Jun. 30, 2003 - For a battered telecommunications industry aching for something to get excited about, the high-speed wireless Internet access service known as WiFi may be generating more growth projections and venture capitalist exuberance than anything else on the landscape. But some analysts and investors are now questioning the one key market for WiFi, public. 

Net access through "hotspots" at airports, hotels, and coffee shops, is rapidly becoming a dotcom-style bubble waiting to burst, with service providers throwing far more money at expanding services than consumer demand will warrant any time soon. Some 4,500 WiFi hotspots -- areas of up to 300 feet in radius within which subscribers with laptop and handheld computers can get broadband-speed Net service -- have been deployed across the United States, mainly in the last two years, according to Pyramid Research of Cambridge. Pyramid predicts that figure could jump to 80,000 within four years. Industry giants AT&T, IBM, and Intel have launched a company called Cometa Networks to build up to 15,000 WiFi hotspots by next year, as new deals get announced virtually every week for service expansions and funding for start-up WiFi equipment makers. 

Yet analysts such as Lars Godell of Forrester Research argue that "much of the money being poured into [Wifi] is being wasted," because there are far too few potential subscribers willing to pay for service. "With all the hype today about the rollout of public hotspots, it's as if the dot-com boom and bust never happened," Godell said. 

While only a fraction as fast as WiFi, higher-speed wireless data services that can rival dial-up modems and can cover entire cities -- not just hotel lobbies and airport lounges -- are attracting hundreds of thousands of subscribers for carriers such as Verizon Wireless, Sprint PCS, Nextel Communications, and AT&T Wireless. Wireless carriers are coming to see WiFi as less a threat than a potential supplemental service to siphon off heavy usage in key areas as cross-network roaming becomes increasingly feasible over the next year. 

In what has been widely read as a warning about the viability of WiFi, the nation's biggest phone company, Verizon Communications, has deployed the first 200 of a planned 1,000 hotspots in New York using public pay phone connections. But Verizon is offering WiFi only as a bonus to attract customers for its home digital subscriber line broadband service, not seeing it as a sustainable business in its own right. 

Just how the market for WiFi will evolve will affect not only the billions of dollars being poured into start-up companies and hardware, but whether and how soon millions of mobile Americans get access to untethered connections that could drive new waves of growth for the Internet economy. 

"This is a subject of very lively debate, and the jury is out on what the real adoption model is going to be," said David Aslin, a partner with the multinational venture capital firm 3i, which is opting for now to limit its investments to WiFi equipment makers while waiting to see what viable service delivery companies emerge. "The question we're all grappling with is: Is this a new industry, or is it another bubble waiting to burst?" 

At a WiFi industry convention in Boston last week organized by Jupiter Media, one of the hottest topics of speculation and debate was the future of public WiFi and realistic business plans for offering it. Jack Davis, president of SideBand Systems Inc., a Beverly company specializing in installing wireless gear for companies and universities, said: "I think everybody's sort of padding around and wondering where the money is. Who's going to pay for it?" 

Notably, the leading WiFi providers today are not big brand names like AT&T or Verizon. T-Mobile, the nation's sixth-largest wireless phone provider, is currently the biggest WiFi provider. It has built out a network of more than 2,400 WiFi hotspots nationally, including deployments in Starbucks coffee shops, Borders bookstores, and other public locations. T-Mobile sells unlimited WiFi access for $20 a month to customers buying wireless phone service. 

The next two largest WiFi providers are specialized start-ups, Boingo Wireless of Santa Monica, Calif., whose backers include Sprint PCS, and Wayport Inc. of Austin, Texas. About 450 of Boingo's 1,300 hotspots are actually operated by Wayport, which has a total of 565 hotels and seven airports in its network. 

"I think we're right on the cusp of a quantum leap," said David Hagan, chief executive of Boingo Wireless, one of the first WiFi providers, which expects to increase its network from 1,300 to over 2,000 locations by the end of next month through more than 35 partnerships with local providers. Boingo estimates there could be over 2 million US locations suitable for WiFi, including 53,000 hotels, 3,000 train stations, and 480,000 restaurants and cafes. 

"There's incredible value in broadband wireless connectivity," Hagan said. "People love it. The holdup in terms of the business taking off like wildfire, in terms of a mass market, is there's not enough footprint," or network coverage. 

Hagan said much has changed in the two years since Boingo began service. Connections for WiFi have gone from requiring a $180 network "air card" to being built in free to most models of laptops and handheld devices, expanding the potential WiFi market by millions of people. 

Dan Lowden, marketing vice president of Wayport, said: "It's all about how many potential customers pass through a particular location, and how many of them have a need for high-speed Internet connections." That has led Wayport to focus WiFi services on hotels and airports, rather than restaurants, coffee shops, or other locations. 

Lowden said the number of daily users of Wayport's WiFi service is forecast to jump 78 percent in the April-to-June period from the first three months of this year. But in absolute numbers, that still represents fewer than 20,000 users over the course of a month. 

Lowden said Wayport is on a path to profitability. But he added: "We're actually postponing that event by adding more employees and more support so we can grow faster. We're trying to be more aggressive now so we'll be in a more positive position in the future." Wayport is also selling its services through AT&T Wireless and is nearing a deal with Verizon Wireless. 

For all of the uncertainty about the overall business model, WiFi service has attracted devoted users. 

"It's a great tool to have," said Ian Rysdale, a former high-tech sales manager in Marlborough who was using T-Mobile WiFi service at a Back Bay Starbucks one day last week while visiting Boston on a summer vacation from business school in Cardiff, Wales. 

Rysdale opted for a three-month unlimited access plan for $40 a month that he uses to send and receive e-mail, which is his "main communications medium," buy airline tickets, and even listen to British radio stations over the Net. "I'm a bit of a techno-geek," he said, "but I didn't have to use any of that geekiness to log on. It works fine." 

One approach that may fuel WiFi growth is companies supporting free access to draw publicity and foot traffic. Tech Superpowers, a computer services firm on Boston's Newbury Street, is working to make the chic shopping boulevard a continuous WiFi zone, starting with nine hotspots inexpensively connected back to its office. Tech Superpowers president Michael Oh said businesses in Davis Square, Somerville, are interested in pursuing a similar plan. 

Patrick Rafter, marketing vice president for Bluesocket Inc., a Burlington maker of antihacker security systems for WiFi, said the service may be a crucial business booster for many service industries. 

"If you're in the hotel business and you have a 50 percent occupancy rate, how are you going to fill up more rooms?" Rafter asked rhetorically. "In the '60s, it was put a sign out front that says 'Air conditioning." In the '70s, it was cable. In the '90s, it was HBO. Now it will be WiFi." 

Indeed, Pyramid Research analyst Daniel Torras said many hotels may be able to justify the cost of free WiFi access for guests if it increases nightly room rentals by just 1 percent. 

"I see the business model for standalone WiFi as risky, and I'm not sure it's sustainable," Torras said. But he said it could work in many service establishments where it is a carefully controlled "cost of doing business, and where if you don't do it, someone else will." 

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