Is Wireless Connectivity Development Moving Faster than Market Demand?

Mike Langberg of the San Jose Mercury News takes note that wireless online access may be the wave of the future, but its commercial implications will no doubt temper the process ...

You can't feel radio waves moving through the air, despite what you might hear from a few wild-eyed people in tin-foil hats.

That's a good thing, considering how many wireless bits of data will soon be flying around Silicon Valley.

Everyone from corporate giants such as Intel and Cisco to ambitious startups to local governments are chasing a big opportunity: unplugging the Internet.

The goal is to provide a high-speed connection wherever you roam with a laptop computer, smart phone or future gadgets such as wireless digital music players.

But there's a problem with such big opportunities: Everybody sees them, resulting in a tidal wave of potential overbuilding.

I count at least five current and possible wireless Internet projects in the area:

- Smart Valley Wireless, a coalition of 40 local cities and other government agencies, received seven bids in late June to blanket the region with Wi-Fi wireless service.

- Google recently began testing a free Wi-Fi network covering Mountain View and expects an official "wire cutting" ceremony soon.

- MetroFi is looking to expand its free ad-supported Wi-Fi network, which covers Cupertino, Santa Clara and Sunnyvale, including a recent deal to provide Wi-Fi in downtown San Jose.

- Intel in early July invested $600 million in Clearwire, which is using a rival technology called WiMax and will tap Intel's money for nationwide expansion that could include the Bay Area.

- Cellular carriers Verizon Wireless, Sprint and Cingular continue to aggressively market their high-speed wireless data services.

Chance of survival

None of these services is irrational by itself, but it's highly unlikely all of them together could find enough users to survive, at least according to two experts.

"Broadband [Internet access] is a business where scale is very important," said Monica Paolini, founder of wireless research firm Senza Fili Consulting and who lives in Seattle. "You need to use every weapon to reduce cost."

But it's difficult to achieve scale when demand is low and struggling competitors are driving prices down below the cost of doing business.

Andy Seybold, editor of the wireless industry newsletter Outlook4Mobility, says voice "pays the bills."

Seybold, who lives in Santa Barbara, is somewhat famous in the wireless industry for repeatedly insisting that any standalone wireless network devoted to data is "doomed to complete failure."

Clearwire shows how tough it can be to build a wireless business.

The company, backed by cellular pioneer Craig McCaw, started operations three years ago and now covers U.S. markets with a combined population of 4.8 million. Yet Clearwire, based in Kirkland, had attracted only a paltry 88,000 subscribers as of March 31.

Building networks

Building wireless networks is expensive, forcing Clearwire's backers to accept losses of $175 million through the end of last year. Clearwire has said its plans include nationwide expansion and serving "a range of different categories of subscribers, from individuals, households and small businesses to market segments that depend on mobile communications, including police and fire personnel, traveling professionals, field salespeople, contractors, real estate professionals and others."

Those market segments sound much the same as what Smart Valley Wireless, MetroFi and others are pursuing.

Intel is pushing WiMax hard because it expects to sell many of the chips for WiMax-enabled computers and other devices. But there's a huge chicken-and-egg dilemma: Computer makers aren't eager to adopt WiMax without WiMax networks and wireless companies don't want to build WiMax networks when there aren't yet any WiMax-ready computers.

Then there's the looming competitive threat of high-speed data service from cell carriers.

Verizon Wireless, Sprint and Cingular now sell unlimited wireless data service for about $50 to $60 a month at about half a megabit per second. So the demand has been limited to businesses willing to pay the bills for workers in the field.

But the cell-based data services will get faster and cheaper during the next few years, just as the competing Wi-Fi and WiMax networks are looking for a way into the market.

Consumers will almost certainly get inexpensive, robust, widely available wireless data service once all this gets sorted out. But anyone looking to profit by investing in these networks will need to be smart and lucky to come out on top.