AT&T has acquired Wayport, a company that built out about 8,000 WiFi hot spots including in places like McDonald’s, for $275 million in cash. The move is another signal that AT&T intends to become a WiFi access point giant — the company now boasts 80,000 points world wide.
The purchase of the Austin, Texas company, which comes at a time when acquisitions have slowed to a trickle, is significant because it reflects how mobility technology investments remain hot.
Indeed, well-known technology analyst Mary Meeker gave a presentation at the Web 2.0 Summit in San Francisco yesterday (see slideshow below) that was outright depressing, with the exception of mobile, which is showing strong growth because of the adoption of ever-smarter phones that can offer customers more due to improving wireless broadband networks. Keep in mind that this doesn’t necessarily mean mobile advertising will be robust in the short-term, merely that the mobile infrastructure is being built out and devices sold (so some people like AT&T might win, but others, such as mobile applications hoping to profit from advertising may not).
AT&T said it will use the acquisition to build out its network of free WiFi access points, which with Wayport’s network add up to nearly 20,000 in the U.S. alone. Wayport built its network through 2004, but was forced to slow in recent years because of saturation and questions about how to make money from them. AT&T in February signaled its intent to become a giant in the sector when it stole Starbucks away from T-Mobile as hotspot partner.
Wayport hot spots also included Wyndham, Marriott Vacation Club and Four Seasons hotels; HealthSouth and Sun Healthcare locations.
Overall, Wayport investors clearly didn’t make money on the deal. Venture capitalists invested $137 million since 1996, with the most recent funding taking place in 2004. Considering that the rule of thumb for any investor is to double their money in seven years (and venture investors typically look for much more, namely around three times their money, because of fees and other considerations), this company was a long slog. VC firms backing the company include Scale Venture Partners, GC Technology Fund, Invesco Private Capital, Lucent Venture Partners, New Enterprise Associate, Sanders Morris Harris, Sevin Rosen Funds, Star Ventures and Trellis Partners.
No doubt, the economic downturn probably lowered Wayport’s expectations for its future, and so AT&T is likely to have seen this as a great deal.
“We’re seeing exponential growth of WiFi-enabled devices — such as smartphones — combined with a continued dependency on 24/7, anytime, anywhere Internet access across business and consumer market segments,” said John Stankey, president and CEO, AT&T Operations in an announcement. “Now is the right time for AT&T to affirm our commitment to WiFi leadership. By acquiring Wayport, we’re giving consumers more ways to stay in touch and building a more robust network management solution for businesses.”
Here are the arguments that AT&T used in its announcement to explain the significance of mobile:
1. Nearly 300 million WiFi-enabled devices were shipped in 2007. Nearly 1 billion are predicted by 2012.
2. With the surge of WiFi-enabled devices, such as smartphones, portable computers, gaming devices and cameras, more consumers can enjoy the benefits of anytime, anywhere access from the nation’s largest Wi-Fi network.
3. A broader and deeper AT&T WiFi network means more free connectivity for millions of AT&T customers, including select AT&T smartphone customers, AT&T LaptopConnect customers and AT&T High Speed Internet (including U-verseSM) subscribers.
AT&T also said the deal is meant to help business customers as well. Those customers can use WiFi hotspots for their own internal networks. Wayport already provided back-office management for AT&T’s WiFi hot spots, and AT&T said the acquisition will allow customers to deal with a single provider: AT&T.
The transaction is expected to close as early as the fourth quarter of this year.