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Monday, July 31, 2006

WiFi phones: look, will you just forget about hotspots?

There's a sudden rash of articles about WiFi-capable phones at present, seemingly catalysed by a NY Times piece.

A common theme seems to be "Wow, these will be usable at WiFi hotspots! What happens to the carrier business model then? Cannibals ahoy!!!!"

Look, all of you, will you just forget about hotspots for WiFi phones? It's irrelevant, a niche of a niche of a niche. Dual-mode phones are about using VoWLAN in the home & at work. Period. Everything else VoWLAN-related - hotspot, hotzone, plane, donkey, whatever - is noise. Secondary or tertiary - remind me again in 2009, and I might be persuaded to care. Sorry FON, T-Mobile, The Cloud, city WiFi evangelists, but unless I'm a top-1% prosumer enthusiast user, or a street-cleaner spending all day outdoors, it's an irrelevance.

Yes, I know, I've talked before about running Skype-over-WiFi from my laptop in a hotel, but that's different: I'm using the hotspot for data already anyway, I've signed up using a full-screen browser & credit card, I'm avoiding heinous international roaming fees, I'm not moving, it's not dual-mode with cellular (seamless or otherwise) and I'm only making outbound calls.

So why is all this nonsense?

Think about who is buying (or subsidising) dual-mode phones, and why they want to use them.

  • Fixed-mobile combined operators (France Telecom, Telecom Italia etc) want to launch innovative triple/quadplay services leveraging their home broadband user base. Yes, this might include cheap voice at home (using WiFi or maybe cellular-only solutions), but it'll also be relatively sophisticated with other "converged" features like video, network-resident address book & other valuable, churn-reducing capabilities. Some of these will succeed, but only with a lot of effort in areas like customised phones, dedicated home gateways & 100 other niggly bits of technology and customer experience to optimise.
  • Partnerships of broadband/mobile operators, or MVNOs (BT, Sprint/cable co's etc) want much the same. They're also likely to have a fair shot at this, although not controlling both sides of the infrastructure will make it harder.
  • Mobile operators would potentially like to exploit their customers' broadband and WiFi at home, because it's a much cheaper way to provide coverage. You, the customer, pay for part of their radio network using your own broadband line and WiFi. It also lets them offer a VoIP service which could, in theory, further their aims of fixed-mobile substitution. However, there's a whole bunch of problems with configuration, customer support and a decent user interface/experience which means most such attempts will fail miserably.
  • Residential customers want WiFi in phones primarily for data, not voice. Browse the web or do IM from your sofa, transfer 6 megapixel images or MP3 files to/from your PC and so on. If you've got lousy cellular coverage, or are particular enthuiasts of Skype or another Internet VoIP provider then yes, you might want a VoWLAN client on the device as well - but it will have to be a top-end phone to work properly.
  • Business customers want to reduce their cellphone bills by any means possible, especially in Europe, where roaming is a huge issue. Many already have office/campus WiFi, albeit without 100% coverage or voice optimisation. Most have PBXs or IP-PBXs that they'll keep for a long time (forget IP centrex too), and many have long-distance IP networks like MPLS-based VPNs connecting their main offices. Most are also aware that employees prefer to use cellphones for many calls. Most don't want to pay for more devices than needed, but also don't want to route calls through a carrier (& pay) when it's not necessary. This is driving companies like Cisco, Avaya, NEC, Siemens, DiVitas and others to put a PBX "personality" on a WiFi-capable cellular phone. Not easy, either in terms of technology or route-to-market, but it's the first time in 15 years as an analyst I've seen more end-user "pull" ("I want this now!!!") than vendor "push" ("Hang on, it's not that easy, we're still working on it"). Most will want to work with some operators, but ideally fixed/mobile hybrid providers with teams who understand both PBXs and systems integration, not common-or-garden legacy mobile-only carriers with no entreprise network expertise.
  • VoIP service providers want to use dual-mode phones to put their software clients on devices & turn them into a "second line" using WiFi. They also face a whole bunch of challenges around integration, and may turn to hotspots in desperation, when they realise they can't control all the bits of a proper residential/corporate offering as described above.
  • Hotspot and Hotzone providers are also desperate to add voice as an application, because they've wasted 3 years' lead on HSDPA / EV-DO by sticking to stupid pricing, roaming and marketing strategies. Hotspot operators face huge problems of browser-based settings on "normal" dual-mode phones, except on pre-configured (and probably WiFi-only) devices sold specifically for that purpose. Hotzone / metro-WiFi operators will face problems of extremely patchy indoor coverage (amongst other things)
  • Handset manufacturers want to play arms merchants to all of the above, but also make sure they don't get tripped up in the "sour grapes" politics of wireless carriers who've realised they can't exploit WiFi, and who therefore don't want anyone else to play with their toys either. Especially in those countries where handsets are subsidised.

Bottom line: dual-mode is difficult. Not impossible, but nowhere near as trivial as many people make out. Some of the technology, ironically (battery life etc) is the easy bit to fix. The real problems are in user interface, integration with the fixed domain (broadband, VoIP, PBX, WiFi AP, whatever) and things like authentication/security and channel-to-market.

Consequently, business models around VoWLAN will only work in those places where there's already high usage, where lots of costs can be saved - in the home, or at work. Saving 2.7 cents twice a week when calling outbound from Starbucks doesn't make a viable business for anyone. Hotspots might come later, but for now, they're not where the dual-mode action is.

(Hey, I'm really proud - I managed to write a whole article on VoWLAN without singling out UMA and being rude about it once.....)


Anonymous said...

Nice shot. Having spent the last 2 years with a WiFi network operator, you're comments are right on the money. Glad somebody out there can see the reality that no one inside the ropes wants to see.


David Mould said...

Dean, I think you touched on the reason why VoWLAN will/could be [very] successful. Most mobile user aren't mobile; they are transient users. I go from my house to work, stay there all day and then go home again. In a typical 17 hour day of wakefulness I am actually moving in more than one hotspot for about 2 to 3 hours. This is the best argument for VoWLAN. I don't need to messy business of hand-offs across cells. This relegates, at least in mind, to GSM being used for truly mobile users (train and car commute and the travelling salesman). http://www.produktiv.com/dm/orientexpression/2005/09/wimax-revolution.html

Francesco said...

Dean, very interesting article. I agree with most of your statements. However, my vision on the future of VoWiFi is even darker than yours. Not only pure VoWiFi handsets will be a niche of a niche of a niche, as you rightly mention, but also the dual-mode GSM – WiFi handsets will not become mainstream at least in the next 5 years. This is mainly due, in my opinion, to two drivers:

a) The customer target segment is very small
b) Incumbents providers own a very dominant position in most of the European markets and won’t really try to mass market these solutions for many years on

The customer target segment is very small because is formed by telecom / savings fanatics. With telecom / savings fanatics I mean people

1) With a broadband connection home
2) With a fair technical background in order to tackle the inevitable issues that will arise when trying to set-up the dual-mode handsets
3) Very keen to better controlling their telecom bills (sometimes already paid by theirs employers).

How many telecom / savings fanatics have we in the Italy, Spain, Germany, France and UK? 10% of the overall broadband base? (that is, 5% of the overall GSM base?). I would say that even these figures are very optimistic.

Well, this segment, a minority, will be targeted by the offers of the incumbents, who, owning both GSM / DSL infrastructure in many countries (Telecom Italia in Italy, France Telecom in France, Telefonica in Spain), will fine-tune the offer just to put barriers against the competition (pure VoIP players), but without being very aggressive in price cutting / superior value. UK could represent the only market where competitive dynamics could develop more aggressively, but in the major European markets I don´t see this happening.

Bottom-line: I see a slowly growing (in absolute terms) niche market for dual-mode GSM – WiFi handsets. I would guess a maximum of 5% of the overall GSM base by 2011 (next 5 years).

Paul Jardine said...

Nice rant and you're right in some ways. WiFi is not very useable from a dual-mode phone right now, mainly because of authentication/login issues and general setup (it doesn't just work). However I see these as just software problems that should be overcome.
You seem to think operators will be driving this?! WTF? Don't you think the device manufacturers want to break free?
I think the jury's still out, but the potential is undeniable. Perhaps you're just saying it won't be realised rather than doesn't exist...