Wireless -- With Strings Attached
Cities Building Wi-Fi Networks Are Running Into Hurdles, Including Mounting
Costs
By AMOL SHARMA
Wall Street Journal
August 16, 2007; Page B1
http://online.wsj.com/article/SB118722557149599153.html?mod=hps_us_whats_news
In recent years, dozens of U.S. cities and towns have announced plans to
build Wi-Fi networks that would give their citizens a cheap and convenient
way to access the high-speed Internet and provide new competition to phone
and cable companies.
Now some of those projects are running into hurdles. Constructing networks
that can provide Internet access to homes and office buildings and
withstand challenges from nature that interfere with wireless signals --
such as hills or rainstorms -- is proving more costly than anticipated.
Some Wi-Fi projects, such as Philadelphia's, are running 30% or more over
budget. Many cities are discovering the true costs of the initiatives only
as they begin to roll out infrastructure and test the networks. Consumer
demand for the services, meanwhile, has been soft in the early going.
Companies such as EarthLink Inc. and MetroFi Inc. have been increasingly
taking the lead on building and operating these networks for cities. But as
the economics of the industry get tougher, the companies are asking cities
to bear more of the financial burden, either by contributing cash toward
construction or by agreeing to purchase Wi-Fi services for government workers.
"This is a new and emerging industry, and the business model is still
evolving," says MetroFi Chief Executive Chuck Haas. Mr. Haas says MetroFi,
which specializes in designing and building Wi-Fi networks for metropolitan
areas, now requires cities to contribute a substantial amount of capital
before agreeing to new projects.
It isn't just financial issues that are plaguing Wi-Fi initiatives. In San
Francisco, an array of politicians and civic groups have criticized the
city's deal with Google Inc. and EarthLink, primarily a provider of
landline Internet access, to create a Wi-Fi network. The critics cite
privacy concerns, poor economics for the city, and even the potential that
radiation from Wi-Fi equipment could have harmful health effects. Following
a standoff with the city's board of supervisors, the mayor, who had
proposed the idea of a citywide Wi-Fi network, placed the issue onto a
November ballot.
An EarthLink spokesman said the company remains in discussions with the
city on how to move forward with the project.
"We continue to hope that EarthLink and the City of San Francisco will find
a way to enable all its residents to enjoy the free Wi-Fi network they
deserve," said a Google spokesman. "We believe that ballot initiative is a
great opportunity for San Franciscans to express their support for free
wireless access for all."
The municipal Wi-Fi movement is far from dead. More than 90 cities and
towns, including Portland, Ore., Corpus Christi, Texas, and others, have
already launched service, according to MuniWireless.com, a Web site that
tracks the projects nationally. Nationwide spending on municipal Internet
projects was $236 million last year, up from $117 million in 2005, and is
expected to nearly double this year, the organization said. Wi-Fi
technology, generally, is gaining popularity. Consumers are increasingly
accessing the Web at hotspots like coffee shops and airport lounges. And
they are doing so not just from laptops, but also from new mobile devices
like Apple Inc.'s iPhone.
But municipal networks aren't on track to offer consumers a cheaper
high-speed alternative to the powerful U.S. phone and cable companies, as
some backers once envisioned.
Proponents of municipal wireless networks say cities and Wi-Fi companies
are learning lessons from the early setbacks and are adapting.
Initially, cities funded their projects out of their own budgets. That
proved controversial, as telecom operators argued that it smacked of the
government competing with the private sector. Now many cities are
contracting out the work of building and operating the networks to
companies like EarthLink and MetroFi, who team up with Wi-Fi equipment
providers like Tropos Networks Inc., Motorola Inc. and BelAir Networks. In
many cases, the only thing cities are offering the companies in such deals
are the rights to hang hundreds or thousands of small Wi-Fi transponders on
public property such as lightpoles and traffic lights.
That model isn't holding up. The Wi-Fi companies envisioned being able to
offer subscription service to consumers at rates that were significantly
cheaper than phone and cable broadband. But the unexpectedly high costs of
building Wi-Fi networks -- the price tag can easily run into the tens of
millions for a big city -- coupled with lower prices for broadband from
some phone companies, has made it tougher for consumer Wi-Fi to be
competitive. For example, EarthLink offers Wi-Fi for about $20 a month, a
price that is on par with the lower-end Internet services now offered by
AT&T Inc. and Verizon Communications Inc.
At the end of the second quarter, EarthLink had only about 4,000
subscribers from its rollouts in Philadelphia, Anaheim, Calif. and Corpus
Christi. The company, which is operating under new leadership after the
death of former Chief Executive Garry Betty early this year, said in late
July it would pull back on further investments in Wi-Fi until it negotiates
better deals with cities. In particular, the company wants a commitment by
cities to become a significant customer, or "anchor tenant," and thereby
guarantee EarthLink a steady revenue stream. "The Wi-Fi business, as
currently constituted, will not provide an acceptable return" for EarthLink
shareholders, said newly installed Chief Executive Rolla Huff on a recent
conference call with analysts.
Mountain View, Calif.-based MetroFi has also signaled that it is only
interested in projects where cities are a major customer. While the company
has faith in its model of providing free Internet service to consumers
supported by ads, that model "has to work in conjunction with other revenue
streams," Mr. Haas says.
Esme Vos, who runs the MuniWireless site, says the pressure on cities to
use the networks for government services is healthy. "It forces the cities
to sit down and think about what they want to do with the networks," she
says. "They actually have to come up with a business plan."
In many cases, says Ms. Vos, public-safety workers are a natural user base.
Policemen could use the service to download mug shots of suspects in their
vehicles, while firefighters could get blueprints of burning buildings. In
some cases, Wi-Fi could be used to let government workers telecommute.
Some big cities, like Minneapolis, are already signing those kind of
"anchor-tenant" agreements. But for many cities with tight budgets, bearing
costs for the projects isn't easy. In July, the city of Anchorage, Alaska
pulled out of its deal with MetroFi after the company demanded the
government pay a fee for network usage. Toledo, Ohio originally awarded its
contract to MetroFi and agreed to put in financing worth $4.3 million.
MetroFi would offer consumers free Internet service supported with ads and
provide access for public safety workers. But some local politicians and
citizens balked at the deal, saying the city couldn't afford it.
Now, the Toledo plan is being reworked. Todd Davies, Toledo's commissioner
of development, says the new proposal would reduce the city's contribution
to $1.5 million by tapping resources already budgeted to public-safety
agencies and taking advantage of a federal grant the city has received from
the Department of Homeland Security. The city council still has to approve
the plan.
Craig Settles, a consultant to cities and companies on municipal-wireless
initiatives, says cities that are just now drawing up plans for Wi-Fi are
doing so more cautiously. Mr. Settles is advising Glendale, Calif., on its
project. Before the city issues a request for proposals from bidders, it is
conducting a study to determine which businesses, government workers, and
members of the medical community could use the network. The goal is to make
sure there will be demand for the Wi-Fi service before the city commits to
anything.
"The cities that didn't join the rush last year are taking it slower and
are being much more thorough in their analysis," Mr. Settles said.
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
