Sprint mandates Wi-Fi but WLANs remain both friend and foe

Only a few years ago US carriers were mounting lawsuits against WiFi metrozone operators. Now AT&T and T-Mobile have made such hotspots a key element of their proposition, and last week Sprint Nextel said it would insist on WiFi support in all the smartphones it offers from next year. WiFi, then - provided it is under cellco control - has shifted from being a threat (diverting users away from mobile networks onto unlicensed, often free services), to a friend (allowing the exploding levels of wireless data to be spread over multiple pipes, with WiFi the cheapest to the carrier). But any strategy involving unlicensed networks involves a double-edged sword, and this is especially seen in the rising use of mobile application stores.

The upsides of WiFi for carriers? If they can direct users onto WiFi hotspots and networks they control (and charge for, at least as part of a services bundle), they can mitigate the loss of revenue from 3G to WLANs; do something about the quality of service; increase user loyalty and reduce churn; and offload the kind of low value but data-intensive traffic that can compromise a 3G network. Increasingly, consumers do find themselves on a WiFi network controlled by their operator. T-Mobile USA was a pioneer in using dual-mode devices and UMA to support fixed/mobile convergence and value added services in the home, while offering users bundled deals that included access to its huge hotspot system - reducing their cellular spend while on the road, but keeping them within the T-Mobile world. AT&T has aggressively emulated this strategy on the hotspot and bundling front, especially since acquiring Wayport and poaching the important Starbucks coffee chain deal from its smaller rival - though it does not use UMA for FMC and homezone services, pursuing a femtocell strategy instead.

The downsides? They cannot ensure that users stay on their own WLANs, rather than roaming off to third party services, taking all their wireless data spend with them (and even voice, with the advent of usable mobile VoIP, Skype and Google Voice for Android). They can make their WiFi connections more attractive, but only by providing free access to subscribers and outlaying considerable sums on extending their hotspot network to ensure availability, and on improving quality. And though traffic offloading may be a short term bonus, given the creaking nature of current 3G coverage and capacity, the cellcos live with the dream of moving to 4G networks and supporting true broadband and massive data usage, with the improved ROI of a flat, IP system. But if the users are accustomed, by then, to carrying out most of their heavy duty applications work on WiFi, how easy will it be to get them back onto the cellcos’ network, except by making it just as cheap (which means free or at least aggressively flat rate), and enhancing the user experience (expensive, not the carriers’ forte, and with the significant chance that Google or other over-the-top giants will do a better job)? This will be especially tough when the LTE networks are not universal in coverage, and may well be less widely available than WiFi for some years.

So the bitpipe beckons, strengthened by the carriers’ own willingness to show users that there is a faster, cheaper alternative to 3G for doing YouTube on the phone. Operators’ attitudes to app stores, particularly the Apple blueprint, epitomize the dilemma. AT&T bars the mobile version of the SlingPlayer placeshifting TV app, available from the iPhone store, from its 3G network, forcing its most-loved customers, the Apple users, to run the app on the phone’s WiFi link only. It pleads overburdening of the 3G system, resulting in poor experience for other customers - probably true, but hardly persuading the subscribers that their high value iPhone 3G data plans are worth the money.

Across the world, one of the many sticking points in the negotiations to get the iPhone into China is precisely its WiFi component. The carrier that does take the handset, most likely Unicom, will almost certainly insist that WiFi is disabled. This is largely because of government policies on unfettered internet access, but the restriction is supported by the cellcos, because they are determined to keep iron control of their networks, revenue models, app stores and brands. Hence another sticking point - China Mobile’s refusal to entertain an iPhone store that was not using the operator brand and revenue split (see separate item).

The Chinese carriers have the ‘luxury’ of building out new networks from scratch, using the latest 3G (and soon, 4G) kit and with little chance of their new systems overloading any time soon (3G usage will be a tiny fraction of the total for years). But for their US counterparts, there is the need to cope with an explosion of mobile data, driven by netbooks, dongles and smartphones, on 3G networks that are inadequate to the task, necessitating rapid upgrades and 4G plans. In the meantime, WiFi offload looks almost inevitable, especially for the GSM/UMTS carriers, with their less efficient networks.

Even in CDMA land, Sprint is following the trend, its own hotspot efforts having fallen drastically behind those of the GSM majors. Sprint only announced plans for a widespread hotspot service in 2003, behind its rivals, but its promises of a 2,100-strong network did not materialize and it has often misstepped in the WiFi market - for instance, in 2004, at the height of hotspot fever, it introduced a flat rate WiFi plan priced at $49.95 a month, double the price of competitors. Now it is heavily focused on femtocells for in-home coverage and FMC, and has been a real pioneer there, but it still needs to add WiFi to its mix once its customers are out on the road.

It is, therefore, going to insist that every midrange and high end handset it offers in 2010 will have WiFi support, which may point to stepped-up hotspot activity too - cellcos are not the only operators enhancing their service bundles with hotspot and metrozone access; cablecos are keen on this route too, most dramatically Cablevision, with its WLAN build-out across its New York, New Jersey and Long Island territories.

One of the vendors that will have to adapt to Sprint’s new rules is RIM, which has been remarkably slow in adding WiFi even to some of its highest profile phones such as the Storm and the new Tour. It will reportedly put this right by year end, adding WiFi to ‘Storm 2′, expected at Vodafone and Verizon in time for the holiday season, and to an updated iteration of Tour, which could see the light of day before the end of 2009, or early in 2010.

Sprint did go ahead and launch Tour this month, as did Verizon, despite the lack of WLAN facilities, saying that it did not want to delay its roll-out. But “Sprint is embracing WiFi in all its major devices going forward,” said Jeff Clemow, director of business product marketing. “It is now a requirement for all our PDA equipment suppliers to include WiFi. Several quarters ago we made a conscious decision to require all of our PDA suppliers to support WiFi.” This will be gradually extended to all high end handsets and webphones, said Sprint sources.

Clemow added that Sprint will offer a version of the Tour, from early next year (”after the first of the year”), that will include WiFi - this could, however, slow sales of the current model if users are keen to wait for the new facility. Sprint, of course, also has a WiMAX option to offer its users via its stake in Clearwire and its MVNO deal with the operator. As that network expands, it will give Sprint additional devices and service plans to add to its bundles, and the most powerful mobile broadband connectivity in the US, at least in certain metrozones.

Mobile billing service provider, Bango, says that 20% of users purchasing content on their phones are now connecting via WiFi, and unless this is through an operator portal or controlled environment, this damages the mobile revenue model for cellcos and their content partners. It could also make vendor stores more attractive to consumers than operator branded alternatives - a WiFi iPhone user still pays the App Store developer for the product, but buying from a cellco store will be tied to a specific network.

“The use of WiFi on mobile handsets is becoming pervasive,” commented Frank Dickson, VP of research at In-Stat. “By 2010, In-Stat anticipates that 20% of the total WiFi chipsets will be used in mobile phones as manufacturers, currently led by Nokia, continue to ship an increasing number of WiFi enabled handsets.” The solution, says Bango, is for operators to extend their billing mechanisms beyond their own networks - carrier billing is a significant attraction, often offering well tried, trusted and streamlined processes, and allowing purchases to be put on the mobile bill. “Operator billing delivers the highest payment conversion rates for mobile content,” said Bango CEO Ray Anderson. “These statistics are both a warning and an opportunity for mobile businesses to ensure that their billing solutions can secure the same high conversion rates from the growing number of WiFi connected customers.”

So perhaps, even as the cellcos invest large sums in creating attractive user experiences and strengthening their brands, it may be the more mundane weapon in their armory, billing systems, that give them an edge even in the world of WiFi.