Cities Scrap Municipal Wireless Plans

Cities Scrap Municipal Wireless Plans
September 1, 2007

Steven Titch

Steven Titch is a policy analyst focusing on telecommunications, Internet and information... (read full bio)

Anchorage, Alaska and Corona, California have discontinued their municipal wireless projects after MetroFi, the private industry partner in both cities, said it could not offer free service without a commitment from each municipality to be an "anchor tenant" on the system.

The decisions, which came in July, signal a reexamination of the so-called private-public partnership model for municipal wireless, which until recently has been viewed as a workable alternative to government-funded broadband networks, which over the years have accumulated a largely poor record.

Sober Economic Realities

MetroFi, based in Mountain View, California, said evolving business models have forced it to seek changes in pending municipal agreements. In both Anchorage and Corona, in return for exclusive access to light poles, city buildings, and other city-owned right-of-way, the company had originally hoped to deliver a tier of free wireless broadband access supported by advertising, plus a premium ad-free tier at $19.95 a month.

Based on a reevaluation of the costs, MetroFi asked the city of Anchorage to commit to purchasing $3,000 worth of wireless access services per month. In Corona, MetroFi sought a commitment of $90,000 a year for five years. Both cities rejected the plan.

MetroFi's latest demands, coupled with a decision by EarthLink earlier this year to limit its wireless partnerships to the largest U.S. cities, reflect the sober economic realities of providing wireless broadband infrastructure across wide areas.

Many cities, believing they were being bypassed by broadband development, have embraced the municipal wireless idea. It is estimated that between 300 and 400 U.S. cities, ranging from large areas such as Los Angeles to Middle American towns such as Peoria, Illinois, have such projects in the works.

Expensive, Unattractive

Many cities are discovering their municipal wireless projects are more expensive and attracting fewer users than expected. Reports from industry analysts are quantifying this disappointment. (See "Municipal Wireless Problems Persist Nationwide," IT&T News, July 2007.)

Forrester Research, a market research firm with no ties to industry policy or politics, found municipal wireless performance thus far disappointing. One chief miscalculation cities make, according to author Sally Cohen, is focusing on outdoor coverage when most wireless use occurs indoors.

"Most of today's consumer public Wi-Fi use happens indoors," Cohen noted in her July report, as reported by Telephony Online. "When using public WiFi [the leading wireless broadband technology] away from home, most consumers access the Net in public indoor spaces, such as hotels, office buildings, airports, and train stations. Yet most municipal networks are designed to cover only public outdoor spaces, where most of today's users don't go online.

"In order for the wireless signal to reach the interiors of local businesses or homes, most muni networks require the purchase of additional equipment, a consideration that is likely not obvious--and thus potentially confusing--for potential consumer customers," Cohen continued.

Cohen also points out municipal networks are failing to close the "digital divide" that was often used to justify the heavy borrowing and spending needed to build the networks. Cohen reports the people using public Wi-Fi are early adopters, who tend to be young, tech-savvy men with higher-than-average incomes.

Inflated Expectations

Craig Settles, president of Successful.com, a wireless industry consulting firm, still advocates the municipal wireless concept, although he continues to find fault with the way cities hype their plans as a ticket to free Internet services or a driver of instant local economic development.

These and other conclusions are featured in a new report based on a survey of members of the International Economic Development Council, an association of national, regional, and municipal economic development consultants. (See table, page 19.)

"You need to be realistic about what you can deliver," said Settles. "You also need to take economics into account. Someone's got to pay for it."

While numerous municipal wireless shortfalls have been reported, Settles cited Corpus Christi, Providence, and Tucson as examples of cities that have made their systems work.

In these cases, according to Settles, the cities did thorough planning and due diligence, along with an assessment of their own and their citizens' technology needs. Wireless networks were deployed to serve the city foremost. Unused capacity is then made available to the public.

Vince Vasquez, senior policy analyst with the San Diego Institute for Policy Research, finds the trend toward municipalities' anchor tenancy ironic. "Lost in this debate are the reasons government said we needed government-provided access--to get access for the poor," he noted.

Creating New Monopolies

Municipal wireless bids, Vasquez said, are in reality attempts by private-sector actors to secure exclusive access to municipal right-of-way. In essence, Vasquez said, cities are recreating the same regulated infrastructure monopolies set up in the past for incumbent telephone and cable companies.

The problem is that telecom services today are competitive, and municipal wireless partners remain under pressure to control costs while boosting cash flow. Hence the push by EarthLink and MetroFi for anchor tenancy agreements.

The solution, Vasquez says, is for cities to end franchise fees and exclusive right-of-way deals--cost barriers that keep smaller broadband entrepreneurs out of the market. "Rather than sell exclusive rights to street poles, why not create conditions that allow for more competition and investment?" Vasquez asked.


Steven Titch (titch@heartland.org) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.


For more information ...

Sally M. Cohen, "Muni Wi-Fi Networks' Uncertain Consumer ROI," Forrester Research, July 6, 2007: http://www.forrester.com/Research/Document/Excerpt/0,7211,42651,00.html (executive summary only)

Craig Settles, "The Economic Development Impact of Municipal Wireless," International Economic Development Council, July 2007: http://www.policybot.org/article.cfm?artId=21799

Steven Titch

Steven Titch is a policy analyst focusing on telecommunications, Internet and information... (read full bio)