Wireless LANs Stalled Among Tight-Fisted CompaniesWireless LANs Stalled Among Tight-Fisted Companies

Companies gave the cold shoulder to Wireless Fidelity technology last quarter. Business sales for the emerging wireless LAN technology based on the 802.11 standard fell 6% in the fourth quarter of 2002 compared with the previous quarter, research firm Dell'Oro Group reported Tuesday.

However, the small-office and home-office market for the wireless Internet connections was still strong, growing 13% from quarter to quarter. Total revenue for the quarter was $419 million, 3% more than the third quarter. Enterprise sales accounted for 40% of the revenue. For the year, market revenue was $1.6 billion, compared with $1.2 billion in 2001.

Big companies are shying away from Wi-Fi because of security concerns. Fueling such suspicions are experiences like that of retailer Best Buy Inc., which last spring had to temporarily unplug its wireless system after a security analyst in a parking lot was able to capture credit-card numbers and other data from the company's wireless cash registers. The security breach was fixed and the network turned back on.

"In general, security is still an issue, and a lack of standards is still a concern with the enterprise," Dell'Oro analyst Seamus Crehan says. "Also, IT budgets are still very constrained, and, while compelling, wireless LANs are still somewhat of an additional or incremental technology to the network." Companies aren't willing to replace their wired networks, he says.

The Wi-Fi Protected Access (WPA) standard should help ease concerns over security, Crehan says. Products incorporating the standard are expected by the second half of the year from major manufacturers of wireless networking technology. The standard is a joint effort by the Wi-Fi Alliance and the Institute of Electrical and Electronics Engineers. In addition, the IEEE is expected to publish in July the latest version of the 802.11 specification, which increases bandwidth from 11 to 54 Mbps and is backward compatible with previous specifications.

The small-office, home-office market was driven by price declines and promotions, coupled with an increase in the number of subscribers for DSL and cable. The two broadband connections bring the Internet to a Wi-Fi transmitter in the home, office, airport, or other public place, where it can be picked up by a receiver-equipped notebook or handheld device. The number of DSL and cable subscribers increased by 7 million in the fourth quarter, Dell'Oro says.

Wi-Fi has had lots of support from high-tech vendors. Dell Computer is equipping most of its laptops with Wi-Fi connections, Sony is installing it in a host of electronic gadgets, and Intel plans to release chips with Wi-Fi receivers this year. Intel is also investing $150 million in Wi-Fi startups.

Companies have been joining forces in building Wi-Fi networks in public places to make some money off the 40 million people, or nearly 25% of the workforce, that high-tech researcher the Yankee Group says are mobile workers.

Last December, AT&T, IBM, and Intel, along with venture-capital firms Apax Partners and 3I, formed Cometa Networks. During the next two years, the joint venture plans to build 20,000 Wi-Fi service hot spots, public locations outfitted with the wholesalers' transmitters and receivers. Cometa plans to sell wireless broadband access to communications service providers, which will sell the service to businesses and consumers.

Starbucks Corp. offers Wi-Fi service in nearly 2,000 coffee shops, and Borders Group is deploying the technology in bookstores nationwide. American Airlines, Delta Air Lines, and United Airlines have jointly signed an agreement with T-Mobile USA to install the technology in 100 airport clubs and lounges.