There's been an explosion in growth of Wi-Fi hotspots during the last several years. Best-guess estimates range from 33,000 WLAN hotspots worldwide to more than 250,000 at present. (That's mainly because service providers, themselves, are unsure how many hotspots they have in operation, says an industry analyst.)

Driving that demand, customers now expect wireless LAN connectivity inside everything from restaurants to airports, hotels and hospitals. (To read about the Wi-Fi strategies at Starbucks, McDonald's, Borders and Panera Bread, see "Should Retailers Offer Free Wi-Fi to Customers?")

But what also has become part of customers' expectations: Free Wi-Fi. According to recent In-Stat survey data, nearly 50 percent of respondents said they would only use a free hotspot. Cost is one factor, notes Daryl Schoolar, a senior analyst at In-Stat, in an e-mail. But what also factors into customers reluctance to pay for the service is their perception of a lack of value. "You pay $X dollars per session, and you can only use it at a few locations," he says.

In addition, the proliferation of free Wi-Fi hotspots, Schoolar notes, "makes it challenging to get people to pay."

It's not surprising, then, that In-Stat data showed that hotspot access revenues are not keeping pace with usage growth. "The explosion of free sites is really driving the market," Schoolar says. "Wi-Fi grows like a weed, it shows up in areas you never expect."

Getting People to Pay

Because of this pressure to make Wi-Fi free, hotspot operators are looking at other methods to generate revenue, notes Schoolar.

"Operators have started bundling hotspot access with other services, such as fixed and mobile broadband," he writes in the In-Stat report. "This way, consumers can access hotspots without paying a separate fee, and operators can generate some access revenue by bundling the cost of the service into a bigger service package that consumers are willing to purchase."

Collecting hotspot revenue is easier in some captive settings, like an airport or hotel, Schoolar notes. "Hotspot owners are still charging if they control a prime location like airports, where there is no alternative," he says.

Other WLAN operators are still charging for Wi-Fi access because that's their business model. "It is hard for them to just walk away from that revenue stream even if it will decline," Schoolar says.

That decline in access revenues will begin in 2010 in United States and in 2012 in the rest of the world, Schoolar predicts. "The US market is more competitive with free sites along with proliferation of cellular data and WiMax rollouts," he adds.