The Evolving Hot Spot Market for Broadband Access Alwin Mahler Charles Steinfield Telefonica Deutschland GmbH 1 Michigan State University 1 Introduction Wireless Local Area Networks (WLANs) are proliferating throughout the world at an ever increasing pace, evolving from a private means of extending LAN access on company premises to home-based networks, community networks, and now public free and fee-based networks. Due to the growing presence of WLANs, some are calling it a “disruptive” technology that may threaten the status of established players, especially given mobile network operators’ moves to establish their own forms of wireless broadband data access (Camponovo et al., 2003). The low cost of WLAN hardware and the ease of installation makes it available to individuals and small venue owners that otherwise would not consider implementing network access throughout their homes, offices or shops. The utility of WLANs to cheaply and flexibly extend LANs in the workplace, or provide home area coverage in households subscribing to DSL or cable modem service is widely recognized. These are places where individuals require only limited mobility, spend extended periods of time every day, and have already invested in the Internet connections. Less clear, however, is the ultimate potential afforded by the rapidly expanding number of public WLANs (PWLANs) appearing in such places as airports, cafes, and hotels (Afrough, 2003, Economist, 2002; 2003). In many respects, the approaches to PWLANs – now known as hot spots – resemble those of the dot.com boom period in the mid to late 1990s. That is, new entrants are testing a wide variety of innovative business approaches, and many of the first movers have already exited the market. Moreover, just as established retailers eventually learned that the Internet offered opportunities as a complementary channel in the latter stages of the dot.com period (Steinfield et al., 2002), wireline and mobile network operators are also now entering the hot spot arena exploring the complementary opportunity arising with this technology. In this paper, we provide an overview of the evolving hot spot market and suggest four broad conclusions. First, the installed base of user devices is rapidly approaching a critical mass, and serving these users presents a significant business opportunity. We will continue to see both free and fee-based hot spots based on a wide range of business models according to the diverse interests of those involved in the public WLAN value chain as well as the different requirements of users. Second, the marketplace for PWLANs is in an exploratory phase in both technology and business models. The commoditization of WLAN access and its growing use in an increasingly diverse array of devices will spur continued service innovation and create additional opportunities for owners and operators of hot spots. Third, contrary to those who see PWLANs as a threat to mobile network operators’ 3G investments, our analysis suggests that the two technologies are more likely to be complementary than competitive. Similarly, fixed operators 1 Disclaimer: Any statement contained in this article are statement of the author only and do not necessarily reflect the opinion or viewpoint of Telefónica Deutschland GmbH.