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April 21, 2004

Cometa: Seattle is a Crucible of Its Future

Cometa Networks is one of the most talked-about hotspot builders, and the least well understood. Their CEO and their VP of sales and business development talked about the present and future dispelling some of the mystery: In an interview today with Cometa Networks' CEO Gary Weis and vice president Jeff Damir, the two executives provided context for their recent decisions, apparent setbacks, and their future planning.

Cometa Networks is a hotspot infrastructure builder, signing contracts with venues to build Wi-Fi network locations that they also provide technical and customer service for, and then resell access to those locations to service providers such as aggregators (like iPass, with which they have a relationship) and cell carriers (such as AT&T Wireless).

I've been one of the strongest critics of Cometa's ongoing development in part because of the initial hype (not all theirs) and the ongoing obscurity with which they have proceded. I came away from this interview quite convinced that Cometa's plans are much more in line with how the rest of the industry has matured and the needs of both venue owners with whom they must negotiate and service providers to which they have to sell their offering.

If anything, Cometa and Wayport have swapped places: Wayport is aggressively building as many as 17,000 hotspots in the next three years under contract, while Cometa's Weis and Damir said they are looking for the right partners to more cautiously build out a network in which every hotspot has the value that their upstream service provider partners want.

Weis joined the firm in March 2003, several months after its public launch. Weis stated at the outset when asked about the previous projections of Cometa's network growth, "I have taken a lot of time to work with the team we built to get it right, if you will, instead of shooting from the hip and talking off the cuff."

Even though Cometa started serving McDonald's locations around the time Weis joined the company--as part of the publicity associated with Intel's Centrino rollout--the main thrust of their current approach to which venues to partner with began in June 2003 when the firm decided to start a few months later in Seattle.

Weis said that Seattle was selected to "get us more information about what venues are really valuable, not just to our perception but to our service providers' perception." In September, they had 100 locations unwired, including McDonald's locations, which led ultimately to a couple hundred locations. After McDonald's signed with Wayport, Cometa is back down to about 100 Seattle venues.

The goal in Seattle was diversity: instead of focusing on single chains, Weis said, they installed hotspots into malls, office buildings, public spaces, fast-food restaurants, coffeeshops, bookstores, and car dealership waiting areas. "We're in a very diverse set of venues, not because we're confident that any one of those is right, but because we want to learn something in our first market rollout," he said.

As a result of the Seattle trial, Cometa was able to conclude successfully a year-long effort to sign Barnes & Noble in which they competed with Toshiba for the right to install Wi-Fi hotspots in 650 stores this year. Instead of building out city by city, which was a plan reported earlier when Cometa started in Seattle, Weis said the plan now is a "thinner, national footprint led by the anchor tenant Barnes and Noble." He noted, "We will also replicate what we did in Seattle" with other diverse venues.

Although Cometa was painted as the loser in the McDonald's trial in which Wayport came out above Cometa and Toshiba--which is handing its hotspot business over to Cometa--Weis said that their McDonald's hotspots turned out to have a pattern of usage substantially different, and ostensibly worse, than the other kinds of locations they tested.

"As we went into the final negotiations with McDonald's, we and Wayport, myself and the team had a very focused attitude towards putting a business proposition on the table that would be successful for the both of us," Weis said. McDonald's chose Wayport, but Jeff Damir noted that there are other restaurant chains that might be a better fit for Cometa's audience and the service providers they resell to.

"You look at the QSR segement, and what you find is that there a lot of players out there with thousands of locations, and not all of them have the same brand and ubiquity," Damir said. McDonald's is focused on drive-through and family service, emphasized by the play areas and children's Happy Meals, he noted. "You go to some other QSR [quick-service retail] players, and they're much more targeted: they don't have Happy Meals, they might have different approaches to the market, both in their environment and food--and in their marketing strategies."

Damir said that in the fast-food market, "there are still good powerful national brands that we would anticipate seriously considering and putting a partnership in place in the months to come." Both executives said they anticipated announcements about new providers and venues within weeks.

As a Seattlite myself, I asked fellow Emerald City resident Damir about a mall that turns out to be equidistant between his home and mine, University Village. In the mid-90s, the outdoor mall transformed from a set of run-down and off-brand stores to a vibrant, rebuilt complex that combines established local businesses with human-scale "big box" retailers like Barnes & Noble, Apple Store, Crate & Barrel, and The Gap.

Cometa unwired all of "U Village," as it's known, but the mall is home to at least four other networks, including T-Mobile in two Starbucks (including what is apparently the busiest Starbucks in the world), free service at the Apple Store, free service at a supermarket cafe, and nearby T-Mobile, Wayport, and Cometa service at Tully's, McDonald's, and Kinko's.

Damir lives close by, but, he said, "I haven't built all those locations just so it would be convenient for my life." It may be the most unwired place on the planet in terms of coverage and network multiplicity. "It's a very interesting micro-experiment of what you could expect to see on a broader basis around the country in the unlicensed spectrum environment that we live in," Damir said.

Weis cleared up a long-standing confusion over the investment structure in Cometa. Although he declined to provide dollar specifics, he stated that IBM and AT&T, almost always cited in articles as major investors in Cometa, were actually suppliers, not part of the core investment team, which is Intel Capital, Apex Partners, and 3i.

He also noted that their relationship reselling to AT&T's consumer business had come to an end, but that AT&T had tested this relationship only in Seattle. While AT&T declined to continue the service provider agreement, they did allow Cometa to send out a note to existing subscribers offering free access and future information about service plans. Weis said that 23 percent of the list responded, and that a future return of AT&T nationally wasn't out of the question.

Damir spoke to the Toshiba SurfHere location acquisition, and said that locations were being mutually evaluated by the venue owner and Cometa. "No one is going to be forced to work with Cometa and Cometa won't be in a position where they'll be forced to take on relationships," Damir said.

On price, Cometa hopes to be extremely competitive, matching the kind of threshold that Wayport has set with its $2.95 for two hours price for McDonald's outlets. Cometa has always offered competitive wholesale rates, with some of its service partners offering day passes for $3 to $5 and monthly unlimited access for $12.

"When you get above $5, there's a much smaller group of people who are willing to spend over $5 for that daily experience. When you come down towards three, you don't need to in our experience to come down much further than that," Damir said. Cometa has encouraged rates such as month-to-month unlimited usage at $11.95. Ultimately, service providers will set these prices.

Both Damir and Weis acknowledged that the company has been so heads down working on their deals the last several months that news has been scarce. Cometa is talking smaller, building bigger, and the next announcements should provide even more clarity about their path to profitability.

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Glenn Fleishman of Wi-Fi Networking News posted an excellent interview of Cometa yesterday that goes a long way towards answering a number of lingerling questions about Cometa. The reason so much attention is paid to Cometa is that they are... Read More