Why 3G should fear the wireless LAN

Fast-forward three years: Wireless carriers have completed the build-out of their third-generation networks. Now consumers have "always on" connectivity and can take advantage of high data rates on their handsets or PDAs.

They are networking everywhere--at home, at the office, even at Starbucks. The one catch: They're not using their wireless carriers.

There's a new kid in town: the wireless LAN.

Typically operating in unlicensed spectrum, wireless local area networks offer users remote access, mobility and high data speeds at a relatively low cost. And with hundreds of development efforts under way--both at start-ups and at large companies like Cisco Systems--impediments to adoption such as standards, interoperability and security are likely to get quickly resolved.

What's more, wireless LANs are growing like wildfire, with nearly 115,000 public access hot spots throughout the United States, Europe and Asia predicted in the next four years.

It's a wireless carrier's worst nightmare. After a collective investment of more than $200 billion on spectrum licenses--and an expected investment of half again as much on infrastructure--to provide Internet anytime, anywhere capabilities, carriers are betting enough consumers will communicate over 3G networks to amortize the big bucks that went into buying all that spectrum and equipment.

But if wireless LANs offer access in most places people do

It's a wireless carrier's worst nightmare.

networking, with much higher data rates and across multiple devices, carriers might not be able to reap the rewards promised by 3G.

We've heard all the idyllic predictions about corporate networking-from-the-beach scenarios. But 3G use may wind up restricted to the occasional e-mail break or sports score check-in while consumers are stuck commuting via public transportation.

When it comes to access range, 3G does have an advantage over wireless LANs. But wireless LAN technology more than compensates with high speed and low cost. That's one reason many analysts see the two technologies as complementary rather than competitive and believe wireless carriers will move into the wireless LAN market.

"We see 3G and wireless LAN as two different markets," explains Gemma Paulo, a voice and data analyst at research firm In-Stat/MDR. "We don't see wireless LAN as a threat to 3G. People like the high speeds and convenience of wireless LAN, but it's almost an 'indoor technology.'"

3G has an advantage over wireless LAN when it comes to access range, but wireless LAN more than compensates with high speed and low cost.

To be sure, the technologies may be complementary, but might wireless LANs still whittle away at carriers' 3G revenue? To the extent that standards permit interoperability; "hot zone" access points become pervasive--particularly in areas such as airports, cafes, hotels and conference centers; and users are able to gain access using a range of devices, it will be hard to argue in favor of 3G versus wireless LAN.

Wireless LAN operators in so-called hot zones can offer service more cheaply and won't be constrained by spectrum and infrastructure costs. As a result, it will be much easier for them to pass down lower costs to consumers. Cellular operators are trying their best to cut 3G launch costs, but they still don't have the ability to wage a mobile data price war--and won't be in any position to do so for the near future.

Mani Rangarajan contributed to this column.