Outlook: Wi-fi may offer BT a way of leapfrogging cellular operators

It is not my habit to while away the time sitting in Starbucks, but there I was, sitting in Starbucks, whiling away the time and growing ever more irritated by the man next to me tapping away on his laptop computer. Actually, he was surfing the internet. There was no wire to connect him, nor was there any visible sign of a mobile phone. Yet he was connecting at broadband speeds and having a fine old time in whatever virtual world he had chosen to inhabit.

Irritation aside, even a technophobe like me could see that this was the future. Forget 3G and the continued debate about whether the big mobile phone companies should be writing off the billions they spent acquiring their 3G licences, the world moves on and newer forms of mobile communications are beginning to appear before 3G ever gets off the ground. The way things are going 3G could find itself being leapfrogged by so-called 4G before it even begins.

Our wireless future is by no means confined to cellular technology. Bluetooth and Wireless Lan (local area networks) provide an alternative way of achieving the same thing. Generically referred to as wi-fi, the technology works on the basis of establishing wirefree radio networks of comparatively limited size. As things stand, wi-fi technology tends to be confined to the home, some pub and coffee bar outlets, and most airport lounges. It's also used largely for data transmission, or internet use, rather than voice telephony.

Furthermore, there is one key disadvantage compared with cellular technology; it's a one way system, which means that the user has to be in the vicinity of the wi-fi base station and dial into it to use its services. In that sense, it is similar to Rabbit, a sub-mobile network that lasted all of about five minutes on the high streets of Britain before its sponsors realised that no one would buy a mobile phone that couldn't receive as well as make calls.

The killer application of cellular technology is that it can locate where the handset owner is, allowing him to receive secure communications as well as transmit them. The technology also remembers the last cell in which the handset owner was located, so it doesn't have to search the world to find him every time it's got a call pending.

None the less, the wi-fi market is growing fast, and according to Ben Verwaayen, chief executive of British Telecom, there is now more money being spent on wi-fi research and development worldwide than there is on 3G (excluding spending on network construction, that is). Potentially, it is a much cheaper and faster technology than cellular, requiring nowhere near the same investment in base stations, and if the locater disadvantage could be overcome, the possibilities are endless.

For BT and other big fixed line operators that have divested themselves of their mobile networks, wi-fi offers potential salvation. Everyone agrees that the future of mass market telephony lies in mobile devices. Without access to the mobile customer, the fixed line networks risk becoming mere commodity, wholesale operations. Wi-fi may provide the way forward.

Rail fares to rise

Earlier this week I naively wrote that higher rail fares, over and above the rate of inflation, were not remotely justifiable until Network Rail begins to show improved standards of service. I spoke too soon. Unjustifiable they may be, but that doesn't mean the Government isn't going to try them on. According to reports, Alistair Darling, the Transport Secretary, is proposing to allow an across the board rise in fares at above the rate of inflation (quite how much higher has yet to be decided) to pay for extra spending on the railway, having overruled Strategic Rail Authority plans disproportionately to load any fare increases onto bits of the railway where spending is highest.

It's easy to see why Mr Darling might think spreading the fare increases politically more acceptable than applying a series of higher, piece meal rises to parts of the commuter belt which need most spending on them. Yet even as the least bad option, the medicine is as inappropriate as it is unwelcome. In one fell swoop, the Transport Secretary is returning to the bad old days of state ownership of the railway, where fares would constantly rise at above the rate of inflation, depressing demand and driving passengers off the trains and on to the roads in ever increasing numbers.

The Government finds itself facing a real conundrum. Ministers want people off the roads and on the trains, but plainly that's not going to happen as long as the railway remains so unreliable. Since Railtrack was put into administration, spending and costs on the railway have been running out of control, yet despite all the extra "investment" there has been no visible improvement in standards of service. On the contrary, the number of trains arriving late continues to rise.

So the order of the day is carry on spending until the results start showing through. Unfortunately the money cannot be magicked out of nowhere. The Treasury is already at the limits of its willingness to fund the improvements through more public subsidy. Borrowings too might already be thought dangerously high. In any case, Network Rail would never have been able to borrow as much as it has but for the fact that debt is underwritten by the Government through the SRA.

That leaves fares as the only other source of rising income. As things stand, most fare increases are limited to one percentage point below the rate of inflation each year. It is this formula that the Government is planning to change.

The debate is made more complex still by the railway's particular safety needs. After a spate of fatal accidents, Network Rail is under intense pressure to improve standards of safety, even though the cost benefit of such spending is extraordinarily poor against virtually all comparators. Rail travel is already far safer than the roads. If raising fares to pay for greater safety only succeeds in driving more people on to the roads, the strategy seems a curiously back to front one.

Mr Darling is a more credible Transport Secretary than his predecessor, Stephen Byers, and he's proved a good sight more adept at keeping himself out of the press, but the challenges of the job remain as daunting as ever. When it comes to transport, the bad news just will not be buried, whatever day of the week it is.

Extended contracts

Rick Haythornthwaite, chief executive of Invensys, has done it voluntarily. Directors of Thus are doing it under pressure. Throughout the listed sector, directors are agreeing to shorter contracts of employment in an attempt to answer the growing clamour from shareholders for an end to the culture of reward for failure. If Mr Haythornthwaite is fired, he now gets just a month's money, which given the mess the company is in, is an incredibly brave thing for him to have agreed to.

Others have refused to be so selfless. William Alldinger, the man at the centre of the HSBC pay row, is sticking to his three-year contract, and so too is Sir Martin Sorrell, chief executive of the advertising giant WPP. In both cases their employers have turned the argument round and insisted that the contracts are nothing to do with rewarding the executive in the event of dismissal, but about locking him in, making sure he stays, and ensuring he complies with non-compete clauses should he decide to go.

As with Jean-Pierre Garnier, chief executive of GlaxoSmithKline, the defence has also rested on the argument that contracts of this type are common place among peers in the US and are therefore part of the price that has to be paid for top executive talent. Only one of these arguments stacks up. A reasonable case can be made for long-term contracts, especially in people businesses like advertising, for the purpose of preventing top talent marching off to the competition, taking half the clients with them. All the rest is so much poppycock.