Hotspots: not just for coffeehouses anymore. (First in/First out).

If you've been wondering how anybody who runs a public wireless access point (a "hotspot") is going to make money, you're not alone: We've been thinking about it too, and have yet to hear of a viable business model (see the March issue of CTR at wwpi.com for a full discussion). But it turns out we're wrong. Or, to be fairer, we've been looking at hotspots from the wrong direction. It's not who owns the hotspot--as always, it's who owns the pipe.

A new report by Daryl Schoolar, senior analyst of advanced carrier services at InStat/MDR, says that hotspots are already a revenue generator: for those in the backhaul market, that is. The growth of hotspots over the next few years "make hotspot backhaul (the last mile connection that carries data traffic from the public wireless LAN to the Internet) a significant revenue opportunity, specifically for WAN providers," Schoolar predicts.

In fact, In-Stat says its research indicates that worldwide revenues from backhaul services will grow from $70.5 million this year to more than a half billion by 2007, while the number of connections needed to support these hotspots will grow ten-fold during the same period.

While Schoolar notes that much has been made of how hotspot service providers can (or cannot) make money, this is the short view. The long view takes into account the service providers who will carry all the traffic, and for them the picture is much rosier. "While all of the attention has been on wireless cards, coffee shops, and how to combine them to generate revenues, the backhaul already presents a revenue stream coming out of the hotspot market," notes Schoolar's report. "Hotspots or public WLAN Internet access, regardless of shape, size, or business model, need a backhaul connection to carry data traffic to the Internet. For WAN providers, hotspots represent another market opportunity for selling Internet access. Along with backhaul service revenues, selling backhaul can open up other value-added service opportunities for WAN providers, such as provisioning of IP VPN, Voice over IP, hotspot billing and WLAN monitoring, in addition to other opportunities in network equipment sales and installation."

Of course, the most efficient and cost-effective technologies used to do the hauling still need to be determined. But as Schoolar notes, while the most common backhaul connection used is fractional or full T-1s, such service remains expensive. "Some hotspots providers will look to other backhaul solutions," Schoolar says. "Other available backhaul connections are DSL, cable modems, and Fixed Wireless Broadband (FWB)." Of these alternative backhaul technologies, DSL is the most common, and cable modems and FWB lag DSL in servicing the hotspot market due to limited deployment and issues over shared bandwidth, In-Stat has found.

New chipsets like Intel's Centrino are expected to spread wireless connectivity far and wide in new notebooks, and soon most high-end PDAs will have WiFi access as well. So how soon will you be surfing the Web from your departure gate, or while sipping your overpriced latte? Don't throw away the cables just yet. The backhaul market may be set to explode, but for hotspot providers, business is still lukewarm at best.

www.instat.com