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OAK BROOK, Ill. and SANTA CLARA, Calif., March 11 -- Selected McDonald's restaurants in New York City now offer high-speed wireless access for customers who are constantly "on-the-go" and looking for a place to eat, rest and log-on to their laptop computers. The pilot program currently includes 10 McDonald's restaurants in Manhattan and is scheduled to expand to several hundred restaurants in three major U.S. markets by year's end.
McDonald's Corporation (NYSE: MCD) today launched a joint marketing campaign promoting a new dimension of customer service that delivers high-speed wireless access to coincide with the launch of Intel???? Centrino?????? mobile technology for notebook PCs that feature built-in wireless capability. The co-marketing agreement between McDonald's and Intel will include advertising, in-store merchandising and a signage program that identifies where Intel-verified wireless Internet zones are located.
"McDonald's is bringing broadband to Broadway," said Mats Lederhausen, president of McDonald's Corporation's Business Development Group. "McDonald's pioneered convenience so it makes perfect sense for us to offer our customers a great way to unwire, unwind, enjoy an Extra Value Meal and catch up on email."
McDonald's is scheduled to test high-speed wireless access in hundreds of restaurants in New York City, Chicago and a major market in California by the end of the year.
"McDonald's is known for being at the heart of where people work and live, so offering our customers another value -- Internet access -- is a great example of being the most relevant choice out there," said Lederhausen. "Both McDonald's and Intel understand how important value, speed, convenience and ease of service are for today's time-pressed consumer."
For the next three months, wireless-enabled laptop customers in New York City who purchase an Extra Value Meal?????? at participating McDonald's restaurants will receive an added benefit -- one hour of free high-speed wireless Internet access. Customers also can purchase a single session of up to 60 minutes for $3.00.
Current estimates indicate the number of wireless consumers is growing rapidly, with more than 78 million "windshield warriors" nationwide today. "This partnership is all about a new way of connecting with our customers and maximizing the power of our convenient locations," said Lederhausen. McDonald's is offering an open network for all wireless users, so customers do not have to set up an account.
"Whether you're a 'road warrior' who's starving for a trusted wireless connection or a student seeking a quick and convenient place to download, Intel is working with leading edge companies such as McDonald's to verify wireless compatibility and drive awareness of hotspots and wireless technologies that will change how and where people compute," said Ann Lewnes, Intel vice president, Sales and Marketing Group, and director, Intel Inside???? Program and Co-Marketing. "Whether at work, in a restaurant, at an airport or hotel, Centrino mobile technology delivers the freedom and flexibility of being unwired."
Intel's Wireless Verification Program includes engineering and testing of the Intel Centrino mobile technology with network architecture that supportsvarious wireless access points, software combinations, hotspot locations, and wireless service providers to ensure they are all compatible, further enhancing the consumer's wireless experience.
In addition to McDonald's customers, this wireless service is also accessible to McDonald's employees. "This technology enables us to share information immediately with hundreds of mobile employees who are dedicated to serving our customers and our restaurants," said David Weick, chief information officer for McDonald's Corporation.
By Steven J. Vaughan-Nichols
After suffering with Wired Equivalent Privacy (WEP) for what seems like ages, we finally have a wireless security protocol, Wi-Fi Protected Access (WPA) that gives us reasonable, albeit not perfect, protection. But, now the question is: how do you actually use it?
The theory of how WPA works is simple enough. WEP's main problems are that its security keys are very breakable and that they're no easy way to way reset keys on a regular basis to avoid someone breaking messages encrypted with an overused key.
WPA addresses these concerns, not by replacing the weak RSA Security's RC4 encryption, but by improving how RC4 is implemented and adding automatic key resetting. Specifically, WPA first increases the initialization vector (IV) from 24-bits to 48-bits. This makes a WPA protected message orders of magnitude harder to crack.
Next, WPA changes the key with every 802.11 packet using the Temporal Key Integrity Protocol (TKIP). This is a mixed blessing. While it does make packets harder to break, it comes at the cost of PC and Network Interface Card (NIC) performance.
Finally, WPA uses that ancient message security technique of a checksum. In WPA, this is done by checking the validity of an 8-bit message integrity code (MIC), also known as "Michael," within the frame and by testing the 802.11's frame 4-byte integrity check value (ICV).
In addition, WPA includes some of 802.1X server-based authentication tricks with support for Extensible Authentication Protocol (EAP) using Remote Authentication Dial-In User Service (RADIUS) or a pre-shared key. Although this doesn't help security directly, server-based authentication can go a long way toward stopping and tracking security breaches for larger Wi-Fi installations.
The end result of these technology improvements is that Wi-Fi will be far safer. How much safer? Enough to make the safety distance between a top of the line Saab and a 'fire in the back!" Pinto look minute.
Practice
Before you charge out and start implementing WPA, you should know that WPA is a stopgap security measure. It's really just a snapshot of the IEEE 802.11i standard (rumor has it the Wi-Fi Alliance might want to brand 802.11i as WPA2 for just that reason). Unfortunately, 802.11i is still a ways out from being done and since ever faster computers made hacking WEP ever easier, the Wi-Fi Alliance decided to put out a temporary standard, WPA, until 802.11i is finalized.
One headache you shouldn't have though, which many of us have faced with pre-standard 802.11g equipment, is compatibility. The Wi-Fi Alliance has set down the ground-rules for WPA and is making sure that all vendors stick to the letter of the WPA law.
The idea also is that any WPA devices or software you buy soon will be backwards compatible with 802.11i. Well, except that 802.11i will also introduce an optional replacement for RC4 called Advanced Encryption Standard (AES). Given RC4's track record in WEP, many vendors and users will want AES and many current WPA implementations won't be able to support it since to run in real-time, this encryption protocol currently requires a dedicated encryption/decryption chip. But if AES hardware is present, WPA will use it in place of TKIP.
Some WPA cards will be able to support 802.11i. For example, take Texas Instrument's TNETW1130 chip, which supports 802.11a, b and g, and has built in hardware accelerators for AES. If you buy any access point or NIC with that chip, you will be able to use them with WPA and also after 802.11i finally arrives.
The moral of the story is if you're looking to upgrade your wireless infrastructure only once within the next year or two, your best bet is to look for equipment with 802.11i-capable chipsets.
Ready to Replace Everything?
Next, if you're going to seriously use WPA, you can't just replace/upgrade an access point here and a radio-based NIC there. You need to replace and upgrade all your Wi-Fi equipment.
Why? Because while WPA equipment will work with WEP hardware, it does so by down-shifting to WEP. A security chain is only as strong as its weakest link, so if you try mixing old WEP hardware with WPA, you're likely to end up with a false sense of security followed by a criminal hacker in your network.
In theory, you can upgrade your existing WEP equipment to WPA with a firmware upgrade. While these products are slowly becoming available, you may want to hold up for a while. Upgrading firmware can be difficult in its own right and 1.0 versions of anything tend to be the versions with problems.
In any cases, you simply can't upgrade the cards. For example, there was a rumor at the beginning of the year that Apple's AirPort Card could be firmware upgraded to take advantage of WPA. It isn't.
Indeed, it may well be that before WPA solid firmware upgrades become available, 802.11i equipment will be arriving on the scene. Therefore, if you need better wireless security today, your best move may to bite the bullet and replace your equipment with WPA-capable hardware today.
If you simply can't afford that but need additional security right sooner than later, vendors like Atheros recommend using a Virtual Private Network (VPN) for your non-WPA equipment and forcing non-WPA-capable routers to use a Virtual LAN (VLAN) to connect with a VPN gateway. This way, all your non-WPA traffic must run with a VPN before entering the better secured division of your network.
OS Considerations
Don't think, by the way, that if you're running Windows XP as your operating system (OS), you can avoid these problems. While it's true that Microsoft supports WPA in XP, that doesn't mean it enables XP to run WPA in the operating system thus avoiding the need for new WPA-capable equipment or a firmware update. As Microsoft spells out in its WPA document: "Wireless network adapters must have their firmware updated" to make use of WPA's functionality. Indeed, when you get right down to it, the only thing Microsoft does to support WPA is to enable "clients that are running Windows XP service pack 1 (SP1) and later or Windows Server 2003 and that are using a wireless network adapter that supports the Wireless Zero Configuration (WZC) service." That's it.
Microsoft will also not be giving support to those few WZC users running on earlier versions of their operating system. The Redmond giant has, however, promised to support 802.11i and 802.1X across their product line, including the almost outmoded Windows 98 Second Edition.
On most operating systems, such as Linux and MacOS, you won't have to make any operating system changes. Of course, your client software and driver will need to be upgraded to work with WPA, but that's true of any significant NIC change.
For the most part, though, changing over to WPA will simply be a matter of plugging in the new hardware, upgrading your software and logging on to the network. It should take only seconds longer than installing WEP-empowered NICs or access points today.
If you're using a RADIUS server for authenticaiton, you will of course have to work the WPA hardware into your RADIUS setup using your vendor's directions. If you have a small business or a home Wi-Fi network, you'll want to use a pre-shared key and set it on each workstation and access point. This shouldn't cause you any grief. It's less trouble than doing WEP right in the first place and provides much better protection.
Bottom Line:
The real question is: "Is WPA worth it with 802.11i on the horizon?" There's no good answer. If the IEEE standardization process goes extremely well, 802.11i might be available as early as the end of this year. In that case, your new WPA hardware might only be state of the security art for as little as six months.
In the worse case scenario, though, we could still be sitting here in May of 2004 and still not have either standard finalized. In that case, buying WPA makes much more sense.
So ask yourself is how important is Wi-Fi security for you today? If it's mission-critical, go ahead and buy WPA-capable access points and NICs. But, if it's not, maybe you should stick to doing what you can with WEP and a VPN, and gamble that 802.11i will arrive by the end of this year instead of next year.
The up-from-the-streets movement is catching on in the corporate world. Will the new wireless networks pay off?
Engineers on runways in Seattle and Frankfurt are tinkering with antennas and satellite links. This isn't the usual avionics, though. Instead, Boeing Co. is preparing a brand new business: flying cybercaf????s. By early next year, more than 100 Boeing jets are scheduled to be equipped with speedy wireless technology known as Wi-Fi. For $25 or so per flight, laptop-luggers will be able to log on to the Net while soaring above the clouds -- shopping on eBay Inc, restocking their companies' inventories, perhaps even making voice calls over the Web. Boeing is so gung-ho on the new technology that over the next decade it hopes to outfit nearly 4,000 planes with Wi-Fi service. Says Scott E. Carson, president of the company's Connexion by Boeing unit: "Wi-Fi is on an explosive growth path."
After four years as a plaything for techno-geeks and home hobbyists, Wi-Fi is beginning to beam its way into Corporate America. Its superfast connections to the Web cost only a quarter as much as the gaggle of wires companies use today. And they're proving irresistible to businesses willing to venture onto the wireless edge. From General Motors to United Parcel Service to CareGroup, companies are using Wi-Fi for mission-critical jobs in factories, trucks, stores, and even hospitals. "We firmly believe that this is the tipping point," says Intel Corp. CEO Craig R. Barrett.
What is Wi-Fi? It's a radio signal that beams Internet connections out 300 feet. Attach it to a broadband modem and any nearby computers equipped with Wi-Fi receptors can log on to the Net, whether they're in the cubicle across the hall, the apartment next door, or the hammock out back. To date, Wi-Fi has grown on the scruffy fringes of the networked world. It shares an unregulated radio spectrum with a motley crew of contraptions, including cordless phones and baby monitors.
Yet Wi-Fi networks, known as hot spots, have popped up faster than fleas on a circus dog. Thousands of do-it-yourselfers worldwide have rigged antennas to create their own hot spots. They've joined together to form networks so that the public can zap e-mails and surf blogs for free, no matter where they are. From street corners in Sydney to mountaintops outside Seattle, some 5,000 free hot spots have emerged. This is Wi-Fi Nation. More than 18 million people worldwide have logged on, and the numbers are growing daily.
The challenge facing the tech industry is to transform this unruly phenomenon into a global business. This means turning Wi-Fi Nation into Wi-Fi Inc. That involves transforming a riot of hit-or-miss hot spots into coherent, dependable networks. It means coming up with billing systems, roaming agreements, and technical standards -- jobs the phone companies are busy tackling. The goal, says Anand Chandrasekher, vice-president and general manager of the mobile-platforms group at Intel, is to "take Wi-Fi from a wireless rogue activity to an industrial-strength solution that corporations can bet on."
If successful, Wi-Fi has the power to fit the Internet with wings. A constellation of dependable Wi-Fi hot spots could extend dramatically the range and expanse of the Web, changing its very nature. The path ahead, analysts say, is sure to have its share of bumps. But it could lead to cascades of up-to-the-minute information zipping around offices, homes, even remote disaster sites. MeshNetworks Inc. in Maitland, Fla., is working on Wi-Fi systems that would allow emergency-response teams to create networks among themselves by simply turning on their laptops or handhelds -- even if cellular or wired networks have been knocked out.
Corporations aren't waiting for fine-tuned industrial versions of Wi-Fi to hit the market. The potential productivity gains are so compelling that many are investing in custom-built systems. United Parcel Service Inc. is equipping its worldwide distribution centers with wireless networks at a cost of $120 million. The company says that as loaders and packers scan packages, the information zips instantly to the the UPS network, leading to a 35% productivity gain. IBM is devising Wi-Fi-powered systems to monitor the minute-by-minute operations of distant machines, from potato fryers at restaurants to air conditioners in computer labs.
Other tech titans are rushing in, too. Intel is spending $300 million to market its Centrino computer chips, which come equipped for Wi-Fi. In March, Cisco Systems Inc. agreed to spend $500 million for Linksys, a Wi-Fi equipment maker. For the first time, that will put Cisco into head-to-head competition with Microsoft Corp., which plowed into Wi-Fi network gear last year. And Cometa Networks, the new joint venture made up of Intel, IBM, and AT&T, is building a nationwide network of 20,000 hot spots over the next three years. Phone companies, including Verizon Communications Inc. and T-Mobile USA Inc., are following suit. "You'd have to have your head in the sand to not see the news about hot-spot deployments," says Edward M. Cholerton, SBC Communications Inc.'s vice-president for Internet product management.
The giants are joined by legions of small fry. Last year alone, in the depths of the tech downturn, U.S. venture-capital firms pumped $2.8 billion into 296 wireless startups, says researcher Thomson Venture Economics. And as more companies pile in, prices for Wi-Fi equipment are plummeting. Installing an industrial-strength hot spot costs only $2,000 now, one-fifth what it cost two years ago. Home-gear prices are also in free fall. More than 50 companies are in the chip market alone, estimates Gartner Inc. As the tech powerhouses storm into the market, a painful wave of consolidation is all but assured.
Even for the mighty, this gold rush crosses hazardous terrain. Off-the-shelf versions of Wi-Fi are often unreliable and rough to install. This undermines confidence in the technology. And key initiatives are untested. Will corporate and consumer users dish out $30 to $50 a month for access to a nationwide grid of Wi-Fi hot spots? Will the number of subscriptions justify big network investments? "Can anyone make money in the home-networking or wireless world?" asks David Schmertz, a vice-president at Efficient Networks Inc., a broadband subsidiary of Siemens. "We're looking at that question hourly."
The riches won't flow until Wi-Fi security reaches industrial grade. Corporations are hankering for the power and flexibility of Wi-Fi networks, but many are postponing rollouts in strategic areas until they're convinced that hackers, spies, and competitors can't intercept wireless data. General Motors Corp. has deployed Wi-Fi in 90 manufacturing plants but is holding off on Wi-Fi at headquarters until next year. Why? Execs worry that until new encryption is in place, guests at a Marriott Hotel across the street could log on to GM's network and make off with vital memos and budgets. Industry analysts say a slew of airtight Wi-Fi security systems will be out next year. But delays or news of security breaches could pummel confidence in the technology.
A wild card is the possible overlap between Wi-Fi and the multibillion-dollar project for a high-speed cellular system known as Third Generation. Like Wi-Fi, 3G promises a wireless Internet. It's coming onstream in Europe and Asia and will be spreading in North America in the next two years. As a phone system, 3G provides far broader coverage than Wi-Fi's constellation of hot spots. But Wi-Fi's hot spots are targeted precisely in the hotels, airports, and commercial centers where mobile Net surfers are most likely to be swarming. This upsets revenue projections for phone companies. Still, they're plowing ahead with Wi-Fi deployments on three continents, hoping they can bill customers for a menu of wireless services, including both Wi-Fi and 3G.
Wi-Fi represents a disruptive force. Yet if history is an indicator, it will ultimately pay rich dividends. The upstart technology appears to follow a pattern that has become common in the Internet age. New technologies surge from the grass roots, pushing companies to race madly, trying first to cope with the new sensations and later to transform them into businesses. This happened with the Net itself, and with Linux, the free software operating system. Now, the Internet has not only defined an age, it has spawned a host of successful companies. Some 40% of publicly traded Net companies are profitable today. Linux, developed within a populist movement similar in spirit to Wi-Fi, holds 13.7% of the $50.9 billion market for server software and is breathing down Microsoft's neck.
Wi-Fi promises similar fireworks. And the beleaguered tech industry is counting on it for a welcome shot of growth. In the short term, the direct payoff is likely to be moderate. Wi-Fi spending on hardware and subscriptions is expected to reach $3.4 billion this year and is growing at a 30% clip. Network buildouts over the next two years will chip in $8.2 billion more. That's welcome in a downturn but not enough to sway a $1 trillion global tech economy. And Wi-Fi subscriptions aren't likely to catch on until national networks are up and running, perhaps two years from now.
Instead, it's as an amplifier of other technologies that Wi-Fi packs its punch. It turns nearly every machine, from laptops to cash registers, into network devices. And it fuels demand for always-on broadband connections. This, in turn, paves the way for the next generation of Internet services. Analyst Christopher Fine of Goldman, Sachs & Co. compares the power of Wi-Fi to the networking of computers in the early 1990s or the telephone exchanges that spread in the 1920s.
Intel and computer makers are betting on it to spur laptop sales, which even without Wi-Fi carry profit margins 50% higher than those on desktops. Microsoft is pushing its Windows XP operating system, which is specially adapted to handle Wi-Fi. "You could say that Wi-Fi is the killer app that gets people to upgrade to Windows XP," says Pieter Knook, the company's vice-president for network service providers. On Apr. 15, Intel announced that strong laptop sales, powered by Wi-Fi-ready Centrino chips, helped boost first-quarter profits.
The consumer-electronics industry is counting on Wi-Fi, too, to link a host of appliances in the home. Already, gadget-meisters are sending MP3 songs and videos from their computers to TVs and stereos via Wi-Fi. This could become a breeze over the next two years as the new generation of Wi-Fi rolls out, lifting connection speeds to 54 megabits -- or nearly an hour of MP3 music -- per second. Motorola, Nokia, and Ericsson are working on Wi-Fi phones that would let people move from Wi-Fi to cellular networks without even noticing. These should be ready in 18 months. In time, Wi-Fi could even feed data into smart networks in the home or factory to automatically monitor climate controls or industrial supply chains. "There's no upper limit to how you can use this technology," says Dean Douglas, vice-president for telecommunications at IBM Global Services. "In that, it's like the Web."
In its infancy, long before Wi-Fi took shape, the radio technology belonged to businesses. The year was 1985. The Federal Communications Commission had opened up slivers of the radio spectrum for experimentation. Researchers at a vanguard of companies, including NCR, Symbol Technologies, and Apple Computer, started building wireless networks. Their goal was to link everything from cash registers to auto assembly lines. But momentum slowed in the late '80s as the companies developed systems that didn't work together.
An NCR Corp. scientist named Vic Hayes stepped into the mess in 1990. Hayes led the movement toward a standard. It was a long and combative process, but in 1997, it led to the release of 802.11b, now known as Wi-Fi, or Wireless Fidelity. Two years later, Apple kick-started the market by adding Wi-Fi to its iBook portables for the then-stunningly low price of $99.
The race was on. In cities worldwide, tech geeks began setting up wireless networks. Led by pioneers such as Rob Flickenger in San Francisco and Anthony Townsend in New York, these techies jerry-built Linux-based hot spots and cheap alternatives to expensive gear. Famously, they improvised antennas using empty Pringles cans. And in the 21st century equivalent of barn-raisings, they united to link neighbors to the growing community networks. Says Townsend, who co-founded NYCwireless in 2000 with Terry Schmidt: "Our model of Wi-Fi is if you charge people to use it, it's not useful." Now the pair runs a business that builds community networks.
While Wi-Fi Nation was taking shape in the streets, a smattering of businesses were adapting the new networks to their own needs. At CareGroup Inc. hospitals in Massachusetts, engineers installed wireless systems to connect more than 2,000 doctors and nurses to the corporate system. This way, whether they were in emergency rooms or intensive-care units, they could access patient records, add observations to the database, and check on medicines. "It's cost-effective, and the doctors love it," says Chief Information Officer John D. Halamka, who estimates that the system helps reduce costly medical errors by 50%.
Early on, entrepreneurs saw opportunity in the burgeoning Wi-Fi community. Sky Dayton, founder of Internet service Earthlink Inc., believed that if anyone could unite the ragtag collection of hot spots and network communities into a secure nationwide network, there was a fortune to be made. In 2001, he founded Boingo Wireless Inc. The idea was to certify networks everywhere as Boingo providers. Then, when subscribers paying up to $50 a month turned on their laptops and saw a Boingo connection, they'd log in. Boingo, based in Santa Monica, Calif., and local providers would split the take.
It was a good idea. So good that lots of others came up with it, too. In the past two years, scores of networks have been launched, causing the number of commercial hot spots to mushroom to 16,000. Starbucks Corp. piled in, teaming with T-Mobile to offer consumers Wi-Fi surfing at more than 2,100 coffee shops for $40 a month. Fast-food giant McDonald's Corp. has deployed Wi-Fi at 10 restaurants in New York and plans to add hundreds more hot spots by yearend. The idea there is less to make money on Wi-Fi services, which go for $3 per hour, than to attract new customers and boost sales. McDonald's is offering a free hour of Wi-Fi with each Extra Value Meal.
To date, though, few commercial hot spots have thrived -- and analysts have plenty of doubts about the new ventures at Boeing and McDonald's. Why? No carrier can offer seamless nationwide coverage, security is still touch-and-go, and many potential users feel it costs too much. "We don't subscribe to any of these services," says Tripp McCune, senior vice-president and director of information technology at ad agency Deutsch Inc. "The coverage isn't widespread enough for our people to use."
The job now is to build Wi-Fi into a solid pillar of the networked world. And Intel is out to lead the charge. Last year, CEO Barrett put $150 million into a Wi-Fi-oriented venture fund. He assigned 800 engineers to work on Wi-Fi, and in December he joined IBM and AT&T to launch Cometa. Unlike Boingo, Cometa will build its own hot spots. By next March, it plans to have 5,000 up and running.
The next job is to establish Wi-Fi as a global mainstay, and Intel is responding, naturally, with a chip. The Centrino family of chips, released in March with a $300 million media campaign, embeds a Wi-Fi receptor into the innards of a laptop computer. The effect should be dramatic. By this summer, every Dell Computer Corp. laptop and 70% of Hewlett-Packard Co.'s consumer offerings will be Wi-Fi-ready. For most users, this should ease the transition into the new technology. The current process is so complicated that it often irks novices. Intel and Microsoft are hoping that with the new systems, Wi-Fi installation will eventually become as easy as activating a modem: click "yes" six or seven times and then "finish."
Wi-Fi isn't likely to become a rock-solid standard until hot spots are dependable. That's pushing more than 100 Intel engineers on a worldwide mission. They're labeling hot spots the world over as "Centrino-certified." The idea is to unify the Wi-Fi world around Intel's brand, giving Centrino the Wi-Fi equivalent of the Good Housekeeping Seal of Approval.
Across the industry, engineers are coming up with security systems to satisfy the most demanding customers. Cranite Systems Inc. in San Jose, Calif., sold security for the $960,000 Wi-Fi installation at the U.S. Army's West Point Academy. Colonel Donald J. Welch, an associate dean for information and educational technology, says the military put the system through rigorous antihacking tests. "We don't want to be a launching pad [for hackers] to the Defense Dept.'s network," he says.
He has reason to be hypervigilant. Every step of the way, the technology manages to remind the Wi-Fi industry of the tough road ahead. At Intel's glitzy launch of its Centrino chips in March at the Hammerstein Ballroom in New York, CEO Barrett was on hand. The room shook to the sounds of Goin' Mobile by the Who. The crowd watched a live video hookup as an executive demonstrated how to use a Wi-Fi-equipped laptop to make a phone call. All he got, though, was dead air.
As technology companies scramble to transform Wi-Fi into a business, they'll come up against a lot more dead air. But it will all be worth it if Wi-Fi lives up to its promise to unleash the Internet
By Kirk Ladendorf
AMERICAN-STATESMAN STAFF
Monday, June 9, 2003
The biggest companies in the communications industry -- from AT&T to Verizon -- are getting set to rush into the fledgling market for Wi-Fi, or wireless Internet access.
But little Wayport Inc. of Austin, a 7-year-old company with 180 workers, is already there.
It could be a crucial crossroads for the company: Wayport may be knocked flat by new competitors with big bucks, or it could be lifted up on a rising tide of enthusiasm over Wi-Fi, the inexpensive communications technology that is behind all the excitement.
Not surprisingly, chief executive Dave Vucina is betting on the latter scenario.
What Wayport lacks in cash and mass, it makes up for in experience. Though Wi-Fi is new territory to AT&T Wireless and Verizon Wireless, it's familiar ground to Wayport. It has established systems for tracking customer connections, assisting customers and billing customers.
The company got into Wi-Fi as a way to expand its original business of traditional wired Internet access to business travelers in hotels. It developed a network that now reaches more than 500 hotels and seven major airports nationwide.
More than 2 million users are likely to connect with Wayport this year.
"We are playing a big role in plans being made by the communications companies for Wi-Fi," Vucina says. "Their people are in Austin a lot."
The company already has roaming relationships with AT&T Wireless, Boingo and iPass, allowing customers of those wireless Internet providers to use Wayport's network. It's also working on an alliance with Verizon Wireless.
Wi-Fi has caught the attention of major players among phone companies, wireless carriers and computer makers, as well as unrelated industries, in the past year.
Verizon plans to put transmitters on top of pay phones in Manhattan as a bonus for its cell phone customers. The coffee chain Starbucks and Austin-based restaurant chain Schlotzsky's Inc. offer Wi-Fi to their customers as a perk.
Wayport isn't the biggest player in Wi-Fi. Wireless carrier T-Mobile, the former VoiceStream, says it has 2,365 locations nationwide, including Borders bookstores, 29 airports and hundreds of Starbucks stores.
The attraction is simple: The technology is inexpensive to install, and, unlike other forms of wireless communications, Wi-Fi is unregulated. With a wireless antenna and a traditional Internet connection nearby, you can create a "hot spot," providing wireless Internet access for a range of about 300 feet.
Analysts estimate that eager newcomers may put up 46,000 new "hot spots" this year, up from only 4,000 that existed in the country at the end of 2002. The number could grow to 500,000 by 2007.
Although today they're viewed as more of a curiosity than a moneymaker, eventually Wi-Fi networks could generate billions of dollars in service revenue, analysts say.
That's where Wayport is way ahead of the curve. The company, which employs 80 workers in Austin, generates about $2 million a month in revenue, twice as much as a year ago.
And all signs point toward continued growth. Most of the company's Internet service still occurs over wired connections in hotel rooms, but its wireless business is expanding quickly.
Wayport operates wireless access networks in seven major airports, including Dallas-Fort Worth International and Austin-Bergstrom International.
Its foothold among business hotels and airports gives the company some prime real estate among the projected Wi-Fi land rush.
By catering to business travelers, Wayport has shown that it can develop an active following among the key group of customers who have shown they are ready to pay for high-speed Internet access one day at a time: affluent business travelers. Its customers typically pay $9.95 for a day's worth of access to a hotel network or $6.95 for access to an airport network.
Vucina says his company is laying plans to triple its business footprint to 1,500 hotels during the next 24 months. It's looking for midsize and larger hotels that cater to business travelers and that are located in major cities.
The Wyndham Hotels chain says Wayport's service has become an attractive perk for its upscale business travelers and a good draw for its meetings business as well.
"It's changed (customer) behavior," says David Riley, vice president of catering and meeting services for the Dallas-based chain.
Wyndham says it has 133 properties that are Wayport-enabled, and traffic is up at all of them. Wayport also has assigned full-time workers to nine Wyndham hotels to sell and support Internet connectivity to business meeting planners, generating a big boost in the chain's bookings of corporate meetings.
Wyndham wants to expand that approach to another 40 hotels, and Wayport says it is happy to add the workers because they are generating plenty of revenue.
"Wayport has recognized that it is in the hospitality industry, not just the connections business," Riley says. "They are ready to talk to our customers and help us serve our customers. That counts for more than just putting the wire there. Anybody can put a wire there."
Making connections
Hotels are using broadband access as a way to lure more business travelers, which means more hotels are seeking out Wayport to provide the service.
In most hotels it serves, Wayport delivers wired Internet access in the guest rooms, wireless access in public areas and restaurants and wired and wireless access in meeting rooms. The company's airport networks are wireless.
In some hotels, such as the venerable and posh Adolphus in Dallas, the entire hotel is connected by a big wireless network to minimize the disruption of running wires through building walls.
Wayport, which has raised $102 million from venture investors during the past five years, says it expects to seek another round of investment. But it also plans to borrow from banks, using some of its hotel service agreements as collat- eral.
The company has yet to break even from operations, but that is something Vucina says Wayport could accomplish quickly if it curbed its expansion. But right now, the company's investors want management to concentrate more on growth.
Wayport has learned from experience, adopting a creative approach to managing expansion costs.
In the late 1990s, Wayport was part of a group of pioneering startups that concentrated on bringing high-speed access to business travelers. Most of its competitors died. Wayport survived, in part because the company persuaded its hotel clients to share more of the cost of deploying Internet access networks for their properties.
Partnership deals
Typically, Wayport asks its hotel allies to pay part or all of the cost of installing networking equipment at the hotel site. Those costs can range from $10,000 to $60,000 to connect a hotel.
The company emphasized that it had to make money on its service contracts in order to continue providing good service that hotel guests expected to receive. Its hotels gradually accepted that idea.
"We said, `The original model is not working. Let's change it,' " Vucina recalls. "But it wasn't easy."
Now the company is exploring how it can arrange deals with larger companies to build its business. "If AT&T wants to be in control of hotel (wireless access) contracts, they could hire us as the managed service provider," Vucina says. "We are talking to carriers about select venues they want us to manage."
Alliances are a natural part of the young market, said analyst Amy Cravens with the In-Stat/MDR market research firm in Scottsdale, Ariz.
"There has to be a lot of partnering. A lot of providers are still somewhat skeptical about how the market is going to turn out. A lot of them would prefer to partner with Wayport, at least initially. They have been in the market since its inception. It is a significant advantage for them."
But Wayport's biggest advantage lies in its customer base, Cravens says. Business hotels and airports remain the best Wi-Fi locations because they have customers who are willing to pay for service.
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