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Telerama targets Seattle Wi-Fi users in 60 hotspots

A Pittsburgh company’s plans to have 70 Wi-Fi hotspots in the Seattle area by year’s end is the latest effort to find a business model that makes sense for the burgeoning wireless technology.

By Nancy Gohring
Special to The Seattle Times

http://seattletimes.nwsource.com/html/businesstechnology/2001890245_btwifibiz29.html

Telerama, an Internet service provider, planned to announce today that it has built Wi-Fi hotspots in 13 Seattle cafes, with plans for nearly 60 more. The company, which has 70 hotspots in Pittsburgh, also said Seattle is the first market in a nationwide expansion that should include two more cities this year.

Hotspots are locations that offer Wi-Fi, a wireless technology that allows laptop users in a limited range to get online without being connected to any wire.

The new hotspots, some of which have been available since June, are in seven Caffe Ladro locations and in other cafes, including both Cherry Street Coffee Houses. With no marketing beyond some signs in the cafes, Telerama has attracted 90 subscribers in Seattle.

Telerama joins a slew of other hotspot operators around the country, including two giants, T-Mobile USA and AT&T Wireless. These operators are experimenting with different hotspot business models, but so far this largely grass-roots technology has proved popular but elusive when it comes to commercial success.

Different models

Some, particularly the larger operators, provide services for a fee in numerous locations (T-Mobile and Starbucks); others offer Wi-Fi free with the expectation that it will increase customer volume (many small coffee shops).

In Telerama’s case it is trying a strategy others are also testing. "Our primary focus is to be the Wi-Fi-plus-Internet provider," said Doug Luce, founder and president of Telerama. In addition to hotspot service, Telerama is also offering DSL and dial-up Internet access to Seattle residents.

Bundling Wi-Fi with other services is becoming more common, said Sarah Kim, an analyst with the Yankee Group consultants, based in Boston. "The trend is to make Wi-Fi a value-add," she said.

For example, Bellevue-based T-Mobile offers Wi-Fi and cellular access, delivering a single bill to customers who subscribe to both.

Luce thinks the bundling strategy will attract DSL customers, even some that might otherwise choose Speakeasy, the Seattle-based DSL provider that targets higher-end broadband customers.

"Our traditional market has been the high-tech user, the early adopter," said Luce. Those users might decide to go with Telerama because of Telerama’s hotspot offering, he said.

Telerama’s basic pricing is in line with other hotspot operators, but under some pricing plans customers get additional services. For $29.95 per month, Telerama subscribers get unlimited access to the hotspots plus a free dial-up account, e-mail and 20 megabytes of storage space for a Web page. For an additional $29.95, monthly Wi-Fi customers can subscribe to DSL service at their homes.

By comparison, Qwest local phone customers can get DSL for $26.99 per month and T-Mobile offers monthly Wi-Fi subscriptions for $29.99.

Telerama also offers a special monthly rate for hotspot access, $9.95, for college students or nonprofit organizations. It also offers day and per-minute pricing.

Managing the system

Caffe Ladro decided to partner with Telerama so it wouldn’t have to manage the network itself. "Some people said it’d be real easy to just go ahead and do it ourselves, but we’re a coffee shop not an Internet cafe," said Robert Ohly, vice president for Caffe Ladro. The cafe focuses on coffee and pastries and doesn’t want the added burden of learning the technical nuances of maintaining a Wi-Fi network.

Telerama buys the network infrastructure, builds the network, pays for the monthly DSL line required to connect the hotspot to the Internet, provides ongoing maintenance and support and offers 100 megabytes of storage space for the establishment. That establishment also gets a customizable Web page, plus in-store promotional materials. Telerama gives them 33 cents of every dollar a subscriber spends on access to the cafe.

Telerama spends about $300 per hotspot to get the network set up, said Luce. The company buys hardware in bulk and uses open-source software to keep costs down.

So far, revenue from hotspot users covers the DSL lines, but not the overhead of maintaining and supporting the networks, he said. Telerama is paying for the hotspots with money from its ISP business.

It’s becoming unusual for hotspot operators like Telerama to pay for all of the upfront costs, said Yankee Group’s Kim. When hotspot providers first started building the networks over the past two years, they often paid for all of the initial investment and, frequently, the landline connection.

As a result, they usually received 80 percent of the revenue from customers, sharing the rest with the venue, said Kim.

"Those figures have evened out a bit more because the venue owners have had to share in some of the expenses," she said. Because expectations for hotspot access revenues haven’t been met, it has become more common for the venue to share the cost of building the network and get more of a share of revenue, she said.

Telerama hopes to differentiate its service by targeting local customers instead of the traveling business user. "Our primary focus is different than the others," Luce said. "We appeal to the local user."

Caffe Ladro chose Telerama among other service providers that contacted the cafe because "we liked their hipness and small-company vibe," Ohly said.

Seattle operations

Telerama has hired four workers for the Seattle office and expects to hire two more by week’s end. The company, which has been an ISP for 13 years, has never received any funding but recently created a board of advisers as a precursor to begin soliciting investments that can help accelerate its nationwide hotspot expansion. The privately held company has 30 employees and doesn’t disclose revenues.

Other Seattle Telerama hotspots include CJ’s Eatery, Bean Collection, LaVaca and Gingko Tea.

Nancy Gohring is a freelance writer in Seattle who reports frequently on telecommunications and technology.

Copyright © 2004 The Seattle Times Company

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