When a company called Sky buys another called The Cloud while a third called O2 plans to outfox them, there is a joke deciphering part of your brain that just goes into overdrive. But I will leave the telecoms puns to the experts.
The UK public WiFi hotspot market is going to change for good as a result of last week’s deals. Smartphones are increasingly the driver of hotspot connections and it is obviously no coincidence that the early movers in the iPhone business, AT&T and O2 UK, have been the more active in the hotspot market – AT&T acquiring Wayport in 2008 and O2 has been central to The Cloud’s resurgence in recent years (and is now going it alone).
We discussed the benefits of these moves for Sky and O2 in a report today. A WiFi footprint in the kind of places you might want to sit down and catch-up on TV is a great asset for the planned Sky Anywhere service, and building a reputation for delivering a better mobile user experience in places of high data traffic should help O2 given that it hasn’t managed to do this with mobile broadband.
So hotspots are great in the smartphone market and will be important for delivering content to larger screen MIDs and tablets. What we didn’t discuss in this report was the future for hotspots as revenue generators in their own right. That’s because there isn’t much. They might be important in stimulating core revenues on smartphone data plans or content-anywhere services, but even the location owners themselves are becoming more interested in using WiFi to drive core revenues (extra cup of coffee or an extra hotel room) than to generate access revenues.
As smartphone use surges, traditional WiFi hotspot players are seeing their metrics move in the opposite direction:
KT’s Nespot / olleh WiFi service peaked in 2005 with over 0.5 million subscribers, though has been trending down ever since despite investing in the footprint. Even during 2010, when KT doubled its hotspot location count to 36,000, it has seen subscriber numbers fall 10% to 266,000, and revenues fall 18% (down to 0.9% of KT’s Internet access revenues). It now makes over 7x more revenue from WiBro than from WiFi;
iPass recorded a 12% annual decline in its access revenues in 3Q 2010 (which includes WiFi hotspot revenues, hotel Ethernet and also still some dial-up, though the latter is less than 5% of its total). It saw an annual decline of 8.9% in the number of users paying an up-front fee for access to 552,000 users, with the number of users paying for ad-hoc access also falling 14% to 192,000.
Again, as a newly integrated operator, KT is not planning to expand to 100,000 hotspot locations in order to turn around that Nespot business – it’s all about enhancing the mobile broadband user experience and managing costs through traffic offload. And the same can be said for Sky and O2.