With 3G's big boys muscling in, the heat is on in the hotspots

With only 17% of business travellers using them, the net nerve-centres need new clients

On Friday last week, Nintendo announced that gamers will be able to use its consoles for internet gaming, for free, at 7,500 wireless internet "hotspots" across the UK.

But a business traveller who wants to use wireless internet to download email either side of a journey from London's Paddington station to Heathrow - just 15 minutes away by train - faces the prospect of paying fees to two separate hotspot operators.

Worldwide, some 121 million homes already have wireless networks, according to industry analysts Ovum. But a separate survey by the research firm Gartner found that frequent business travellers were largely indifferent to the technology, at least outside the office. Just 17 per cent of those surveyed by the company used a hotspot to go online or connect to corporate networks.

Cost and convenience are both barriers. Wireless internet is relatively easy to access in big cities, with London especially well served. The capital has more hotspots than San Francisco, New York or Tokyo, but in other parts of the UK coverage is patchy, with perhaps just one or two cafés in town centres providing the technology to go online.

Although operators such as T-Mobile, BT Openzone and The Cloud continue to add new sites to their networks, the hotspot operators face a growing threat from the mobile phone companies. Casual use of a wireless hotspot is expensive, with fees of £5 or more for an hour commonplace. Frequent users find it cheaper to buy a monthly subscription, at around £30 a month.

But people who need access to data on the move may find it even better value to subscribe to 3G with one of the 3G mobile networks. Operators including Vodafone, Orange, T-Mobile and O ₂ have all-inclusive subscriptions designed for business travellers and those who work outside the office.

The mobile companies have cut their charges to the point where the gap between a monthly WiFi subscription and a 3G data subscription can be as little as £20. This is a price that many businesses are happy to pay for the ability to go online anywhere, not just in a hotspot.

"A monthly 3G contract can equate to just a few hours' access at a commercial WiFi hotspot," notes Gartner.

The argument that WiFi provides better speeds than a cellular connection is looking shaky too. The 802.11b standard for WiFi, used in most hotspots, provides a theoretical maximum speed of 11 megabits per second. A 3G data card runs only up to 384 kilobits per second - or nearly 30 times slower.

The differences are not as marked in practice. WiFi rarely runs at its maximum speed, and the quoted speed refers only to the link between the computer and the hotspot. The link from the hotspot to the internet might well run at just 512 kilobits, scarcely quicker than a 3G card. The mobile operators are currently testing cards that will work at one megabit and beyond.

This presents an interesting opportunity for mobile operators. Orange runs both WiFi and 3G networks in France, as well as selling data cards that can work on both systems in the UK. But Vivek Badrinath, chief technologist for Orange, believes that 3G and 4G technologies are gaining ground among business users. "With HSDPA [the successor to the current 3G cards], we will have speeds close to one megabit per second. That does the job for business users," he says.

Nonetheless, he concedes that there are areas where the two technologies overlap, for example in hotels. Orange believes that business users will subscribe to data "bundles" that will allow them to use both networks. "If you are sitting in a café you might use WiFi, otherwise you will be on 3G," he says.

Such a strategy works well for operators with both 3G and WiFi networks: in France, Orange has 4,000 of its own hotspots; T-Mobile also has a two-pronged strategy in the UK, Germany and the US. But life will be harder for stand-alone hotspot operators. Industry watchers expect the large players to drive consolidation of the business, while hotspot operators will also be forced to attract individual users, rather than relying on corporate users.

"Hotspot operators will be under pressure to rethink their business models," says Shiv Bakhshi, director of wireless and mobile infrastructure research at analysts IDC. "If you have HSDPA, you can check emails anywhere. It makes little sense to give that up in favour of using a hotspot."

Not everyone agrees with the mobile operators' claims, however.

"I don't believe that you will get some of the bandwidth that is being talked about by some of the 3G proponents," says Peter Gardner of the venture capitalists 3i, investors in WiFi operator The Cloud.

"The operators may be able to double bandwidth roughly every year, but they will be using spectrum that is currently generating service revenues from voice traffic. A two-megabit data connection uses the same bandwidth as 32 paying voice calls. We don't see 3G as being serious competition."

WiFi is fighting back against the 3G operators. One way it is doing so is through the growing popularity of computer-based internet phone companies, such as Skype. Thanks to a deal with The Cloud, Skype already lets consumers use its instant messaging software for free at hotspots. If they then want to go on to make a call using Skype, they have to pay the hotspot operator.

Entertainment and gaming will also boost WiFi. In Finland, hotspots under the Bfree brand are letting users download free Robbie Williams tracks to their computers.

Chris Clarke, chief executive of converged mobility operations at BT, says that the company had been planning to launch entertainment-based services for more than two years. This was one reason BT struck a deal to put WiFi hotspots into McDonalds' restaurants - a move that surprised many at the time. But while McDonald's might not be an obvious choice for business travellers, it is the perfect location to attract teenage gamers.

Rather than go head to head against WiFi, cellular operators have realised that it may be better to embrace it, where it can. In areas where it is hard to deliver a stronger cellular signal, such as airports, WiFi is an attractive option for mobile companies as well as stand-alone operators.

The latest generation of mobile handsets from companies such as Nokia, Sony Ericsson and Taiwan's HTC, a maker of operator-branded smartphones, come with WiFi built in. If the mobile operators can shift some of the traffic to WiFi, it will free up valuable network resources for voice calls.

Mr Clarke believes that as the market develops, users - and companies - will no longer think in terms of a choice between WiFi and 3G data cards; the two will increasingly dovetail. "The market will change significantly, and how people will pay for services will change significantly too," he says. "People will buy a chunk of bandwidth or time for services, whether it is fixed internet, GPRS, 3G or WiFi."