Four months ago, Intel Capital announced plans to invest $150 million in companies developing Wi-Fi technology. The announcement supports Intel Corp.’s vision of the convergence of computing and communications. It also complements the launch in the first half of this year of Intel Centrino wireless mobile technology, Intel’s next-generation notebook micro architecture.
Wi-Fi-short for “wireless fidelity” and the buzzword for wireless local area networks-is catching on like wild fire. Dozens of companies sell Wi-Fi communications chips and equipment both for home use and for enterprise applications, and prices are dropping precipitously. Service companies like AT&T Wireless, Wayport, T-Mobile and others sell access to people with notebook computers that include Wi-Fi capability. These service providers are sprouting up worldwide with popular locations at airports, in cafes and brew pubs, among others. Wi-Fi access points, or “hotspots,” are popping up everywhere. Manhattan alone is home to 14,000 of these hotspots, according to PublicInternetProject.org.
Nothing Ventured …
Given the maturation of Wi-Fi, it’s reasonable to ask: Why invest venture money? Is this yet another case of a corporate VC coming late to the party? I do not think so. When I look at Wi-Fi growth, I am excited by what has happened to date, but I’m more excited by what could come next.
A Wi-Fi communication network for the Internet can become as important as the telephone network is for voice communications. Imagine tens or hundreds of millions of users at home, on the road, virtually anywhere in the world, all able to access the Internet via Wi-Fi, and at speeds well in excess of the typical DSL speed today. Ad-hoc networks can be set up at construction sites, at conferences, in classrooms, etc. (see “Tech Detective: Inside Intel,” November VCJ). Networks can be created that reconfigure themselves as needed when clients move around. Location-specific services become possible by integrating GPS technology into the network. These networks can carry voice and video, as well as data. Potentially, seamless interconnections between cell phones, PDAs and computers could use a combination of Wi-Fi and GPRS (or 3G) networks. Contemplate networks where customers can buy the application services separate from the transport.
Fill the Gap
Many of these possibilities are currently beyond the state of the art. Some of the limitations are technological, while others are imposed by inadequate services or by regulations. The existing players will fill some of these gaps, but in many cases new, startup companies will seize the opportunity. This is where venture investment can have a significant impact.
The more efficient use of the available spectrum will become an increasingly important need. Technologies like “mesh” configurations of access points or the use of “smart antennas” are promising. VoIP (voice over Internet Protocol) capabilities utilizing Wi-Fi are in early pilot deployments with young, start-up companies leading the way. Reconfigurable networks, long a domain of military-sponsored research, are in the experimental phase and may provide a good opportunity for investment. Finally, let’s not forget that this is all happening in “unlicensed” spectrum, meaning that other people could use the same RF bands for different purposes. This dual use poses technology challenges and opportunities.
The security weaknesses of wireless networks are well publicized. While a VPN (virtual private network) does a reasonable job of improving security, there are many technologies-and some standards-that need to be deployed to minimize these shortcomings. But there is no definitive end point, be it secured wired or wireless networks; security is a journey, not a destination. Nevertheless, many exciting new technologies are coming out of the labs, thanks primarily to some highly innovative startups.
Last but not least, there are issues with the current service model. Although many market experimentations are underway, the business model for offering transport services is unproven. Users might be excited to land at an airport and find Wi-Fi access to the Internet, but multiple access fees can add up fast and be prohibitive for most. There are no roaming or back office settlement capabilities yet, as have existed in the cellular communication domain for many years.
These are the general areas where Intel Capital invests. We invested in nine companies in the last 12 months, and if they succeed they each will fill a need in the ecosystem and move us toward a more advanced Internet environment.
There are other issues. The more we succeed, the more we face a shortage of available spectrum. While better spectrum utilization is necessary, we need additional access to spectrum. But, whenever we talk about the communications business, we depend on the regulatory agencies’ actions. In the United States, we depend on the actions of the FCC. I am optimistic that the FCC will act in a manner that will accelerate broadband deployment. Still, if it were up to the current cellular service providers, we would clearly not get much additional access to spectrum: This Wi-Fi momentum could undermine their existing business models. The military also has something to say about this, as some of the spectrum being proposed for unlicensed use is allocated to the Department of Defense. These are formidable opponents who know how to “navigate” the Washington scene. Yet, with the appropriate focus and effort, we will be able to make progress. I am certain of that.
Another potential political firestorm is the harmonization of spectrum throughout countries worldwide, a very daunting problem. But even if harmony isn’t created, technology advances-in particular the emergence of software defined radio (SDR) techniques-promise to make this a manageable issue. Yet another investment opportunity.
Conceivably, one could use bandwidth while the primary user, or licensee, of the spectrum is not using it, and then one could move to another unused spectrum when the primary user appears on it. If you think that getting the FCC to open more unlicensed spectrum is difficult, wait for this debate to start. Yet, opening additional spectrum is the right thing to do, and I believe that sooner or later, it will happen. When it does, spectrum scarcity-an artifice of legacy regulation-will virtually disappear. And our business opportunities will expand-again.
Where does this all lead? As we deploy these capabilities, we are developing a new network service paradigm. A world where the transport and the application of that transport are separate services, and where transport is 1 MBit-plus capacity and two to three times faster than a typical DSL connection today. It’s a major step toward anytime, anywhere access.
Let’s look at these issues another way. Market ecosystems move forward when all the pieces that make up the market segment are available. Computers are not much use without software, cars need roads, and so on. Simplistically, the Internet is made up of computers, networks and applications. Increasingly, networks are becoming the limiting factor in our ability to get more economic and societal benefits out of the Internet. The traditional models-involving grafting on some kind of Internet access to old communication services-are limiting our ability to innovate.
With Wi-Fi, we have an opportunity to evolve a network that fits the Internet. Maybe, just maybe, we will also create the basis for many new media applications. Most of the media that is available for broadband is old media. Unless you want to build a music library, this is not too interesting. If we can achieve a reasonable ubiquity with Wi-Fi bandwidth, the business opportunities will be there for applications that can take advantage of this Internet. It is not everything that we want-we would certainly want more bandwidth eventually-but it is a heck of a lot more than what we have.
So, the need is there, the technology is being developed, the business models are evolving and many brilliant entrepreneurs are pursuing this segment. We can even hope for some positive government actions. Is this worth investing in? You bet it is.
Les Vadasz is president of Intel Capital and an executive VP of Intel Corp. He started the group that morphed into Intel Capital in 1991. Intel has made nine wireless investments since January 2002, including three deals in December: Cometa Networks (nationwide broadband wireless Internet access); TeleSym (software to enable VoIP over Wi-Fi for laptops); and STSN (wireless networks for hotels).