Details about BSkyB’s acquisition of The Cloud; plus the past and future of Wi-Fi

It’s not a rumor. BSkyB has indeed acquired UK hotspot operator, The Cloud, for £50 million, according to the WSJ. The Cloud launched its Wi-Fi hotspot business in 2003 and has approximately 22,000 hotspots in Europe, 5000 in the UK. It also runs the Wi-Fi service in UK hospitality locations such as Marriott and McDonalds.

Recently, the Wi-Fi hotspot business has become hot again because people are accessing all kinds of media content via tablets and iPhones, and the 3G networks are struggling to keep up with the demand for bandwidth from smartphone and tablet users.

How does The Cloud fit into BSkyB’s business?

BSkyB (partly owned by Rupert Murdoch’s NewsCorp) provides satellite TV and broadband service in the UK. Via its Sky Sports Anywhere, it streams sporting events live to its customers who have laptops, iPads and iPhones. For iPod Touch, iPad and iPhone owners, Sky Sports Anywhere charges an additional £5 per month (they call it the Sky Mobile TV service).

By owning a large network of Wi-Fi hotspots, BSkyB can provide its customers free access to Wi-Fi so that they can watch Sky programs to their hearts’ delight and not have to worry about the poor quality of 3G connections, exceeding their mobile operators’ data caps or paying more for lousy cellular data service. By owning the Wi-Fi network they also have control over its quality and can optimize it for streaming video to portable devices.

Note that in the US, Cablevision (a cable provider on the East Coast) has created Wi-Fi hotzones in New Jersey, Long Island and Connecticut where its cable customers have free access to Wi-Fi. When Cablevision began offering free Wi-Fi service a few years ago, most people thought that it was solely to entice people away from its competitors. Although that is still one of its goals, surely today, Cablevision and similar providers of television programs must be thinking of ways to bring video to customers’ portable devices (and charge them extra for the privilege) via their own wireless networks.

Everything old is new again, thanks to the iPhone

In the early part of the last decade, around the time The Cloud started doing business (2003), Wi-Fi was the hot thing because people started buying laptops and began to discover the joys of being able to sit anywhere in the house or office, or even outdoors with a broadband connection. But then they came up against the limitations of Wi-Fi: they couldn’t get it while traveling in a car or on a train, they couldn’t have it while walking down the street. The cellular operators came to the rescue by promising “fast Internet everywhere” and many people concluded that Wi-Fi would be nothing more than a niche market, overshadowed and replaced largely by cellular connections. The operators also began competing with one another by lowering the price of their data plans and promising “unlimited data”.

Then came the iPhone. Suddenly, people began accessing the Internet everywhere, chatting, using iPhone applications, playing games and streaming video. The cellular networks could not keep up with the demand for bandwidth. The operators promised 3.5G would be better than 3G, but as soon as they upgraded the network, it was once again swamped. Now they are promising us that LTE will really do the trick, but it will take years for them to get around to deploying LTE networks and having lived through so many broken promises, we’re not going to fall for this again.

So, in the face of increasing customer complaints, the operators started thinking of how to offload cellular data traffic onto Wi-Fi networks. In the US, AT&T replaced T-Mobile in Starbucks cafes and began offering free Wi-Fi to AT&T customers. In 2008 AT&T bought Wayport, which operates the Wi-Fi networks in many hotels and in McDonalds. AT&T provides free Wi-Fi service to its customers at these locations, too. Wi-Fi is not surprisingly THE most desired way of connecting, at least for most iPhone users.

And guess what, Boingo, a worldwide aggregator of Wi-Fi hotspots (hotels, airports, convention centers, cafes, restaurants) has filed for an initial public offering in the United States.

The arrival of the iPad has only made matters more challenging, for cellular and Wi-Fi operators and for iPad owners. The latter want the best and cheapest connection while the cellular operators struggle to improve their networks to deliver higher bandwidth. Wi-Fi operators also face growing demand for bandwidth, lower latency and jitter from people who use networks for making calls and viewing videos, and unlike the cellular operators, they don’t have a lucrative, long-term billing relationship with the customer that involves enormous termination fees.

The problem for Wi-Fi operators has always been this: how to pay for running and upgrading their networks. Boingo has developed an aggregator model by charging customers a fixed price every month and giving a portion of that to the network on which the customer roams (note: Boingo also has pay-as-you-go options). Other Wi-Fi operators make money not by charging the customer directly for Wi-Fi access but indirectly by providing some other service for which the customer pays (Cablevision, AT&T, now BSkyB’s Sky Mobile TV).

It promises to be a very interesting year for Wi-Fi and for Wi-Fi network operators who are now faced with the task of optimizing networks for tablet and smartphone use. Check out these articles:

Enterprise and public wireless in the age of tablets and smartphones

Wi-Fi’s Task for 2011: Making Networks iPad Friendly