Without a Billing System, no need to Charge for Wi-Fi

Earlier I wrote, in this blog that coffee shop operator Tully's should think of Wi-Fi the way they do bathrooms or napkins -- just a cost of doing business. An interesting set of articles out this week addresses this same issue. Bob Brewin, writing for Computerworld, had this article out yesterday: Free Wi-Fi: From burger chains to public parks and dentists. Bob reports that the Krystal Co. (425 restaurants) will add free wireless to 52 of its locations by the end of this month. CEO Fred Exum is quoted as saying that "...the company views high-speed wireless Internet access as a way to attract and retain customers." And that free access makes good business sense since, "We're in the hamburger business and if I had paid access, my managers would have to help customers with their [Wi-Fi] configuration."

The article also makes the point that the installation cost of Wi-Fi is very low, since the restaurants already have a network connection for in-store management systems. Bob writes:

David Reid, Krystal's CIO, said the company can add free Wi-Fi service "without a huge capital investment" because it piggybacks on a wired high-speed network infrastructure installed in all its stores, typically DSL or cable modem service with data rates in the 900Kbit/sec. range. These wired connections support in-store systems whose traffic is so light that the Wi-Fi service has access to about 98% of the backbone capacity.

This cost effectiveness leads many to wonder why companies are charging so much for wi-fi access. A recent Register article by Jan Libbenga reports Wi-Fi hotspots simply too expensive. Jan reports on a recent study by Germany's Scientific Institute for Communication Services (or WIK Wissenschaftliches Institut fur Kommunikationsdienste). The study concludes that Wi-Fi hotspots serve the needs of only a small number of customers and that as a result, they are unlikely to be profitable. Part of the problem, WIK's paper says, is that the cost for access is so high that patrons won't use the service.

So at the same time that Krystal is finding it very inexpensive to offer Wi-Fi hotspots in its restaurants, WIK is claiming that it is too expensive to offer such services for the small number of people interested in paying the (high) cost to use them.

A thought provoking post to the Wireless Unleashed blog, entitled The Economics of Connectivity looks at the cost of deploying wi-fi within a broader context. Kevin Werbach writes

One of the key differences between traditional wireless networks and unlicensed systems such as WiFi is the way they distribute costs. It's not just a question of cheaper or more expensive. Who pays, for what, and at what point can determine adoption patterns more than the aggregate level of spending.

He goes on to look at the differences in the expense that a centralized infrastructure like traditional broadcast media incurs in setting up a station, vs. the cost of localized Wi-Fi networks.

So the question that ought to be asked, especially in the light of the Cometa Networks Shutdown, is whether or not the economics of a centralized wireless network provider make sense, not whether the economics of Wi-Fi in general make sense. Tully's can afford a wireless hub and a DSL line in each of its stores. But can they afford to have security, authentication, and a billing layer on top? The centralized infrastructure requires the investment that makes Wi-Fi so expensive. Reduced to its simplest form, the billing system is the expense that creates a need to bill for the service... Eliminate one and you eliminate the other.