provide detailed competitive analysis of hotspot operators, resellers, and roaming providers and discuss key success factors going forward. Finally, a detailed forecast is provided including venue forecasts by region and venue type as well as usage and revenue forecasts segmented by region, venue type, access device, user type (consumer versus business), and payment method (subscription versus pay-as-you go).

The hotspot market is on the verge of significant change, presenting immense opportunity to market players, but also requiring real adaptation in strategy. The market is currently experiencing changing demands on hotspot networks-increasing usage rates, new user types/support issues, and emerging applications. As business usage continues to grow, and with the influx of consumer users, MMI anticipates hotspot usage growth rates of 50 percent or more for the next several years. Additionally, new applications, particularly handheld centered applications like VoFi (Voice over Wi-Fi), will completely change network demands. Finally, with falling or free access in Tier 3 venues (cafs, public, retail), such as the recent 1,200 location agreement between McDonald's and The Cloud, providers must find a way to extract revenue from hotspot deployments in addition to user-based revenues.

Given the current evolutionary state of the hotspot market, there are many factors driving growth, including:

• Broadening consumer base: A shift in market focus towards consumers is eminent as access equipment and pricing components necessary for a consumer play begin to fall in place.
• Emerging applications: Applications, particularly Vo-Fi, but also gaming and other entertainment services will drive hotspot usage.
• Alternative access devices: Increasing availability of dual-mode Wi-Fi handsets-it is anticipated that up to 40 percent of handsets shipped in the next two years will have Wi-Fi chips embedded.

While the market is poised for significant growth, there continue to be several market challenges, including:

• User edification: Many potential hotspot users, including both business users and consumers, have product discovery challenges.
• o What exactly is the service
• o Where does one access such service
• o How does one connect?
• Marketing strategy: Other than site-based advertising, there has been very little marketing surrounding the hotspot market. While this was less critical with a business audience who tended to seek out hotspots, providers cannot rely on consumers to be so self-guided.
• Competitive networks: Despite the complimentary element of 3G, it does cannibalize a portion of hotspot Wi-Fi usage. Additionally, over time, WiMAX could poise an additional challenge to Wi-Fi usage, however, the impact is not expected during the forecasted period (2006-2011).

To counteract several of these threats, there are certain strategies and capabilities that hotspot providers must enact and enable to capitalize on the growing opportunity. MMI recommends the following vendor actions:

• 1. Develop consumer focused marketing and pricing plans: Providers need to incorporate a consumer targeted pricing strategy. Consumer hotspot offerings, however, must be distinguished from a business class offering in either performance or availability so as not to undermine the value of the business offering.
• 2. Focus on branded hotspot deployments: Availability uncertainty is best targeted through branded deployments. Hotspot footprints need to have a master plan rather than a random amalgamation of venues.
• 3. Expand revenue opportunities beyond usage fees: In addition to customer subscriptions, roaming and resale revenues, network operators are pursuing additional revenue opportunities including emerging user applications, location based advertising, and back office services.
• 4. Ensure network performance: The level of expectation is increasing regarding hotspot performance, and network bandwidth management capabilities are increasingly critical to effectively competing in the hotspot market.