Only a fool would enter the Wi-Fi hotspot business, right? With cell coverage measured in feet rather than miles and the potential subscriber base measured in hundreds rather than thousands or millions in any one area, how can you expect anything but red on the balance sheet? It's a good thing, then, that this subscriber-focused strategy is not the primary force behind the Wi-Fi hotspot market. Eventually, the service is likely to be free.

That's because organizations are implementing hotspots for reasons other than building a subscriber base. Look at Starbucks and McDonald's: They're providing Wi-Fi services to draw in customers and sell more cappuccinos and Big Macs.

Another Wi-Fi business model is the service-bundling approach adopted by cellular and telecom providers. These companies are looking for every angle they can to hold on to customers in an increasingly saturated market. A third, free hotspot model is a sort of 21st century approach to urban economic development, where small companies partner with local governments to create hotspot service in geographically dense business districts to enhance economic vitality.

Will it be smooth sailing? Hardly. Over time, we're likely to bump into the reality of limited bandwidth for 802.11b, today's mainstream Wi-Fi technology. The result will be lots of interference between independent networks and virtually no easy way to resolve the problem.

The good news is that the underlying wireless protocols are fairly robust, and even with substantial co-channel interference, independent systems can provide adequate performance. And in the next five years, it's likely that higher-capacity 5-GHz systems, offering much greater bandwidth, will emerge as the industry standard, condemning 2.4-GHz systems to their rightful role as legacy systems.

Post a comment or question on this story.