At first glance, the South Pacific island of Niue doesn't appear to be a competitive threat to some of the world's largest technology companies. The country, which is about 100 square miles, has 1,750 residents, who survive on an annual budget of $5.5 million, according to a tourist website.
But a U.S. nonprofit organization has accomplished a feat on Niue that may make some wireless companies a little nervous: It has provided every single person on the island with free Wi-Fi Internet service.
Even though it didn't distribute the computers and PC cards necessary to tap into the service, the Internet Users Society Niue built a comprehensive network -- which includes solar-powered repeaters in coconut trees -- to give everyone on the island and its visitors open and free Wi-Fi Internet access. About 300 of the island's residents own computers, according to Bill Semich, president of the nonprofit.
"It's a tiny country," Semich said. "It is the perfect place to get everybody unwired."
But Semich's project may pose a threat to one group: companies such as AT&T, IBM, Intel and T-Mobile, which are trying to build business by selling Wi-Fi service in coffee shops, hotels, airports and other popular venues.
Even though the number of places where people can get Wi-Fi Internet access has exploded -- 20,000 Wi-Fi "hot spots" exist worldwide today and that number is expected to skyrocket to 190,000 in 2007, according to market research firm IDC -- there is little evidence that people are paying to use the service. Wi-Fi users number 687,000 today and that is predicted to spike to 25 million in 2007, but IDC analysts don't break down their numbers between paying customers and those looking for freebies.
However, plenty of anecdotal evidence indicates that groups like Semich's are putting up free hot spots, while the for-pay ones are suffering.
At Starbucks, for example, only "tens of thousands" of customers are paying to use the company's much-publicized Wi-Fi network, out of 22 million who file through the company's stores every week, a company representative said. The network has been up and running since August in 2,100 -- or 60 percent -- of Starbucks coffee shops in North America.
In a recent setback to Wi-Fi deployment in Europe, Forrester Research analyst Lars Godell said that the money being spent on building these public for-pay wireless networks was being "wasted." Not enough Europeans will have the laptop computers and PC cards necessary to tap into the system, he said.
Godell also predicted that few Europeans would be willing to pay for "Internet access on the go," which would make it difficult for service providers to recoup the costs for laying out the initial broadband pipelines necessary to power the service.
"Simply, basic constraints on the number of devices in use, and users' willingness to pay a significant amount for Internet access on the go, will limit public (wireless local area network) users to numbers well short of planned networks' carrying capacity," Godell said. "Additionally, the sky-high costs of providing Internet backhaul from hot spots will kill many hot-spot business cases."
Wi-Fi backers, naturally, deny that free Wi-Fi service, which is not only available in Niue, but also in certain parts of New York, San Francisco, Seattle, Milwaukee and other U.S. cities, will signal the death of commercial services. A niche group of people will always be interested in paying for a secure and faster connection than most free hot spots will supply, said Frank Hanzlik, managing director of the Wi-Fi Alliance.
"There will be a certain constituency for the free service who will say 'Maybe its throughput is slower, but it's free, and free is better than nothing,'" Hanzlik said. "But there will be a set of people who will see the value of the for-pay service."
As for Godell's comments, Hanzlik pointed out that Wi-Fi technology is new in Europe. Therefore, it is less common and more expensive than in the United States.
"Prices in Europe today for the paid services are a lot higher than in the U.S.," he said. "We'll see prices in the 30 Euro ($34) range for daily use whereas in the states it's for $10 or so. This market is still in the early days."
Indeed, most Wi-Fi service providers are still experimenting with business models, analysts said. T-Mobile, which powers the service at Starbucks, has slashed its prices since introducing Wi-Fi in the coffee shops. Verizon has begun offering free public Wi-Fi connections to its home DSL customers.
"They are using it as a differentiator for their DSL service -- as a competitive stance against the cable companies and their cable modem service," said Forrester Research analyst Charles Golvin. "From a competitive standpoint, what is going to happen is that Wi-Fi access for broadband consumer subscribers is going to be bundled as part of an overall package."
Semich said nothing is keeping people from paying for DSL and then sharing it with neighbors wirelessly, similar to the way music fans swapped tunes on Napster. Semich's group, which raised money by selling .nu domain names, is paying $500,000 a year to lease broadband pipelines from a local carrier and then distributing Internet access wirelessly and for free throughout Niue.
"I think (the for-pay Wi-Fi service carriers) will move the charge over to that fat pipe," Semich said. "There will be a lot of people sharing their Internet connections in apartments and dorms and doing it without the permission of the entity providing the broadband pipeline."
"That is something the Internet providers are going to have to worry about," he said.
