To Battle the Telephone Giants, Small Internet Providers Choose Wi-Fi as a Weapon

[David Farber <dave () farber net>]

Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: October 30, 2005 10:26:12 PM EST
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] To Battle the Telephone Giants, Small Internet  
Providers Choose Wi-Fi as a Weapon
Reply-To: dewayne () warpspeed com


October 31, 2005

To Battle the Telephone Giants, Small Internet Providers Choose Wi-Fi  
as a Weapon

By MATT RICHTEL
and KEN BELSON
<http://www.nytimes.com/2005/10/31/technology/31wifi.html? 
ex=1288414800&en=7062939c6c0c7f5f&ei=5090&partner=rssuserland&emc=rss>
With cable providers and the Bell telephone companies dominating the  
market for residential high-speed Internet service, smaller Internet  
access providers are desperately trying to find a new way to connect  
with consumers. They say they may have found it in wireless  
technology that avoids the need to build expensive underground networks.

The most prominent example is EarthLink, once a leader in dial-up  
Internet service. The company made a big leap into the wireless  
market this month when it won the right from Philadelphia to provide  
inexpensive Wi-Fi Internet connections citywide. Last week, the  
company also won an exclusive franchise to build a wireless network  
for the city of Anaheim, Calif.

The wireless option is attractive because it does not require  
building or leasing costly underground lines, and the cost of Wi-Fi  
equipment and installation is falling rapidly, said Donald B.  
Berryman, president of a new division of EarthLink, called EarthLink  
Municipal Networks.

"There is so much going on" in the wireless market, Mr. Berryman  
said. "We see this as a huge opportunity to grow our business."

As part of the agreement with Philadelphia, EarthLink obtained public  
rights-of-way to build a wireless network covering the city's 135  
square miles. The company will pay the construction costs, which Mr.  
Berryman said could be as little as $10 million, compared with the  
hundreds of millions of dollars EarthLink would have to spend to lay  
copper or fiber cables for a conventional broadband network.

EarthLink is not alone in betting on Wi-Fi. Many smaller  
telecommunications players are bidding for Wi-Fi contracts with big  
cities like Minneapolis and New York, which are eager to attract new  
businesses, give residents alternatives to the cable and phone  
companies and make it possible for lower-income residents to get an  
Internet link.

In smaller cities like Grand Haven, Mich., and Rio Rancho, N.M.,  
start-ups like Azulstar Networks have struck out on their own,  
obtaining right-of-way agreements. In San Francisco, Google is  
considering building a free citywide network. Google would make money  
by selling advertising that reached the Wi-Fi users.

The Philadelphia network, which EarthLink hopes to complete by next  
year, will operate in a mesh of Wi-Fi access points, or hot spots,  
like those found in airports and cafes. High-capacity data  
connections to the Internet will be beamed from central offices to  
smaller Wi-Fi antennas on streets, in parks and atop buildings. The  
antennas, which have a range of about 600 feet, are positioned so  
that the signals overlap to prevent dropped connections when users  
move from one hot spot to another and to ensure that signals reach  
inside buildings.

Even with municipal Wi-Fi contracts, smaller Internet providers face  
an uphill battle against the likes of Comcast and Verizon, which have  
huge marketing budgets, bundles of products that include voice, video  
and television, and the ability to sharply cut prices.

And wireless networks are far from perfect. Though several times  
faster than dial-up services, they are still slower than conventional  
cable or D.S.L. broadband connections. They are also vulnerable to  
privacy and security problems. In hilly cities, coverage can be  
spotty. And heavy network use can slow connection speeds.

"It's an opportunity for the EarthLinks and AOL's of the world to  
generate new revenue," said Patrick Zerbib, an industry analyst at  
Adventis, a telecommunications consultancy. "But it's unclear whether  
the new Wi-Fi business can offset the decline in their other  
businesses."

Even so, the Bells and cable companies are fighting wireless  
incursions into their territory. They see the municipal projects - or  
anything that circumvents their expensive and extensive in-ground  
networks - as a threat. They are lobbying state and federal lawmakers  
to curtail publicly funded networks, arguing that publicly sanctioned  
services could deter the Bells from investing in their own networks.

But for providers like EarthLink, there's little choice but to forge  
ahead. On Oct. 20, the company said the number of its dial-up  
customers fell 8.1 percent in the third quarter, compared with the  
same period in 2004.

EarthLink, however, said it expected the Philadelphia project to give  
the company a lift. Mr. Berryman said EarthLink would charge  
Philadelphians about $20 a month to use the service. Under the  
company's agreement with the city, low-income residents will be  
offered discounted service at $10 a month (the city will determine  
eligibility for the discount).

The speed for the service, at around 1 megabit per second to download  
information, is about a quarter the speed of most cable broadband  
connections.

Because of that, Mr. Berryman does not expect these connections to  
displace the cable and phone companies. Instead, he said, EarthLink  
wants to get faster Internet connections to people with dial-up  
access or no connections at all.

The Bells and cable companies, however, are setting their sights on  
those customers, too. Verizon and SBC, for instance, now sell  
broadband service for as little as $14.95 a month, 25 percent less  
than EarthLink plans to charge in Philadelphia. Meanwhile,  
Cablevision and other cable companies are bundling their digital  
phone and television services with superfast data lines.

Some companies say they wonder whether cheap wireless broadband makes  
financial sense. T-Mobile, which operates the world's largest  
collection of Wi-Fi hot spots, did not bid on the Philadelphia  
project because it felt it would have a hard time making money on it.

Despite the financial challenge, some fledgling providers are moving  
ahead. The start-up Azulstar has been selling wireless Internet  
connections for the past year in Grand Haven, which covers about six  
square miles. Customers can get a connection for $19.95 a month, just  
a few dollars more than SBC's lowest-priced plan, which is faster.  
With an encrypted password, customers can log on to the Internet  
almost anywhere in the city, according to Azulstar's chief financial  
officer, Les Lewis.

Mr. Lewis declined to say how many subscribers Azulstar had signed  
up, but he said that wireless providers could compete with the Bells  
and cable companies by offering Internet phone and other services.

"It's not just going to be an Internet connection, but it's going to  
be like electricity where people develop more than light bulbs," he  
said.

[snip]

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