The Cloud, a UK Wi-Fi operator, has entered into a deal with BT to deploy city center hotzones in the following cities: Leeds, Manchester, Liverpool, Oxford, Cambridge, Nottingham, Edinburgh, Birmingham and London (the boroughs of Chelsea, Islington, Kensington, Camden and Hackney). I spoke to Niall Murphy, co-founder and CTO of The Cloud, about their plans, the state of citywide Wi-Fi in Europe vs. the US, and his company’s business model. Below is a summary of our discussion, followed by my conclusion.

The Cloud’s business model: not an ISP

The Cloud is not an ISP, it is a provider of Wi-Fi network access, a wholesaler to ISPs, gaming companies and mobile operators such as BT, Nintendo (for their Wi-Fi gaming network), Skype and O2. The Cloud does not provide Internet access directly to end users. Their customers are the service providers who sell access to the end user. Think of Earthlink’s business model in Philadelphia’s citywide Wi-Fi network but without the end-user hassle.

Where is The Cloud active? Who are its partners?

The Cloud has operations in Germany where they sell access to Vodafone Germany which in turn sells Wi-Fi access as an add-on service to their subscribers. The Cloud also began working with their partners in Sweden to provide Wi-Fi service in train stations across Sweden. In the Nordic countries, they have deals to provide Wi-Fi access in McDonalds restaurants. O2 in the UK bundles voice and data (3G/Wi-Fi) and is also a customer of The Cloud.

The Cloud recently formed a partnership with BT Openzone and Nintendo to allow gamers to use the Wi-Fi service at any one of over 7,500 Wi-Fi hotspots at locations across the UK — for free (gaming only). These locations include McDonalds restaurants, Coffee Republic coffee houses, Hilton and Ramada Jarvis hotels, Road Chef and Welcome Break service stations, First Great Western railway stations, over 25 student unions and city centre BT Payphones and airports, football stadiums and even the British Library and Canary Wharf.

City hotzones in the UK: no mesh nodes on light poles

The partnership with BT involves placing access points on top of BT payphones, not city property such as light poles. They do not use mesh equipment and there are multiple points of backhaul (through the payphones). They are also using WiMax in some areas (5.8 Ghz with Wi-Fi at the edges).

Municipal Wi-Fi: not so popular in Europe

The Cloud has a small project in Wales using Firetide equipment and is in discussions with Hackney council (a borough of London) for a small network that would allow video surveillance, mobile office applications for borough employees, as well as voice over IP and entertainment applications for residents and visitors. They are also working on a few projects with Tropos Networks and Telabria.

According to Niall, deploying a citywide Wi-Fi network in Europe is much more challenging than in the US because (1) the irregular layout of many European cities - narrow winding streets and old buildings with thick walls - create serious line of sight problems; and (2) the maximum transmission power allowable in Europe for mesh nodes is much lower than in the US (therefore you need more nodes in Europe and your costs rise).

Another factor that could explain why municipal wireless has become more popular in the US than in Europe is that European cities have a lot of broadband providers that offer cheap, fast service unlike in the US. Local loop unbundling has occurred to a far greater extent in Europe than in the US. In addition, Europeans enjoy better mobile phone coverage, a greater variety of mobile data services, SMS and paging applications.

Challenges in the Dutch market

Since I live in Amsterdam, I asked Niall about The Cloud’s plans in the Netherlands and his assessment of the competitive challenges in the Dutch market. Niall says the Netherlands is a very attractive market for any network operator but it is not as open as the UK market and is dominated by KPN. There are only a few small players in the Dutch market and since The Cloud’s business is selling to ISPs and not to end users, it thrives best in an open, competitive market with a lot of wireless ISPs, mobile operators, and MVNOs competing for customers (in the UK for instance). Despite the challenges in different countries, The Cloud wants to be a pan-European operator.

Conclusion

The Cloud’s business model - wholesale Wi-Fi network operator - is certainly an attractive one, especially since they don’t have to deal with the hassles of delivering service to end users. It thrives in an open, competitive environment where there are a lot of ISPs, mobile operators and MVNOs — places where local loop unbundling has taken place, where cellular operators compete fiercely for customers on the basis of price and service features (i.e. applications).

It will be interesting to see if a company like the Cloud can succeed in the US. Perhaps Earthlink or some other large provider (SBC? BellSouth?) will dump their end user business and just sell access on a wholesale basis to service providers — not just Internet service providers but gaming and entertainment companies like Nintendo. The US market would have to become more open and competitive before a company like the Cloud can generate sufficient revenue to make this business model a lucrative one.