Municipal Wi-Fi Networks Hit a Few Bumps

The idea of municipalities emerging as broadband network suppliers has garnered a lot of attention in the past few years. Cities large and small have been building out WAN Wi-Fi services and planning to use the profits from such ventures to pay their police officers and schoolteachers. While such ventures have potential, the results have been decidedly mixed to date. At the end of August, Chicago became the latest city to pull the plug on such a project, casting more doubt on its long-term viability and possibility eliminating one broadband networking option for medium and small businesses.

Cities have been moving into the broadband access market for a couple of reasons. Expenses such as health insurance and energy have been rising. Also, local governments are being asked to provide taxpayers with more and more services. Raising taxes is a step that leaders shy away from because they want to be re-elected. WAN Wi-Fi offers cities a new potential revenue stream and a way to avoid dreaded tax hikes.

Also, cities are trying to offset limitations with cable modem and digital subscriber line services. In rolling out these services, carriers concentrated on markets where there was a likelihood of a quick return on their investments. As a result, many pockets in inner cities — as much as half of their total area in some cases — and rural areas have been left with only dial-up Internet access. Many municipal leaders feel an obligation to try to close the digital divide between the rich and the poor by building municipal broadband networks.

The poster child for the movement has been Philadelphia, which has been building a wireless network covering 135 miles. Across the United States, hundreds of cities have also been moving into the WAN space. Other early market entrants include Cleveland; Corpus Christi, Texas; Grand Rapids, Mich.; Minneapolis; and Portland, Ore. Seattle has begun offering free Wi-Fi on select bus routes.

The cities have some potential strengths as WAN service providers. Many municipalities already rely on wireless networks to support a variety of services, such as police, fire, and emergency medical technicians. Theoretically, they can lower the cost of these services by building a common WAN and then defray the cost of that investment by offering broadband services to residents. Also, cities have experience in offering other universal services, such as water and trash removal.

Yet the local governments face some potential hurdles. Telecommunications is an extremely competitive business, and cities may struggle to match commercial offerings. Municipalities have to invest in network infrastructure, including control centers to monitor connections and new billing systems. How they will pay for those investments has been a vexing question.

A wide variety of business models have emerged, as evidenced by the more than two dozen vendors that responded to San Francisco’s request for proposal: Google, which was given part of the contract, generated a lot of buzz with an advertising based model, and SFLan wanted to build a network with solar-powered access points. In other cities, there has been interest in using location-based services, with advertisements that target users when they are near certain locations, to defray the up-front costs and generate revenue for the city.

Not every plan has proven to be viable, and there have already been instances where municipal networks were rolled out and then pulled back. Orlando, Fla., tried a model where users had free Wi-Fi access but went back to the drawing board to figure out its next step. Anchorage, Alaska, and Corona, Calif., have put their wireless projects on the shelf.

Chicago is the latest city to jump off the municipal Wi-Fi network bandwagon. According to the Chicago Sun Times, the primary network suppliers EarthLink and AT&T demanded that Chicago become an anchor tenant, paying an annual fee to use the Wi-Fi network to support city services. When the city refused, the project came to a halt.

EarthLink has been at the center of many of these projects. The company has been trying to refashion itself as an ISP focused mainly on municipal networks. That transition hit a major bump in August when the company announced a dramatic restructuring and the elimination of 900 jobs.

The problems with these networks represent an unwelcome event for small and medium businesses. In some cases, they were located in areas underserved by telcos and cable companies and needed municipal WAN services. Also, competition in broadband services lowers pricing and improves service. If one major group of suppliers exits the market, the incumbents gain more clout. While these services aren't dead, there seems to be more stories like the one told in Chicago and fewer success cases like Philadelphia, which could lead to higher prices and poorer service for small and medium businesses.

Which type of carrier (telco, cable, municipal Wi-Fi) do you count on for your broadband services? How much interest has your municipality show in these services? What do you see as the future of municipal Wi-Fi?

Paul Korzeniowski has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investors Business Daily, Newsweek, and InformationWeek. He is based in Sudbury, Mass.