Don Park speculates that sales of Wi-Fi APs could be accelerated if there were subsidies from carriers to buyers who deploy the APs as public hotspots. Since the idea was kicked off by a discussion with David Sifry, his notion is stated in terms of Sputnik as the carrier.

There's partial precedent for such an arrangement. Back when I was at CompuServe, we and the other online services and major ISPs had subsidy deals with the larger modem and PC manufacturers. If a buyer of one of their devices signed up for our service and stayed on for a few months, the manufacturer would get a modest kick-back from us. While I was never privy to the financial models of the modem or PC guys, one assumes that some portion of that spiff ended up being used as a weapon in price competition, and therefore ended up reducing the ASP to the end user. What's more novel here is the idea of direct subsidy to the purchaser, though that shouldn't be any logistical difficulty, given the number of rebate-on-activation type offers already out there.

That much said, I don't think the Wi-Fi market is mature enough for such a model to work as yet, and there are also some economic problems that may be inherent. Remember that when I and others were doing the modem spiffs, they were a competitive weapon to gain share in a fast growth market - dial up - that had a reasonably understood consumer value and business model. None of these qualifiers pertain in Wi-Fi hotspotting, as yet:

Wi-Fi overall is past the knee-in-the-curve and in fast growth, but the same can't be said of hot-spotting. Anecdotally, the average usage per Starbucks site is three sessions per day. The stable business model is not known as yet - it may be straight subscription, add-on subscriber feature, pay-per-use, free or discounted location amenity or (likely) some mix of those. No one in any of those models is yet profitable, meaning that a subsidy is just a way of going further into the red.

The AP price is a factor in the initial setup of a public hotspot, but labor costs of the install likely equal or exceed it, unless the location owner is technically sophisticated. On an ongoing basis, the costs will be dominated by maintenance (truck rolls), but even more by backhaul costs. This is a hidden and problematic difference between the startup of the dial-up ISP and hotspot models. Dial-up access piggy-backs onto the PSTN to get the users to a concentration point, where modem racks handle conversion to an IP backhaul, initially a T-1. When starting up a dial node, that piggy-backing assured that you could get a fast start on amortizing both the hardware and backhaul costs, assuming some reasonable subscriber base within the served area of the CO.

In contrast, the hotspot can use a cheaper DSL backhaul, but has much less assurance that it will be able to amortize its costs among users as the business starts up: Desktop PCs with modems had the nice characteristic of staying largely fixed with a CO serving area; Wi-Fi'ed laptops and PDAs sprout feet and walk away. The served area of a hotpot is inherently less than that of a fixed line CO. As we learn more about user behaviors, it may be possible to build models for viable concentrations of hotspots within an area (sort of like the video store, gas station, and pizza parlor siting models), and discover what degree of end user switching costs can be created by hotspot owners and carriers, but we're far from there as yet. This is an inherently more complex business model, and assessing the actual value to the carrier of a subsidy would be very hard.

So, recapping, subsidies are a weapon for carriers to buy market share in a period of fast growth. Lacking this growth, and a confidence that new sites will be profitable, a subsidy model isn't likely.
4:59:00 PM