Major companies set to test Wi-Fi waters, where Wayport of Austin is already doc
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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