Since 2005, various U.S. cities from Philadelphia to Houston have announced plans for Wi-Fi networks only to turn around and cancel them later because of lack of funding or subscription support. Many local governments refused to be anchor tenants because they didn't want to commit to buying a specified volume of service.
Not all municipal Wi-Fi networks fell flat. Some cities have succeeded in delivering broadband service to the public. For instance, first responders in New York can access files through the $500 million high-speed New York City Wireless Network (NYCWiN), built and operated for the next five years by Northrop Grumman Corp. Other areas such as Bristol, Va. and Corpus Christi, Texas, have also developed thriving models of a public network.
These success stories prove that municipal Wi-Fi can indeed work, but that doesn't mean there's only one way to solve the problem of the digital divide. In the past few months, two major cities have illustrated two very different ways in which a city can make that big connection.
On one side, there's Philadelphia, where IT officials announced in December 2009 that they would build the network themselves, more than a year after the EarthLink deal fell through. After their private model flopped, IT officials decided a public Wi-Fi neftwork would better serve the city by enhancing mobile applications and access for building inspectors, code enforcers and emergency responders.
But Minneapolis, which just completed its $20 million network, went a different route. Rather than build their own network, city officials chose to become the anchor tenant for US Internet, a 15-year-old international provider of Internet and hosting services. That financial security freed the company to build a network that would also serve residents. The city already boasts more than 16,000 private subscribers, said Joe Caldwell, CEO of USI Wireless, a subsidiary of US Internet.
"The difference with Minneapolis is it was never structured to be a free network," said Craig Settles, a wireless industry analyst. "They decided to step in and be the anchor. For a private company, the deck is pretty much stacked in your favor. You come in, build a network and make your money back however best you can."
The Free Internet Myth
As free as cities want broadband to be, the Internet is a form of public infrastructure that requires certain assets for delivery. Somebody has to pay for those assets, which brings up the second question that has stumped local governments: Who?That was the problem in Philadelphia five years ago, when the city set out to be the world's largest Wi-Fi hotspot. The idea was that the EarthLink would invest $17 million to build the network and, through subscriptions from residents, the broadband provider could recover expenses and compensate for the ongoing loss of dial-up customers. It was a gamble. EarthLink lost.
In 2008, the company backed out of the deal with Philadelphia and many other U.S. cities with which it made similar arrangements, such as New Orleans and Chicago.
In 2005, a study called Municipal Broadband: Digging Beneath the Surface examined the financial viability of a broadband network in a city. Every model tested failed on a financial level, said Michael Balhoff, a former telecom equity analyst with Legg Mason Inc. and a managing partner at Balhoff & Williams.
"What we attempted to do was run a financial
model to test whether wireless operations could prove to be successful," he said. "When we ran the numbers at that time, we couldn't find any way to make the numbers work."
Instead, Balhoff said, governments might consider alternative mechanisms to support a municipal Wi-Fi network such as grants and tax incentives to existing carriers rather than creating their own network that "puts huge amounts of capital at risk."
"My basic theory is that government tends to step in where there is market failure and there is no market failure here," he said. "If it were as easy to do as the municipalities are suggesting, entrepreneurs would be all over it."
The Cost of Broadband
In Minneapolis, residents got a taste of free Internet on Aug. 1, 2007 when the I-35W Bridge crumbled into the Mississippi River.It was rush hour, and emergency responders and agents from the city, state, county, FBI and Homeland Security converged on the scene. The cell phone networks were clogged. But weeks prior, US Internet installed a Wi-Fi network in the area as a pilot program for the city. Soon after the bridge fell, the company opened the network for public use.
"You had all these agencies and none of their communications worked together," Caldwell said. "We went on the news and said 'get off your cell phones. We're opening the Wi-Fi network and it's all free to the public for about 72 hours.'"
The rescue workers couldn't even see the bridge from the command post they set up six blocks away. But suddenly they had access to video feeds and computer-aided design drawings. They could download heavy GIS files, pulling them straight from the Wi-Fi network at high speeds rather than from a cellular net card.
The incident proved to be a pivotal point for the value of a municipal Wi-Fi network. Still, Minneapolis had to endure some technical hurdles and political opposition on the long road toward completion. City officials had to replace fiberglass light poles with metal poles, which were strong enough to hold Wi-Fi gear. The city's tree cover interfered with radio waves, so they had to build about 10 more nodes per square mile than originally planned. And because the Minneapolis Park Board wanted to keep the aesthetics of the parks, the city compromised by painting radios dark brown to match the poles.
But that drama is over, and now Minneapolis has a network that provides coverage to 95 percent of the city's 59.5 square miles. In addition to citizens, the Wi-Fi network will also be used to transfer data to and from computers in police cars and fire trucks. After two years, city officials understand that building a broadband network may not be quick or simple or cheap, but they say it's worth it.
"One of the reasons I think we're successful is that we watched those who went before us," said Lynn Willenbring, the city's CIO. "We watched and learned from their mistakes and successes then modified things to best fit our overall goals and objectives in Minneapolis."
US Internet receives its revenue from two sources. In agreeing to be an anchor tenant, the city will pay a minimum of $1.25 million every year for the next 10 years. With that, the company needs an additional 10,000 residents to subscribe. Subscription rates start at $19.95 a month, or $14.95 if they pay a year up front.
Before the network even went live, US Internet had 12,000 people pre-registered, Caldwell said. The company hopes to reach 30,000 subscribers. Even though the service has been wildly popular among residents, the network wouldn't have gotten off the ground had it not been for the city's financial commitment.
"Let's say you're building a shopping mall," Caldwell said. "You don't
break ground until you have an anchor tenant like a Nordstrom. Had the city not been the anchor tenant to get the funding for the network, it never would have made it."
Contrarily the lack of commitment is exactly what caused Philadelphia's plan to collapse the first time.
Failing Forward
When EarthLink pulled the plug on the wireless plan in Philadelphia, however, the broadband provider left behind a web of wireless assets: 25 towers, 1,000 radios and more than 4,300 access points.For only $2 million, the city bought this network from the local Network Acquisition Co., which took over after EarthLink.
"The ability to be able to purchase this infrastructure is a once-in-a-lifetime opportunity for us," said Allan Frank, the city's CIO. "To have done this ourselves from scratch, it would have been well worth $30 million."
The network only covers 70 percent of the city, and Frank said it will require an additional investment of $17 million between 2011 and 2015 for upgrades and the rest of the built out. Initially Philadelphia hoped to sell Wi-Fi to households, but the government did not agree to be an anchor tenant.
This time around, Frank said, it will serve as a true municipal network that provides public service, where residents can access the Internet in specified public spaces, and police and fire departments and inspectors can share information using handheld devices.
"Because of the depth of this infrastructure, there's a tremendous excitement about mobile and smart phone applications," Frank said. "Not only was it an incredible fire sale, but the fact of the matter is, it specifically accelerates the ability for us to use a municipal network."
