The number of hotspots enabling WLAN connectivity will reach 135,000 around the world in three years, up from the 31,580 hotspots expected by the end of this year, the researchers said. In its report, "Public Wireless LAN: Hotspots finally heating up," Datamonitor suggests the number of wirelessly connected users will explode from 1.53 million today to 23 million by 2006.

The public WLAN services business will generate $7 billion in revenue by 2006, the group said.

The geographic region with the most hotspot locations today is Asia-Pacific, with South Korea leading the pack with an estimated 1 million users by the end of 2003.

However, Datamonitor expects the North American and EMEA (Europe, Middle East and Africa) regions to catch up and surpass Asia-Pacific in terms of overall numbers. Factors such as lowering prices, heavy marketing campaigns, greater penetration of wireless LAN-enabled laptops and perhaps most importantly, serious investment from leading telecommunications operators, should serve to stimulate demand.

In many European countries the roll-out of PWLAN services was initially held back by regulatory restrictions on the use of the 2.4-GHz spectrum. The situation is changing rapidly, however, and Datamonitor said that the number of hotspot locations in the United Kingdom and Germany is set to overtake the Nordic leaders in a matter of months.

Sweden has led the way, and now has the largest number of hotspots of any European country. But larger European nations are now making huge investments and strides, through incumbent operators such as British Telecom and Swisscom.

By 2006, Datamonitor believes that the three leading regions-Asia-Pacific, EMEA and North America-will each be worth over $2 billion, with the North American market the largest, at approximately $2.8 billion.

But revenues may not flow as quickly as some of the operators envisage, the report says. "The PWLAN market will not become the El Dorado that many originally hoped for," said Tim Glover, senior analyst at Datamonitor.

"PWLANs will not constitute a mass market in the same vein as cellular communications. With the penetration of PWLAN locations increasing, service providers and premises owners must look at means of driving the usage of their services. The industry can certainly help its cause by investing heavily in WLAN marketing and identifying the right locations that will attract users to PWLAN services."

Given the low barriers to entry, many service providers have been launching PWLAN services. Once launched, however, they have found that the initial returns have been far less than expected.

If demand remains weak, then the reality is that many smaller service providers will be acquired or squeezed out of the market altogether, the report suggests.