While global Wi-Fi use is set to explode over the next five years, revenue from the will shrink, leading to a consolidation of the market, according to a report released by Pyramid Research.
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Worldwide Wi-Fi users will rise to 707 million by 2008, Pyramid predicted, yet revenue per user will drop from around $30 (£19) a month this year to $3 a month in five years' time.
The number of exisitng Wi-Fi users stands at about 40 million, according to Pyramid analyst John Yunker.
The low margins mean that only established providers can stay in the game, and that the standalone Wi-Fi business is a "perilous one".
"Wi-Fi is a commodity, it's cheap to deploy and operators don't see it as a standalone," Yunker said.
The researcher predicted that larger players, such as Intel and Cisco Systems, will take the majority share of the market and communications infrastructure providers such as Ericsson, Alcatel and Lucent Technologies will eat up rising Wi-Fi software and device manufacturers.
In the end, major providers will use Wi-Fi to fill out their portfolios and gain customer loyalty, Pyramid said, but it will not be the cash cow they may have hoped for.
The popularity of Wi-Fi networks at home and in the workplace will drive rapid growth, Yunker said, adding that business users are the quickest adopters.
Still, Pyramid predicts that hot spots will continue to grow, and that within five years there will be 80,000 in the US alone.
Scarlett Pruitt writes for IDG News Service