O2 to build free Wi-Fi network across the UK

The mobile operator O2 will today launch an ambitious drive to install Wi-Fi hotspots across the UK, bringing it into conflict with broadband rivals BSkyB and BT.

The announcement of its Wi-Fi division will mark what the company calls the first "truly free, public Wi-Fi platform" in the UK, available not just to its customers, but anyone else who wants to use it.

Tim Sefton, new business development director at O2, said: "We're looking at how we can grow and evolve our business." He added that the strategy would be "market-changing".

O2 said it wanted to address "the many shortcomings" of public Wi-Fi, which it described as "stagnant," adding: "The market is in need of refreshing." The hotspots will also take some of the strain off the company's 3G network. One mobile industry rival said: "This is an interesting development. The operators have always been interested in how they can use Wi-Fi to offload some of that data."

O2 said initially it plans to install 450 hotspots into restaurants, shops and sports stadiums, although it would not disclose if any agreements had yet been signed. Mr Sefton said the company planned to spend "low double-digit millions on the drive".

The sites will be "premium public hotspots" O2 said, rather than using residential connections, and will double the number of equivalent sites offered by the UK's largest Wi-Fi providers, BT and The Cloud, by 2013. O2 customers access these sites under an existing licensing deal.

It emerged that Sky has agreed to buy The Cloud, which has 22,000 public Wi-Fi spots in Europe, and could announce the deal in the next few days. O2 competes with Sky in home broadband, and industry rivals said its Wi-Fi drive could be interpreted as a defensive move, should the terms of its licensing deal with The Cloud become more expensive or pulled altogether. O2 denies the strategy is defensive.

One O2 executive also admitted competition would increase with its Wi-Fi partners, saying the company would be chasing "a lot of the same target areas," as BT and Sky, adding "there will inevitably be an element of cannibalisation". Sky and BT declined to comment.

O2 believes its Wi-Fi drive will increase the number of customers on the technology, used by just a fifth of O2 users. Mr Sefton said: "We know that Wi-Fi as a technology has great potential and can be a very fast service. However, customers are discouraged by barriers, which include complexity in activation, uncertainty about where Wi-Fi is free and the variable quality of the experience."

Mobile operators are increasingly looking to Wi-Fi to take the strain of rising mobile internet data consumption off their 3G networks. Others are likely to follow, one expert said. Terry Norman, the principal analyst at Analysys Mason, said: "We are seeing substantial amounts of data growth, and it is phenomenally expensive for operators to upgrade their mobile networks." He added: "The Wi-Fi landscape will play an increasingly important role in data traffic and services in the next five to 10 years." While this marks the first time an operator has rolled out free Wi-Fi in the UK, T-Mobile has previously charged for hotspots it installed around the country.

O2 also revealed yesterday it was to increasing investment in its mobile network by 25 per cent this year.