Wayport, McDonald's cook up hot-spot deal

Hot-spot operator Wayport is expected to announce on Tuesday a four-year exclusive deal with McDonald's to provide wireless Internet service to the restaurant chain's customers.

For Austin, Texas-based hot-spot operator Wayport, the deal will mean upfront and monthly fees paid by McDonald's for the service, to be called Wi-Fi World. For McDonald's, it will mean wireless Internet access for its customers, something the chain hopes will provide a feature that will bring in traveling business people for more burgers and fries. Additionally, the strategy will allow Wayport to offer service carriers a flat monthly fee to resell access, a significant change from other models where carriers were expected to pay a per connection fee.

Wayport's plans come on the heels of the shuttering of Cometa Networks, a rival that was expected to contest Wayport and T-Mobile USA, but which had to close because it could not raise the funds it needed to expand its hot-spot network nationwide. Wayport already has a sizable network of 1,500 hot spots, which should only get larger with the McDonald's agreement. Wayport will offer its hot-spot service in 8,000 U.S. McDonald's locations in the next 12 months.

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"Reaching a flat-fee service is very important because in the past carriers were scared off by per connect fees," said John Yunker an analyst with research firm Byte Level Research. "Now the question is, will carriers sign up and if they do, what will their service plans look like."

High subscription numbers for hot spots have been expected by many in the industry because of the popularity of Wi-Fi gear, but the reality hasn't been as lofty.

"The number of people that pay for hot-spot service is still a fraction of people that use Wi-Fi...With this deal, the obstacles like (network) coverage and pricing are being addressed but not necessarily overcome," Yunker said.

Wayport's arrangement with McDonald's divides the risk between the companies and improves Wayport's chances of signing up carriers to use its network, said Roberta Wiggins an analyst with research firm The Yankee Group. Having carriers as partners means their subscribers can use Wayport's network, which means added traffic and revenue. Wayport is aiming to attract carriers with a $32 flat monthly fee per site.

Hot spots are public areas where a wireless network has been set up to allow Wi-Fi device owners to share resources, such as a broadband Internet connection. Hot spots were initially set up haphazardly in a grassroots manner to give communities free access to the Internet. Although this continues to happen in cities like Portland, Ore., and San Jose, Calif., more and more companies have been installing secure networks and charging for the service.

Subscribers to Wayport's hot-spot service will also be able to use the service in those McDonald's, and others will be able to pay $2.95 for a two-hour hot spot session.

Wayport is also working with cellular carriers--such as AT&T Wireless and Sprint--and SBC Communications.