The Economist questions the economics of hotspots

The Economist has an article this week describing the current state of WiFi hotspots and asking some important questions about the viability of the business model that is causing the WiFi hotspot explosion.

As mentioned in another article here today, the number of hotspots appears to be expoding. However, The Economist notes that T-Mobile and Starbucks (with 2,000 hotspots) gets only about 25,000 users per week. While this sounds like a lot, it's only about 2 users per hotspot per day.

The magazine suggests that unless the number of users explodes, WiFi hotspots are headed for a fall.

I'm not sure that I agree 100% with their economic analysis, but I do agree that there needs to be some real though put in before people invest in more expansion (as much as I applaud said expansion for my own personal use).

The Economist states that the costs of connecting each hotspot run to hundreds of dollars a month. To my knowledge, many of these places are using DSL to do the back-haul and you can get nationwide business DSL from SpeakEasy at 1.5/384 for only $99/month. This, in combination with the liklihood that most chains (like Starbucks) are accessing their internal data and credit-card transactions (encrypted, of course) on the same high-speed lines as their customers are using for internet access, seems to indicate that the costs may be a bit lower.

It's going to be interesting to see how it works out, especially as the phone companies (like Verizon and Bell Canada) start to use their existing wired payphone network to provide WiFi inexpensively in high-traffic areas.