Five years from now, Wi-Fi will have left broadband in the dust, according to a new study by Pyramid Research.

Penetration will shoot upwards until it is more than double that of broadband, and stand comparison with mobile phone usage, according to the research.

However, fierce competition will mean that most wireless service providers will go bankrupt, and revenues from Wi-Fi services will be much lower than for broadband or mobile.

By 2008, there will be 707 million Wi-Fi users worldwide, 2 billion mobile phone users, and only 262 million users of fixed broadband says Pyramid. Wi-Fi will generate only $21 billion as against fixed broadband’s $80 billion and $586 billion for mobile.

Average revenue per Wi-Fi user will drop from $30 per month this year, to $3 per month in 2008, Pyramid predicts.

“Price erosion is going to force the majority of ISPs under,” said the report’s author, analyst John Yunker. “The ones that survive will have to provide localized solutions - likely targeting enterprise segments where the margins are better.”

Wireless service providers will survive, doing installation and site surveys, he said, but the users will all deal with the usual suspects: “The consumer-facing Wi-Fi businesses will almost certainly be the major carriers.”

Despite the pressure on price, most road warriors will use commercial services, rather than relying on the free Wi-Fi hotspots which are currently available.

“Free Wi-Fi is nice for the casual user,” said Yunker, “but for road warriors I think you'll find that companies will stay pay for Wi-Fi access - using companies such as iPass and GRIC. They're paying for a consistent interface, customer support and possibly the support of their company's security policies.”

The same consolidation will happen to equipment makers: “The decision by Intersil, the leader in Wi-Fi chip sales, to sell its Wi-Fi business to GlobespanVirata for $365m is a clear sign that this is a low-margin game that only the major players [Intel and Cisco] can survive in,” said Yunker.

“We expect the established infrastructure providers, such as Ericsson, Alcatel, and Lucent, to gobble up the nascent Wi-Fi software and device manufacturers. Those that don’t get eaten are going to struggle to survive on their own.”

One reason Wi-Fi will overtake broadband is that broadband lines are shared, perhaps between three people in a home or more in an office. “Also, we are assuming that Wi-Fi will be increasingly successful in PDAs and, in about two years, start to make an impact within handsets. This negates the need for a broadband line at all.”

Although Wi-Fi hotspots often use fixed broadband for backhaul, this will not be the case as Wireless Local Loop or multipoint wireless broadband takes a hold, by the end of 2004, said Yunker.

“We see wireless playing such a role in the backend because emerging markets have no infrastructure to build upon,” he said. “They have the luxury of starting with a clean slate and more often then not are choosing wireless over wires. The real disruptive force here is cost.”

More ubiquitous Wi-Fi could have unexpected effects on the markets for PDAs, driving them into new markets, suggested Yunker.

“As a mass-market item it's hard to say yet how they will do, especially since the Wi-Fi versions are only recently available and still quite expensive. But I can tell you that one hotel IT exec said he wanted to move from walkie-talkies to PDAs because even today, walkie-talkies are more expensive.”