INDUSTRY REPORT
Fight Heats Up over Municipal WiFi

Philadelphia might be known as the city of brotherly love but what it's generating with its experiment with government-sponsored wireless broadband access is far from that emotion.

Last fall, the city aired its intentions to make itself a gigantic WiFi hotspot, a project with a projected price tag of US$10 million. While some municipalities like Cerritos, Calif., and Chaska, Minn., have city-financed WiFi networks for their citizens, and others like Spokane, Wash., and Corpus Christi, Texas, have them for city workers, no burg has a plan as ambitious as Philadelphia's.

And that has large providers of broadband Internet access -- like the Baby Bells and large cable TV companies -- worried, especially since its been reported that some 100 municipalities, including San Francisco, Chicago and Las Vegas -- are mulling over following in the footsteps of Rocky Balboa's hometown.

Municipal Advantage

"Municipal WiFi has a competitive advantage over private providers," said John K. Balbach, vice president for corporate development for ICOA in Warwick, R.I., a large operator of private WiFi hotspots at airports, marinas and retail outlets like Starbucks, American Airlines, McDonald's, Barnes & Noble Booksellers, Panera Bread and Au Bon Pain.

"Municipalities don't pay taxes, so they don't have that burden on their cash flow," he told TechNewsWorld. "And they have access to infrastructure in a city that the private sector does not -- buildings and public property where they can place antennas."

Aside from competitive concerns, there are serious structural problems with allowing governments to get into the WiFi business, according to a report released in February by the New Millennium Research Council (NMRC), which is owned by Issue Dynamics, a Washington, D.C., lobbying firm that has major telecom companies as its clients.

Risky Business

"WiFi networks will likely cost more than the cities anticipate, thus straining already tight budgets and negatively impact taxpayers," the NMRC report argued. "Public funds used for a WiFi network are diverted away from other important areas, such as education, police and fire services, and public works, that are already being cut in many cities today."

The group pointed out that WiFi technology could quickly become outdated, leaving a city and its residents with a less-than-optimal network that offers no opportunity to recover the city's investment.

"There's still uncertainty about where wireless technology is progressing," maintained Braden Cox, technology counsel for the Competitive Enterprise Institute in Washington, D.C., and a contributor to the NMRC report. "That's why we haven't seen private companies rush into this either. It's still very risky."

Rewarding Failure

Moreover, no one knows yet how WiFi and other wireless technologies, like WiMax, will work together in the future, he observed. "It's going to be a mixture, and I don't think government getting involved in the wireless side and possibly pre-empting private initiatives in that area will contribute to the convergence we're going to need later on," he told TechNewsWorld.

"What's dangerous here," he continued, "is that these government WiFi projects may not be allowed to fail, that they'll be rewarded for screwing up."

In its report, the NMRC also noted that previous municipal attempts to deploy wired broadband networks have failed, and even though WiFi costs are potentially lower, the municipal ownership model is still flawed.

Definition of Success

That assertion raised the ire of a number of supporters of municipal broadband networks, including Freepress, a media watchdog group in Washington, D.C. In April, the organization issued a report refuting every example of "failed" municipal broadband networks cited in the NMRC document.

"If by failure you mean does not return a 30 percent profit margin on a quarterly basis, well then most businesses are failures," Freepress Policy Director Ben Scott told TechNewsWorld. "But every single network that we investigated was fiscally solvent."

Contrary to predictions that municipal broadband networks will drive private players from their markets, in some cases just the opposite has occurred, according to Scott. Some municipalities have built a common carrier network and sold network access to private carriers, Scott explained. "In some of those cases, the number of private providers has increased," he said.