O2 Building Free WiFi Network Across The UK. What’s The Catch?

A great boost for wireless data here in the UK: mobile operator O2 has announced that it will be investing £10 milion ($16 million) in a WiFi hotspot network, which people will be able to use free of charge, regardless of whether they are O2 customers or not. Although there have been isolated free WiFi services in the UK market, this will be the first time that we will see a free offering available to everyone nationwide.

The network, which will cover 13,000 hotspots by 2013, will open first in O2’s own shops and offices starting at the end of March. In a blog post announcing the service, O2 CEO Ronan Dunne (pictured) says that further hotspots will be built in “partnerships with key venue owners” but these have yet to be named.

This is a big development on what the UK market has in place today, which is a combination of free services that users get if they, for example, buy a cup of coffee at a Starbucks (NSDQ: SBUX), or subscribe to a particular mobile or broadband tariff plan, such as smartphone tariffs from O2 itself, or specific DSL services from operators like BT (NYSE: BT). There are also services like Boingo’s, in which users have to pay a hourly, daily or longer subscription fee in order to access the network.

Why is O2 doing this now? It could be to safeguard and grow its own WiFi footprint. There are reports that broadcaster and broadband provider Sky is looking to buy The Cloud, one of the paid-for hotspot operators in the country, which, along with BT Openzone, currently provides WiFi network to O2 in a wholesale deal. That arrangement with The Cloud, however, could be under threat if the Sky acquisition goes ahead.

It could also be to make a new push to offload more traffic from its cellular network. O2 notes that only 20 percent of its subscribers who have free WiFi access as part of their tariffs use the allowance “actively.” Part of this could be to do with signing on procedures that would be fiddly to do all the time on a smartphone; Dunne notes that in the new service a user would have to sign up only once to be remembered forever.

And that last point is central to the likely third reason for the new WiFi push: it’s about O2 looking to make more revenues from services beyond simple network access. O2 says it will also be integrating its nascent mobile payment service, O2 Money, as well as its mobile advertising vehicle, O2 Media, into the free WiFi service. That will mean that the more people use the network, the more information O2 will be able to build up about their mobile activities, which they will then be able to offer to advertisers to better target their campaigns.

Using WiFi networks to source user data, and then delivering advertising and push-based marketing, is one of the more emerging growth areas in mobile advertising. In the U.S., JiWire signed a deal with Groupon so that the latter company’s deals could be pushed out at the hyper-local level, something that O2 may well be offering at some point soon, too.