case study at&ts wi-fi service

8/13/2019 Case Study at&Ts Wi-Fi Service

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www.informatm.com 2011 Informa Telecoms & Media 2

Fig. 1: AT&Ts Wi-Fi timeline

AT&T also launched its Microcell femtocell service in 4Q09 and took it nationwide in thefollowing June, but it is mainly focused on improving coverage for voice services. Its Wi-Fioffering is still mainly focused on data services.

In addition, AT&Ts proposed acquisition of T-Mobile USA could create a more powerful USWi-Fi player, given that AT&T provides mainly data services over Wi-Fi, whereas T-Mobile USAalso supports Wi-Fi calling.

Strategic goals

AT&T has a multifaceted Wi-Fi strategy that plays a role in its larger-enterprise and consumerbroadband strategies. At a high level, the groups Wi-Fi strategy is simply to create a uniqueand profitable asset that will benefit many of its enterprise and consumer businesses. The keystrategic goals of the business are:

To deliver high-quality managed Internet services over Wi-Fi for business customers,particularly those in retail, hospitality, events, education and healthcare.

To maximize the value of business Wi-Fi networks by using them to support bothprivate enterprise access and open public access via AT&T Wi-Fi hot spots.

To increase satisfaction, reduce churn and encourage tariff upgrades for consumercustomers by offering certain smartphone, broadband and other customers free accessto AT&T Wi-Fi hot spots.

To support the wireless business by deploying outdoor Wi-Fi hot zones in areas withhigh mobile network traffic.

To earn incremental revenues from paid access to Wi-Fi hot spots.

Although AT&T stresses the strategic importance of Wi-Fi to many of its core businesses,one of the most high-profile strategic goals of the service has simply been to support thephenomenal success of the iPhone, which was exclusive to AT&T in the US from June 2007until February 2011. The rise and rise of the Wi-Fi-enabled iPhone and the resulting strainon AT&Ts mobile network from booming data traffic has been one of the key drivers ofAT&Ts Wi-Fi business. It is no coincidence that the year after the launching the iPhone, theoperator made a major strategic commitment to Wi-Fi by investing US$275 million in theacquisition of Wayport, then the top Wi-Fi operator in the US, with 20,000 hot spots. The move,in November 2008, instantly made AT&T the dominant Wi-Fi-hot-spot operator in the US, aposition it retains today, with more than 10 times as many hot spots as its nearest competitor(see fig. 2).


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Fig. 2: US, top 10 public Wi-Fi operators, end-2010

AT&T is also the fifth-largest public Wi-Fi operator globally (see fig. 3). As its Wi-Fi coveragehas grown, so has Wi-Fi penetration in its portfolio of smartphones, to the point that the vastmajority of AT&Ts smartphones now include Wi-Fi.

Fig. 3: Global, top 10 public Wi-Fi operators, end-2010

In February 2008, AT&T displaced T-Mobile as the Wi-Fi-hot-spot provider for Starbucks coffeeshops across the US, a move that reinforces the strategic importance it placed on Wi-Fi afterthe launch of the iPhone. T-Mobile had used that longstanding deal to become one of the

largest US Wi-Fi providers, but AT&T rapidly overtook its position in 2008 by winning theStarbucks contract and then acquiring Wayport.

Business model

The business model for AT&Ts Wi-Fi service is complex because it stretches across itsenterprise and consumer businesses, and across multiple units within those businesses.However, it can be broadly segmented into business and consumer models:

Business Wi-Fi:AT&T Wi-Fi signs contracts with business customers to install andmanage Wi-Fi networks at their locations. These networks typically support bothprivate enterprise services and open public Wi-Fi services via AT&T Wi-Fi hot spots.AT&T also provides value-added services running on the Wi-Fi networks, such aswireless point-of-sale terminals and wireless security cameras.

Consumer Wi-Fi:

AT&T offers free Wi-Fi to certain fixed, portable and mobilebroadband customers to improve the customer experience, reduce churn, encourageupgrades to higher tariffs and differentiate its services from those of competitors.AT&T Wi-Fi is offered via both subscription and prepaid plans to generate incrementalrevenues.

Business Wi-FiAT&Ts Wi-Fi business sits in the groups enterprise business and so, from that point ofview, Wi-Fi is simply another service that the operator provides for its business customers.Typically, AT&T signs contracts with public-facing businesses to install and manage Wi-Finetworks, applications and services at their public locations, such as airports, hotels and retailoutlets. Enterprise applications vary, including wireless point-of-sale terminals, digital signsand security cameras.

The vast majority of AT&Ts Wi-Fi business customers use their networks to support bothprivate business applications and open public access via AT&T hot spots. This two-prongedstrategy helps explain why many US enterprises turn to AT&T to provide Wi-Fi services: first,because AT&T has a trusted enterprise business to install and manage Wi-Fi networks andbusiness applications; and, second, because its consumer businesses have more than 100million subscribers, who might see value in going to locations with AT&T Wi-Fi hot spots.


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In other words, AT&T can deliver Wi-Fi services that increase efficiency and reduce costs forenterprises, while potentially increasing their revenues by attracting AT&T subscribers totheir retail locations.

Consumer Wi-FiAT&T has bundled free access to AT&T Wi-Fi hot spots with many of its consumer services ina bid to improve the services and reduce churn while encouraging subscribers to upgrade to

plans that include free Wi-Fi (see fig. 4).

Fig. 4: AT&T services that include free access to AT&T Wi-Fi

AT&T says about 32 million of its customers had free Wi-Fi access in 1Q10, via subscriptionsto qualifying broadband, mobile broadband or smartphone plans. The figure is up from 27million in 3Q09, the group says.

The operator also offers dedicated Wi-Fi access via subscription and various prepaid tariffs.

The AT&T Wi-Fi Premier service costs US$19.99 a month and includes access to AT&T hot spotsand those of many of its roaming partners. Prepaid tariffs and session times vary by locationbut range from US$3.99-7.99 per session.

Results

One of the most noticeable results of AT&T Wi-Fi is its coverage, which makes it the largestpublic Wi-Fi operator in the US by far, with more than 27,000 hot spots, and the fifth-largestoperator globally. A related result is the long list of high-profile businesses that AT&T Wi-Fi hassigned as customers, including Starbucks, McDonalds, Hilton Hotels, Fedex Office and Barnes& Noble.

AT&T has also seen a dramatic increase in Wi-Fi connections, which rose from 3.4 million in1Q08 to 53.1 million in 1Q10 and then doubled in the next six months to 106.9 million in 3Q10(see fig. 5).


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Fig. 5: AT&T Wi-Fi network connections, 1Q08-3Q10

One factor behind this boom in connections is the rise in the use of smartphones with Wi-Fi.AT&T says that 65% of its Wi-Fi connections in 1Q10 were made from smartphones, up from

35% in 1Q09.

Another factor is the trend among key Wi-Fi partners of moving from paid-for to free Wi-Fiaccess. For example, in January 2010, McDonalds, one of AT&Ts key site partners, switchedfrom a tariff of US$3 for two hours of use to free access at all its US locations. In the sametime-frame, Starbucks made free access much easier for its loyalty-card holders. Together,McDonalds and Starbucks account for more than 18,000 of AT&Ts 27,000 hot spots in the US.This trend clearly reduces the advantage for AT&T of bundling free Wi-Fi with some of its fixedand mobile service plans.

The only financial detail that AT&T provides about its Wi-Fi service is that, since theacquisition of Wayport in 2008, the collective value of AT&T Wi-Fi customer contracts is aboutUS$200 million.

Strategic outlook

Fig. 6: AT&T Wi-Fi SWOT analysis


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Informa viewpoint

There is no doubt that AT&T has built a commanding position in the US Wi-Fi market and thatits Wi-Fi business was a key part of its efforts to cope with the dramatic success of the iPhone,which stretched its mobile network to the breaking point at times. In addition, if AT&Tsacquisition of T-Mobile USA is approved and completed, AT&T will be even more dominantin the US Wi-Fi market.

AT&Ts Wi-Fi business is at a turning point. One reason for this is that US mobile operators arebeginning to deploy 4G networks, and the initial signs are that these networks can providedata speeds similar to Wi-Fi and offer much broader coverage, including in-building coverage,particularly for LTE services running in the 700MHz band. Although LTE services are currentlypriced at a premium in the US, the improved speeds and coverage of LTE will provide stiffercompetition for Wi-Fi services.

At the same time, an increasing number of AT&T Wi-Fi hot spots are free to all, as majorvenue owners such as McDonalds open access in a bid to attract more customers for their coreservices. This reduces the value of AT&Ts bundling of free Wi-Fi with its other services.

The result is that AT&T will have to evolve its Wi-Fi strategy and service for it to remain aunique asset that helps to differentiate its core fixed, mobile and portable broadband services.

In particular, AT&T should do the following:

It needs to invest in its Wi-Fi infrastructure to ensure that it can provide a similar orbetter user experiences than those of new 4G networks from competitors, and at abetter price.

The operator must increase its focus on providing differentiated applications andservices over its Wi-Fi networks, as the value of simple Wi-Fi access continues todecline as more venues offer free access to all.

AT&T must continue to evolve its Wi-Fi strategy to support its core mobile and fixedbusinesses, as it has done recently by introducing outdoor Wi-Fi hot zones in supportof its mobile business.

If AT&Ts acquisition of T-Mobile USA is approved and completed, AT&Ts US hot-spotcoverage will rise, but it will also need to evaluate whether T-Mobiles Wi-Fi Callingservice should be extended to its subscribers or ended.

case study at&ts wi-fi service

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