Wi-Fi vs. 3G. It has been argued that the proliferation of non-profit community based wireless networks or commercial wireless services from meeting hotspots gives a death knell to 3G mobile services before these services has even been rolled out. Wi-Fi based on the 802.11b (or 802.11a and later 802.11g) standard provides (in theory) up to 11M mps (802.11a and later 802.11g will substantially increase this bandwidth). Contrast this to the 250-500K mps data speed promised by 3G providers represented primarily by large telcos that have paid billions of dollars to European governments to obtain exclusive UMTS licenses. Add a conspicuous large difference in roll-out and deployment cost of setting up Wi-Fi hotspots to 3G coverage, the answer then seems to be that the 3G operators will have a very hard time paying the installments on the debt incurred in obtaining the UMTS licenses because the market for their services has eroded due to Wi-Fi. Did anyone say the winner’s curse?

Not so fast! It is not Wi-Fi or 3G. Rather it is Wi-Fi and 3G. Or maybe more Wi-Fi and less 3G. And what about 2G in particular GPRS? First of all, Wi-Fi and 3G are not fully substitutes with respect to the way these services are used. Wi-Fi is not mobile in the sense that it is not and will probably never be serving people in motion. Wi-Fi is intended for people to connect wireless to Internet when they drinking their coffees at cafes, waiting in airports, attending conferences, or pausing beneath a window from which an access point can be accessed. For the time being, Wi-Fi will be offered at stationary hot-spots that will a limited radius within which the signals can be detected. Wi-Fi is not expected to provide the wide almost ubiquitous mobile coverage that mobile phones offer today. 2G and 3G service – when available – will enable continuos high speed datatransmission for subscribers while they are driving in their cars or walking from on access point to the other. One can, however, question, if there is any demand for datatransmission while moving from one point to another, if there at each point is sufficient bandwidth. Furthermore, Internet access in trains and airplanes should be made available via Wi-Fi.

Wi-Fi and 3G will co-exist and compete to the benefit of users. In addition to the fact that Wi-Fi will almost instantly fulfill an unquestionable demand for seamless high speed wireless Internet connectivity, the second best thing about Wi-Fi is that it will put 3G providers under heavy pressure. If a competitive price and ease of use is not there, few will find 3G service compelling, given that wireless Internet access is already available at a much lower price through Wi-Fi. Such competitive pressure is music to the ear for consumers in a sector where the dominant players that offering 3G services often are telcos used to exploiting monopolistic market conditions with respect to traditional wired communication. Some of the 3G operators will not be able to be able to compete and will fail.