China Mobile Finds Large Wi-Fi Network Cannibalizes LTE Revenue

China Mobile has found that its network of 4.3 million Wi-Fi hotspots, deployed at a cost of 17 billion Yuan ($2.75 billion), does not have a viable business model. In fact, in 2013, the Wi-Fi network generated only about 2.6 percent of China Mobile revenue, despite representing 74 percent of total China Mobile data traffic.

In other words, by building such an extensive Wi-Fi hotspot network, China Mobile might have inadvertently discouraged customers from buying mobile data access.

As with some other initiatives, such as voice over Long Term Evolution, or widespread fiber to the home networks, there is no business case.

As often is the case, there were reasons for building such a large Wi-Fi hotspot network. China Mobile faced 3G network issues, so the Wi-Fi hotspot network was a way of improving experience.

The problem appears to be that the Wi-Fi network did, in fact, cannibalize usage of the Long Term Evolution 4G network. Up to April 2014 China Mobile had sold about 14 million LTE handsets, but fewer than four million had opted to buy 4G service.

That bit of data might be encouraging for Comcast and other mobile Internet service providers or mobile service providers who believe Wi-Fi hotspot networks can be the foundation for either a mobile service, or a mobile Internet access service.

Unlike China Mobile, Comcast does not own a 4G or mobile network. And firms such as Fon, Illiad’s Free Mobile, Republic Wireless or Scratch Wireless believe a business model does exist for Wi-Fi-first networks.

Wi-Fi-first networks build on the existing public Wi-Fi hotspot networks that allow connections without the full cost of building either a mobile network or national fixed access network.

New Street Research analyst Jonathan Chaplin has estimated that Wi-Fi-first mobile service providers could launch services with roughly 35 percent lower capital costs than traditional mobile carriers, mainly due to savings on spectrum and capital expenditures.

Chaplin thinks cable companies "could earn attractive margins pricing wireless service at $25 to $30 a month, about a 40 percent to 50 percent discount over traditional mobile service plans.