Subject: [NEXTEL-1] WSJ.com - New Way to Surf the Web Gives Cell Carriers Static

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Date: Fri, 29 Nov 2002 20:40:44 -0500

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CATCHING ON

• French
Regulator Clears Way for Wi-Fi

11/08/02

• VoiceStream
Expands Wi-Fi Access in Starbucks

08/21/02

• Microsoft
to Launch Products for Wireless Home Networks

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• The
Mossberg Solution: Home Wi-Fi Networks Are Big -- Is Now Time
to Jump In?

06/26/02

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New Way to Surf the Web

Gives Cell Carriers Static

As 'Wi-Fi' Users Multiply, Expensive Bet

By Wireless Firms Looks Increasingly Risky

By JESSE DRUCKER and
JULIA ANGWIN

Staff Reporters of THE WALL STREET
JOURNAL

At first glance, software executive John Baron would seem to be a
cellphone company's dream. He subscribes to the slow Internet browsing
option on his cellphone, painfully pecking away on the dial pad to type in
Web addresses.

Lately, though, he has found a better way: When on the road, he uses
Wi-Fi, the technology that gives him wireless access to the Internet on his
laptop computer, at blazing speeds. "It's brilliant," he says. "The phone
stuff is pretty clunky."

Once viewed as little more than a toy for tech hobbyists, Wi-Fi -- short
for wireless fidelity -- is starting to emerge as a serious force in the
Internet business. Chip maker Intel Corp. is integrating it into
new microprocessors it's building for laptop computers. Philips Electronics NV is planning
to build it into remote controls and stereo systems. And Dell Computer Corp. is similarly
seeding its PCs with Wi-Fi. Airports, hotels and Starbucks Corp. outlets
are increasingly awash in Wi-Fi radio signals.

Cellular Headache

While Wi-Fi poses problems for cable companies and conventional phone
carriers selling high-speed Internet access, it has the potential to be a
major headache for the cellphone business. Cellular carriers have spent
billions of dollars over the past two years upgrading their networks to
accommodate higher data speeds, and they are betting that consumers will
send e-mail, browse the web and make use of other applications from their
new phones, laptops and hand-held devices.

But now an insurgent technology has come along to threaten that strategy
-- just as Napster and the Internet itself sprang up from grass-roots
followings to challenge the economic models of giant media and technology
companies. Wi-Fi equipment works like a cordless telephone. It invisibly
extends a fast Internet connection as much as 1,500 feet to any computer
equipped with a wireless receiver. That means that, for a small investment
in equipment, many users in the same home or neighborhood can theoretically
share the same stationary Internet connection, while only paying for a
single hook-up. More importantly, the speeds offered in such Wi-Fi
"hotspots" are so much greater that many users say they're reluctant to
make use of the cellular carriers' offerings.

"What [Wi-Fi] hotspots do is they really kill about 80% of the good
near-term applications that the cellular providers were expecting to make
money off of," says Danny Briere, chief executive of TeleChoice Inc., a
telecommunications consulting firm. One example of a place where Wi-Fi is
already supplanting cellular networks: browsing the Internet wirelessly in
an airport lounge.

Race to Deploy

Now cellular providers are scrambling to offer paid Wi-Fi services
before others beat them to it. For instance, Sprint Corp., whose Sprint PCS group is the nation's
fourth-biggest wireless provider, has invested in Wi-Fi firm Boingo
Wireless and has announced plans to deploy Wi-Fi hotspots with Wyndham International hotels.

Cellular carriers aren't the only ones grappling with Wi-Fi. For the
cable television industry, the advent of the fast-growing technology
provides a spooky reminder of a problem that has dogged cable companies for
years: the piracy of cable television signals. According to a survey by the
National Cable Television Association in 2000, cable operators lost an
estimated $6.6 billion, or 10% of total revenue, from people who jack into
the cable system.

Wi-Fi presents just the same quandary, allowing one user to share the
connection with nonpaying users. Jeff King, president of Road Runner, the
high-speed Internet unit of Time Warner Cable, calls the practice of
advertising shared Wi-Fi connections "cable theft." His company has cracked
down on some people who were allegedly sharing their connections.

Meanwhile, the conventional telephone business, an industry in feeble
financial condition, is trying to take part in the Wi-Fi boom. The two
biggest players, Verizon Communications Inc. and
SBC Communications Inc., are
selling Wi-Fi systems directly to their high-speed Internet customers. At
first, SBC was worried about the possible abuses, says Alyssa Williams, a
product manager for SBC. But eventually, she says, the company decided that
"to fight something that's available to someone is kind of fruitless."

Packets of Data

Wi-Fi dates back to the early 1990s, when a band of engineers focused on
the use of "junk" radio-wave spectrum to devise a way for computers to
share data without the twist of cables typical of corporate networks. In
1997, after years of experiments with the technology, the Institute of
Electrical and Electronics Engineers established a standard for wireless
computer networking. Much like the Internet, the technology divides up data
into little packets and sends them over the airwaves using radio
frequencies. Antennas put in computers "catch" the data packets and
reassemble them at the destination.

At first, the technology was too expensive for most home users. Wi-Fi
antennas used to cost $500 apiece and transmitters cost $1,000.

Still, it started to catch on slowly among corporate users. Car-rental
companies bought wireless hand-held computers to use when checking in
returning vehicles. And some companies used Wi-Fi to transmit data from
their delivery trucks to their offices. Apple
Computer Inc. made one of the earliest bets on consumer adoption
of the technology, equipping their laptops with Wi-Fi technology in
1999.

The prices for Wi-Fi equipment have since fallen to about $200 for the
whole set-up. Now sales are taking off. In the third quarter of this year,
shipments of Wi-Fi equipment nearly doubled to 4.8 million, according to
In-Stat/MDR. Sales at the leading maker of home Wi-Fi equipment, Linksys
Group Inc., jumped to one million units in the first half of this year from
one million during all of 2001.

In the past two years, self-proclaimed "wireless guerrillas" have
started a movement to bring free Internet access to the masses, building
shoestring Wi-Fi networks that allow people to get access to the Web at no
charge. They are a motley band of neighbors and activists whose wireless
"footprints" cover a portion of a city block or small city parks in places
such as New York and San Francisco.

In midtown Manhattan, Bryant Park is wired for Wi-Fi, and the group that
operates the free hotspot estimates it generally gets 60 to 70 users a day.
Further downtown, the Chelsea Market, an indoor food and cafe market, is
also a free Wi-Fi hotspot -- across the street from a Starbucks that
requires users to pay. In Portland, Ore., Pioneer Courthouse Square, the
city's main downtown plaza, is also wired for free use. And on the island
of Hawaii, a former high-school physics teacher has strung together a
300-square-mile free Wi-Fi network using people's homes, schools and small
businesses as hotspots.

The potential of such ad hoc wireless networks isn't lost on U.S.
national cellular carriers, who have spent roughly $6 billion upgrading
their networks to beam data at high speeds through the ether. And they're
already out billions of dollars more for spectrum licenses they acquired
years ago.

Wi-Fi, on the other hand, uses spectrum that was set aside by the
Federal Communications Commission for oddball devices that happen to use
radio frequencies such as some cordless phones and older microwave ovens
and hospital equipment. So long as products that use the spectrum live up
to some technical requirements, anything goes. Moreover Wi-Fi, piggybacking
on high-speed Internet connections, is far faster than cellular carriers'
latest-generation offerings.

Wi-Fi technology isn't perfect. Interference from cordless phones, ham
radios and microwave ovens is a problem because Wi-Fi uses unlicensed
airwaves. If someone creates interference in a traditional cellular
network, "I can have them removed," says Jim Straight, the vice president
for wireless data and Internet services at Verizon Wireless, a joint
venture of Vodafone Group PLC and Verizon.
But "if you go into unlicensed spectrum, it's a free-for-all," he says.

What's more, cellular works better than Wi-Fi when the user is walking
down the street or riding in a car. Wi-Fi is also subject to obstruction by
everything from chimneys to elevator shafts.

Faster and Cheaper

Even so, John Stanton wasn't going to wait for his high-speed wireless
business to be eaten away before it even got started. The chairman of
wireless carrier T-Mobile USA Inc., formerly called VoiceStream Wireless,
who once viewed Wi-Fi "both as a threat and an opportunity," now prefers
the latter option. At an investment conference in Sun Valley, Idaho, in
2001, Michael Dell, the chairman and CEO of Dell Computer, shared some
surprising information: All of the company's newly manufactured laptops
would soon be enabled for Wi-Fi. Mr. Dell's view, Mr. Stanton recalled, was
that the speeds offered by wireless carriers simply weren't fast enough for
their customers, a common complaint about the cellphone data networks.
Wi-Fi turns out to be faster for consumers, and cheaper for carriers to
install.

"The conversation with Michael kind of planted a seed for me that
[Wi-Fi] was more real than I had realized," he said.

In January, T-Mobile, a unit of Deutsche
Telekom AG, bought MobileStar Network Corp., a bankrupt Wi-Fi
provider that had deployed wireless hotspots in more than 500 Starbucks
around the country. Mr. Stanton insists that MobileStar's problems don't
bode poorly for his own Wi-Fi efforts: MobileStar ran out of money and
didn't have an existing infrastructure to support its Wi-Fi network, he
says. T-Mobile has expanded the hotspots to 2,000 locations and recently
announced plans to go into 100 airline lounges and 400 Borders bookstores.
Mr. Stanton says the company has committed to spending more than $100
million for this nationwide build-out of Wi-Fi hotspots, which he considers
money well spent. With T-Mobile's regular networks, "I can't get a couple
major markets built for $100 million," he says with a chuckle.

T-Mobile users can pay for the Wi-Fi service in a variety of ways. The
company offers monthly subscriptions with prices starting at $29.99 -- as
well as prepaid and pay-as-you-go plans starting at $2.99 for 15 minutes of
access.

Plenty of other wireless carriers are racing to get a piece of the
action. Nextel Communications Inc. is
working with Motorola Inc. to develop a Wi-Fi
handset, and also backs RadioFrame Networks Inc., a company that deploys
dual Wi-Fi/cellular networks in corporations.

AT&T Wireless Services Inc.
has wired Denver International Airport for Wi-Fi access, and says it is
interested in marketing a PC card by Nokia Corp. that would use Wi-Fi
networks when available or switch to AT&T Wireless's cellular network
when out of range of a Wi-Fi hotspot. Says AT&T Wireless's chairman and
chief executive, John Zeglis: "We're going to be real friendly to
Wi-Fi."

'A Commodity Business'

Cellphone companies insist that Wi-Fi presents no threat to their
current plans and contend that there's a place for both systems. But some
experts are skeptical that Wi-Fi will ever become profitable. "I'm not
convinced [Wi-Fi] is a great business," says William G. Crawford, a former
telecom analyst at U.S. Bancorp Piper Jaffray. "Water is a wonderful thing,
but selling water may not be. It's a commodity business."

Anthony Townsend, co-founder of free Wi-Fi network provider NYCwireless
who is trying to spin off a for-profit company, says the telecommunications
companies are taking the wrong approach by trying to charge for wireless
Internet access at airports and coffee shops. Mr. Townsend's start-up,
Cloud Networks, is hoping to make a business out of designing, building and
maintaining Wi-Fi networks for owners of apartment and office buildings.
"Their model is to put a quarter in your chair to get a light turned on
over your chair," he says. "Our model is that the cost of providing light
should be part of the cost of your coffee."

Write to Jesse Drucker at
[email-masked] and Julia Angwin at
[email-masked]

Updated November 29, 2002

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