November 11, 2008: Why AT&T bought Wayport

AT&T recently snapped up WiFi hotspot service provider Wayport Networks for $275 million in cash. The acquisition expands AT&T's WiFi hotspot footprint to about 20,000 in the U.S. and 80,000 worldwide, including roaming agreements. Some readers may remember that AT&T was instrumental in founding a one-time Wayport rival, Cometa Networks back in 2002 with help from IBM and Intel Capital. Cometa shut down in 2004 just two years. The closure came after Wayport inked a WiFi hotspot deal with McDonald's that Cometa was the frontrunner for originally. Even now Wayport's most prominent client is McDonald's, which boasts more than 10,000 hotspots through the WiFi provider.

AT&T scooped T-Mobile USA for the coveted Starbucks WiFi deal and just now sealed the deal with McDonald's through its Wayport acquisition. Two of the most ubiquitous eateries in the U.S. have AT&T-powered WiFi. So, why all the recent momentum for AT&T's WiFi business?

Industry pundit Andy Abramson positions the operator's latest acquisition as a competitive move against Clearwire's WiMAX rollout, which launched commercially in late September. "AT&T can now offer WiFi access in more places," Abramson writes. "XOHM [can't] say that just yet and not for some time... [the acquisition] gives the AT&T Enterprise sales team a huge new offer to make and sell in to their very wide and deep customer base." Abramson closes by characterizing the buyout as a very "Machiavellian move" by AT&T: "Well done."

Abramson is certainly right that acquisition is a boon to AT&T's enterprise offerings--as ABI Research VP Stan Schatt pointed out in a research note:

"Wayport has moved beyond simply providing WiFi service to actively supporting key enterprise applications," Schatt wrote. "The bottome line is that AT&T Mobility's growth on the business side will come from being so deeply tied to customers' business applications that companies won't easily be able to extract themselves and embrace a competitor such as Verizon. Whether it's instant check-in at a Wyndham resort of location tracking of expensive equipment at hospitals, applications will place business customers in golden handcuffs that they won't really want to remove even if a competitor offers a less expensive subscription rate."

Clearly, the mobile enterprise customers AT&T services will greatly benefit from the acquisition--as well as iPhone and BlackBerry Bold users who can now enjoy free WiFi at all the new WiFi hotspots.

Abramson's other point, however, that AT&T's Wayport acquisition was a competitive strike against Clearwire was perhaps a bit too heavy-handed. Sure, Wayport's footprint puts AT&T's WiFi coverage map at a saturation level Clearwire's early adopters can only dream about for now, but there's more to it.

As Yankee Group Research Fellow Roberta Wiggins writes in an upcoming research note the down economy was a big influence in making the acquisition. Perhaps AT&T stood to lose its key WiFi partner to a competitor if it didn't act fast:

"By taking over control of Wayport, AT&T avoids losing the company to a competitor," Wiggins writes. "While Wayport remained independent it was increasingly attractive with the integration of WiMAX, WiFi, and 3G in client devices to competing service providers including WiMAX challenger Clearwire, or cable MSOs like Cablevision or Comcast."