Wayport will announce Tuesday a significant change in how hotspot builders charge hotspot resellers and aggregators: In a press and analyst briefing on Monday, Wayport disclosed Wi-Fi World, their name for a pricing model for partnering with retail chain stores and reselling access to aggregators and others for a fixed monthly fee per location instead of a per-connection rate. Resellers choose their own pricing for subscribers and do not share that revenue with Wayport.

In a clear swipe at T-Mobile's arrangement with Starbucks, Borders, and Kinko's, in which, according to many sources, the cell company bears the cost of the network and operations and shares revenue with its venues, Wayport's CEO Dave Vucina said, that a retail partnership "shouldn't be about how much they can get for free form the provider but should be more about their core business and driving enormous traffic for their core business."

The current model for venue operators that resell access to their networks, such as Wayport, Surf and Sip, and Concourse, is to charge resellers a small, fixed fee for each daily connection to the provider's network. Wayport's resellers include iPass, Boingo, Sprint PCS, and Verizon Wireless, among others. While Wayport doesn't disclose those fees, they are estimated to be from 25 cents to $1.00 per connection. The provider typically pays the venue about half of that connection fee, or subtracts that fee from monthly recurring billing, depending on how much of the installation costs the venue has paid and other factors.

Vucina said that in that model, the impetus has been on the hotspot provider or retail venue to drive traffic, as resellers with fixed monthly customer charges for unlimited usage had little upside. (iPass and GRIC charge metered rates for all services, and thus have a different cost basis.) But with Wi-Fi World, resellers that could include phone companies, cell operators, cable companies, service aggregators, Internet service providers, and firms outside telecom entirely--any firm with a large mobile customer base--can retain all subscriber fees regardless of usage by their customers.

In Wayport's Wi-Fi World, resellers will pay $32 per month on average for each of the McDonald's restaurants. Wayport expects to have about 8,000 McDonald's restaurants in its next within 12 months, which would result in fees of roughly $250,000 per reseller per month or $3,000,000 per year. These fees could increase over time as usage increases, Vucina said, while venues with less traffic might have lower per location charges.

Wireless analyst John Yunker with Byte Level Research, who was briefed on the announcement, said "flat fees on the vendor side need to happen." His initial reaction, he said, was that $32 per month per venue might be too high, and was concerned how regional telephone and cable companies would view the fees.

Wayport also said that as part of this model, McDonald's is paying part of the installation and capital costs and a fixed monthly fee to have the service in place. Wayport has a four-year contract with McDonald's. Because of McDonald's franchise relationships, individual franchisees may choose other Internet options, but the parent company has an exclusive commitment and many franchised locations have signed on as part of this next year's roll-out.

Wayport is not just providing public hotspot service, however, but it is also running the chain's cashless transactions, such as credit-card verification, and will provide electronic training and other services in the future. McDonald's hopes to reap millions of new or more frequent customers because of this new model's potential to bring in home broadband and business broadband users through resellers.

Byte Level's Yunker noted, "The additional applications riding on the network is vital to long-term success."

As usage increases, Wayport has the option to raise its fees for service to McDonald's, too. "After we would hit a certain threshold we would go back to the McDonald's franchisee and ask for some additional compensation for circuit cost," said Greg Williams, Wayport's chief operating officer. Reseller fees may also increase over time.

McDonald's stores will carry out extensive branding of the Wi-Fi service that includes Wayport's logo and the logos of major partners. The branding will appear on lighted signs with the at-sign like "at-m" symbol McDonald's has used for the last year, on the price board, on notices in the store, and on table coverings.

Further, Wayport's network provider vendors will have the potential to receive branding on store signage and may resell use of the Wi-Fi World network for fees as well, which will offset Wayport's costs of bringing Internet service to McDonald's. "There's a large branding element to this entire model," Vucina said. "We want to advertise who's providing that connectivity." Wayport plans to install business-grade DSL with service guarantees rather than T-1 lines in most locations.

Wayport has a major reseller partner already signed which they have not yet announced. "We are very confident that with the fees that we are generating and our first signed partner that we are over the break-even mark with the first store that we install," Vucina said. In another not-so-oblique reference to T-Mobile, Vucina said Wi-Fi World isn't about installing a few thousand locations to reach scale, writing checks, and holding on for dear life. Rather, he said, it's a sensible model for both venues and Wayport that "gets us in the black out of the gate."

Wi-Fi World reduces overhead for all parties involved in the transaction, by our analysis at Wi-Fi Networking News. Wayport collects a simple, fixed monthly fee that varies only as locations in the network increase, while the reseller pays that fee regardless of usage. This eliminates fee settlement across networks for usage, as well as the accounting required for that and systems integration. Instead, authentication and account management becomes the primary cross-network requirement. In discussions with past and present hotspot operators, fee settlement accounting and billing and financial systems integration remains an expensive and high bar to roaming, and has been one reason why some networks have signed settlement-free bilateral roaming agreements.

Vucina said that Wayport's intent is to provide partners like regional telephone companies a rate that allows them to bundle Wi-Fi as a fixed-fee service. In the current model, there's no predictability about a user's ultimate cost to the reseller, because the number of connections can vary by month. Heavy users could make dozens to hundreds of connections per month. But with a fixed per-venue fee, a telco could bundle Wi-Fi with DSL with a clear understanding of the margins and ongoing costs.

For instance, a provider with several million customers could offer unlimited Wi-Fi for $10 per month and with only 100,000 subscribers to the service still clear a considerable net before overhead each month. The service could also reduce customer turnover, a serious problem for cell carriers and cable and satellite companies.

One limitation Vucina said Wayport has imposed on this model is restricting its reseller partners from themselves reselling the service. They may not resell to any of a list of what Vucina called premium strategic partners that Wayport may want to work with directly.

Vucina also noted that while McDonald's will not receive part of subscriber fees--and neither will Wayport--the fast-food giant will get a portion of walk-up fees. Wayport has previously said that it will charge $2.95 for two hours of access.

Wayport will also pay McDonald's a share of fees received from its resellers when it exceeds what Vucina described as "X dollars" and did not elaborate on. This part of the agreement could potentially offset some or all costs that McDonald's and its franchisees have agreed to pay.

The company expects to install 7,000 to 9,000 McDonald's restaurants in the next nine to 12 months, based in part on where Internet service is available and the interest of franchisees. McDonald's owns about 3,500 company stores, while another 9,000 are owned by a disparate group of 2,200 franchise holders who have some degree of autonomy. The deployment is limited to the U.S. for now, but Wayport is already talking about international stores.

Vucina said that approximately 18 million customers pass through the restaurants they plan to install in the first wave, which will be about 70 percent of the McDonald's in each major city.

McDonald's franchisees have expressed great interest in Wayport's program partly for competitive reasons. "People that might have gone to Burger King yesterday and bought a Whopper without Wi-Fi, might very well go to McDonald's tomorrow and buy a Quarter Pounder with Cheese and Wi-Fi," Vucina said. In a survey conducted during the McDonald's Wi-Fi trials, three-quarters of the people surveyed who were using the in-store Wi-Fi came to the McDonald's specifically because of the Internet access.

Dan Lowden, vice president of marketing at Wayport, said that McDonald's franchisees have had great difficulty in obtaining a reasonable price for video surveillance, credit-card processing, and other services that Wayport will be able to offer as an integrated set of services using the Internet infrastructure that they are building.

Vucina said that Wayport plans to implement Wi-Fi World in several phases. Starting on Tuesday and for the next 90 days, Wayport will work to create its partnerships with network service providers, none of which have apparently been briefed on this version of the model yet. The following 90 days will see Wayport reworking its relationships with existing roaming partners. The next 90 to 180 days will focus on new roaming partners, such as cable companies.

Wayport's current deployment plan of Wi-Fi World excludes its 800 hotel and airport installations. "We're not ready to roll out our hotels, our airports yet under Wi-Fi World," Vucina said. "We created this around the retail brand model." But Vucina said the company views it as interesting possiblity for the future. "We're working on it; we're not ready yet."

While Wayport is focused on reselling the entire network of locations, Vucina and Lowden emphasized in response to questions from reporters and analysts that they are entirely open to selling state-by-state or region-by-region selections to ISPs and regional telecoms. Vucina noted that they wouldn't allow cherry-picking of specific locations or cities. "I don't think we would ever be smaller than buying the stores in a state," he said.

Providers such as Qwest and other regional companies would have the opportunity to resell both a regional plan for local customers and a national plan for roaming users to better manage costs across the entire network, the company said.

Wi-Fi World is Wayport's invention, but Vucina said he is eager to work with other hotspot networks and resellers to make Wi-Fi World a more general approach to pricing in the industry. "We would like to see this platform be the method of choice with venues, partners, and providers," he said. "If you were selling sandwiches or coffees, you would be very interested in this model."

Specifically, he said in response to a question about T-Mobile's network, he would welcome their competitor in talks. "We'd begin discussions today for a sensible Wi-Fi World model" with T-Mobile, Vucina said.

Vucina also released a substantial amount of information about Wayport's revenue and connections during the briefing, which we will discuss in a separate report on Tuesday. The company is on track to gross over $10 million in the fourth quarter of 2004, and Vucina estimated Wayport could reach a run rate within 12 months that would translate into $75 to $100 million per year in revenue.

Wayport clearly believes that their agreement with McDonald's can break a model that has restricted the interest in resellers from growing the customer base of Wi-Fi users. "You'd be hard pressed to find any sizeable retail brand vendor that has paid a provider for the services rendered, and I think that becomes an important component," Vucina said.