Cities make financial sense of WiFi projects
Municipalities try to build their business plans around wireless access
By David Essex, Special to GCN
Sascha Meinrath
Access to these resources is too important to have a tollbooth at every
on-ramp.” Sascha Meinrath,Champaign-Urbana Community Wireless Network,
on muni WiFi projects
There was something so darned utopian about the whole idea: Bypass the
powerful telco companies, string up some IEEE 802.11 wireless access
points and give citizens free or substantially subsidized Internet
access. And to be sure, there are plenty of city-sponsored hot spots
around the country where, if you happen to be within WiFi range, you can
log on free of charge.
But cities got ambitious, and municipal WiFi projects turned into
crusades for universal broadband, or improved government service or
economic development. Hot spots weren’t enough, and plans were drawn up
for wireless mesh networks that spanned many square miles. And on paper,
muni WiFi sounds great. The million-dollar question is who will pay for
it. As one systems integrator involved in many high-profile muni WiFi
deployments told GCN, “2006 is the year of the business plan.”
Muni WiFi networks have their share of skeptics. Many say they compete
unfairly with private service providers and don’t offer demonstrable
gain to taxpayers—even from the point of view of economic development,
which is notoriously hard to quantify.
“I think there are dubious claims that have yet to be backed up by any
real, hard data,” said Steven Titch, senior fellow at The Heartland
Institute, a Chicago-based free-market think tank.
But nagging doubts have so far been unable to stop a slew of towns and
cities from pioneering ubiquitous wireless Internet access.
Reasons aplenty
Public WiFi projects are often justified by a grocery list of benefits
that entail a wide range of risks as well as rewards.
The lowest-hanging fruit may be the greater mobility that WiFi offers
government workers, especially police, firefighters and public utility
workers. In addition, savings are generated by the use of cheaper radios
and lower labor costs resulting from improved communications coverage
and reliability that reduce unnecessary travel.
“You can underwrite a large portion of the network based on that alone,”
said Craig Settles, president of Oakland, Calif.-based consulting firm
Successful.com.
Cities such as Houston have also found savings in automating the
management and tracking of such assets as trucks and parking meters.
WiFi also is seen as an economic development tool, attracting
high-spending professionals to downtown areas and luring or retaining
companies who want cheap network access and the benefit of a mobile
workforce. Scottsburg, Ind., (pop. 6,040) spent $300,000 on a city-owned
network when two significant employers threatened to leave the area.
“That was one of the more dramatic examples of how the technology helped
a small city keep what little business base it had,” Settles said,
adding that WiFi at convention centers might help a city compete with
other convention sites.
Subsidized broadband also can boost depressed areas, which tend to have
small, marginal businesses that can ill afford services. Experts say it
can also spur Internet-based home businesses in pockets of unemployment.
“You’re taking an inactive workforce and turning them into
entrepreneurs,” Settles said.
Still, Settles believes WiFi is just another checklist item among
municipalities, something that’s popular politically but not totally
thought out. And he cautions cities against basing any part of a
citywide WiFi plan on free access—it’s a lousy business proposition, he
says.
Cheaper approaches, including WiFi hot spots that serve as amenities in
high-traffic pedestrian malls, can be more cost-effective, in part
because they are easily sponsored by donors. Cities have long provided
WiFi in publicly owned facilities, such as libraries and city halls.
“It’s pretty much like flowers on the boulevard median,” said Titch. As
such, these targeted investments don’t represent true, pervasive
municipal networks, which is why cities dedicated to building out WiFi
have spent the past several months thinking creatively about what they
ask for in a network request for proposals.
Rightful ownership
Recent evidence suggests a shift in ownership models. “There’s a lot
less government ownership and operation of these broadband networks,”
said Titch. He includes new fiber optics-based networks in his
estimation. “I don’t think the municipally operated systems have worked
as well as expected, and cites have had to spend more money to get them
to work,” he said, citing pioneers such as Chaska, Minn., and St. Cloud,
Fla. (Both cities also have their supporters and claim that subscription
revenues have risen lately.)
To reduce risk, municipalities are lately favoring public-private
partnerships that put the responsibility for upfront capital and ongoing
operations on the shoulders of a private vendor. “Of all the models
where municipalities are involved, that shows the most promise of
working,” Titch said.
Rather than direct taxpayer subsidies, cities might give contractors a
break on the fees it charges to put transmitters on publicly owned
rights-of-way, such as utility poles. EarthLink Inc. of Atlanta is a
leading proponent and beneficiary of the model, having won the largest
city contract yet: Wireless Philadelphia’s ambitious and controversial
plan to bring broadband to the historic, sprawling city. EarthLink will
spend $15-$20 million to build and operate the network. The city will
rent 5,000 streetlight poles for around $6 each per month,
redistributing that money to a nonprofit organization that will
subsidize service to low-income families at $9.95 per month, according
to Cole Reinwand, EarthLink’s vice president of product strategy and
marketing.
“It pretty much comes back to us in subscription fees [$29.95 per month
unsubsidized access] and a more educated consumer base,” Reinwand said.
EarthLink’s Philly experience suggests such partnerships may be the only
way large cities can afford to do WiFi, Reinwand said.
“They realized at some point that they weren’t going to make money with
an entity of nonprofiteers and government people that was going to build
out a network on a scale never done before,” he said. “It was a little
hard for financiers to swallow. Since then, every RFP that has come out
has followed our model.”
Still, competition doesn’t just dry up when a city grants franchises. In
Anaheim, Calif., where EarthLink recently launched a muni WiFi network,
the company provides service providers open access to its wireless
access for a wholesale price, said Reinwand. “We recognize there are
other brands out there that are strong and mean something to customers.”
Milpitas, Calif., another EarthLink customer, expects to go online in
early fall with a network that provides a standard monthly package for
$29.95 and free access in public buildings, plus $12.95 subsidized
service for low-income families. Milpitas already had a successful
wireless safety network for city employees but wanted to provide public
access to attract foreign business travelers, many of whom take WiFi for
granted back home, according to Diana Whitecar, the city’s economic
development manager.
Interestingly, Milpitas decided to split the city between EarthLink and
competitor MetroFi of Mountain View, Calif., after both approached it
for the business. “It just kind of fell into our lap,” Whitecar said. No
formal RFPs were issued, financial analysis was minimal and the city
decided to waive $5,000 in pole fees in exchange for the free-access
portion of the network. The city is happy with the likely benefits.
“Uses will come from its being here,” Whitecar said. “It’s kind of like
electricity.”
Case for community ownership
Not everyone is enamored of corporate ownership, especially those who
view WiFi as an engine of social change that merits public investment.
Sascha Meinrath, co-founder and coordinator of the Champaign-Urbana
Community Wireless Network (CUWiN) in Illinois—a nonprofit, open-source
development project started in 2000 that provides a free, ad-hoc WiFi
network to parts of Urbana—favors a more grassroots approach.
CUWiN grew out of an effort to spread broadband from schools to nearby
low-income neighborhoods so students could have the same access at home.
“It was tied in with a social- and economic-justice agenda,” Meinrath
said. “That’s sort of what started the spread of this technology. Around
2002 or 2003, a lot of corporate interests started getting involved.”
Meinrath portrayed CUWiN as a local initiative that built up organically
through inexpensive hardware that provides users with peer-to-peer links
for file transfer. Internet access is just one feature, not the raison
d’être, as with most municipal networks.
“You’re eventually going to have huge cost savings because you’re using
nonproprietary technologies,” Meinrath said, adding that transmitter
nodes sell for $482—roughly the starting price of commercial products.
He called the prevailing view of muni WiFi “shortsighted,” saying it
doesn’t account for social benefits and the opportunity costs of not
providing cheap WiFi. “Access to these resources is too important to
have a tollbooth at every on-ramp,” he said.
Reinwand finds projects such as CUWiN admirable, but says they can’t
compare to something like EarthLink’s networks because they rely on
do-it-yourselfers and fledgling, open-source routing standards. “It’s
really not carrier-grade,” he said.
But perhaps there’s a middle ground. Sometimes the private partner can
be a nonprofit corporation with a public-service mission, a model now
under discussion in Boston. The nonprofit group would build and operate
the network with donated money, then provide wholesale network access to
Internet service providers.
“We believe the nonprofit route may be the best way to bring low-cost
service to every neighborhood while providing a platform for innovation
unlike any in the nation,” said Boston mayor Thomas Menino when he
announced the plan in July. “By keeping the network open, we believe we
can create a hotbed of entrepreneurial activity, which will spur
economic growth and job creation.”
In the final analysis, the right model is the one that furthers
municipal goals. “The return isn’t necessarily [a return on investment]
like an EarthLink would calculate,” said Rick Rotondo, director of
marketing in Motorola’s mesh networks products group. “Typically,
cities’ ROI is based on hard and soft returns, because they are a
government.” An example? Rotondo cited reduced crime rates from enabling
police to spend more time on the streets as a benefit that defies
traditional ROI models.
Show us the money
No matter how cities go about planning and executing a muni WiFi
network, upfront and ongoing maintenance costs have to come from
somewhere. Settles said grants and sponsorships are good funding sources.
Grants from federal and nonprofit agencies earmarked for improving
health care delivery, for example, might pay for WiFi for visiting
nurses. A PBS-like model of corporate or nonprofit sponsorship could not
only promote the sponsor’s brand, but feed other opportunities, as Nokia
found when it sponsored WiFi in New York City parks. “It became a
showcase for them to show their products,” Settles said.
Emerging technology could also help the bottom line. Experts said mesh
networking, which provides good coverage with fewer transmitters, offers
lower capital and maintenance costs. Most high-profile muni networks
today take the mesh approach, in which wireless access points
communicate with each other as well as with users’ PCs. “It can reduce
your backhaul costs by up to 90 percent,” Rotondo said.
WiMAX, a wide-area type of wireless Ethernet that promises much longer
reach than WiFi, could also change the face of city networks when the
standards settle down. “You would use WiMAX to create your backbone, and
then you would hang WiFi clusters off this backbone,” Rotondo said. But
he and others said WiMAX is hampered by an unfinished standard, pricey
network cards and a spectrum that is mostly privately owned.
Settles, who helps municipalities develop WiFi business plans,
emphasizes the importance of setting realistic expectations, something
he believes could have helped several projects in major cities,
including San Francisco and Tempe, Ariz. “Politicians over-promise,” he
said.
One way to manage expectations is to hold the vendor’s feet to the fire.
“The contract is key,” Settles said, adding it should address service
level agreements, including stricter SLAs for government workers.
Titch recommends demanding a buildout plan showing how and when the
vendor will reach full, citywide coverage, perhaps with penalty clauses
for missing milestones. The initial proposal should identify risk
factors that might jeopardize the guaranteed price, such as equipment
cost increases.
Contracts might also provide a partial ownership stake for the city, if
state law allows, so the government can maintain stronger leverage than
the mere threat of removing pole access. “They need to have some skin in
the game, and they need to bend that entity to their will,” Settles
said. “You can’t do this with a twig, you need a two-by-four, and maybe
you need a velvet glove.”
At the same time, the city can’t disregard the partner’s business model,
said Reinwand, since a bankruptcy is disastrous for both.
Because WiFi operates in unregulated spectrum, and city networks aren’t
monopolies, other companies—and publicly owned systems—must still
compete in the market, a challenge where low-income residents get
monthly service for $10 or even free, and others might only pay $20.
“They’ll have to work that price against what others are charging,”
Titch said. “They can’t offer free service to everybody and expect a
workable system.”
And in today’s rush to build muni WiFi networks, the workable system is
the most utopian system of all.
David Essex is a freelance technology writer based in Antrim, N.H.
http://www.gcn.com/print/25_28/41979-1.html
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