Costly errors in the free internet experiment
By Chris Nuttall in San Francisco
Published: August 9 2007 03:00 | Last updated: August 9 2007 03:00
The sun glints off open laptops on an August day in Union Square. Their users, few in number, are accessing the internet, taking advantage of a free wireless hotspot in the San Francisco public space.
Not many of them willbe aware of the difficulties the municipal wi-fi service has faced. Getting the business model right for an evolving technology has been a challenge for the companies and authorities behind the scheme.
Local authorities set up a pilot service three years ago on a wave of idealistic enthusiasm. Their plans included expansion to a city-wide network by the end of last year. That never got off the ground and appears to be on indefinite hold, despite the involvement of Google, the internet search company, and the EarthLink internet service provider.
EarthLink told investors last month it was losing money on wireless networks for cities and was scaling back its plans nationwide. "Until we're confident that we can build new networks and get an acceptable return, we will delay any further new build-outs," said Rolla Huff, chief executive.
The "muni wi-fi" concept has run into difficulties for a number of reasons: slow user adoption, technology problems, political delays, and unrealistic expectations and business models.
"It's a pretty critical time for the whole muni wireless market," says Roberta Wiggins, analyst with Yankee Group. "For a while, cities thought they could get everything for free, but somebody has to pay for it. The vendors focused on getting the technology to work and didn't pay attention to how they were going to pay for it. Now its viability is coming under heavy scrutiny."
Other research firms are more optimistic. Datamonitor said last month about 400 cities in the US and UK had or were building networks. It predicted that spending would explode from $900m (£445m) this year to $6.4bn in 2012 as local governments and ISPs recognised the economic and community benefits.
In the US local governments have tried different business models as the technology has evolved.
"It has gone through a couple of waves," says Brian Jenkins, head of product management at SkyPilot, a builder of networks. "Back in 2004 some cities were getting started by buying the equipment and building networks themselves, trying to serve low-income users."
Corpus Christi in Texas, built its own network. San Francisco considered doing the same. It also considered "digital inclusion", where free or low-cost internet access is provided for those who cannot afford it.
In the current contract for the city, Google provides advertising-supported free access and Earthlink offers higher speeds in a paid-for service. But Google has come under attack from civil liberties campaigners because it collects data from users to target them with advertising.
Planners also overestimated the coverage that networks would provide. Wireless transmitters, typically on street lights, have difficulty penetrating walls, and expensive equipment is needed inside homes. This makes digital inclusion an uneconomic objective.
"Capital spending is very high and the cost of operating is pretty high," says Eb Keshavarz, head of business development atAT&T. Also the technology constantly changes, he says. "Cities are realising that it's probably not in their interests to build this out themselves."
Lompoc found this out too late. The California city built and paid for its own network, experienced coverage problems and then found that only a few hundred of its 40,000 population were willing to pay a subscription fee.
The subsequent business model for cities has been public-private partnership, where costs are shared by governments and providers. This is being refined into the concept of "anchor tenancies". Here, cities run applications - such aswireless video surveillance cameras - and pay for use of the networks, providing the operators with a guaranteed income.
AT&T has been trying new business models in some cities, starting with small downtown coverage areas. A pilot it launched in Riverside, California, last month could eventually become the largest city deployment in the US.
The large telecoms provider is also planning a network in the wine country town of Napa in collaboration with local authorities.
"This will not cost the city one penny," says Jeff Troendly of the Napa police department, whose officers will use a network, paid for by AT&T, to transmit and receive photos and reports in their patrol cars.
"We're allowing AT&T to use our assets, such as our poles, and they hope to make money on internet access in places like hotels, and through advertising."
AT&T also expects muni wi-fi to fill any gaps in coverage for subscribers to its mobile phone service.
Alternative technologies are emerging that could challenge the relevance of muni wi-fi. WiMax networks, due for launch next year, could offer broadband wireless coverage over greater distances and at higher speeds.
Silicon Valley's Meraki is offering low-cost wireless "mesh" networks that communities can install themselves. Mesh networks work through small boxes called repeaters placed in homes. These boxes mesh with one another to spread broadband connectivity throughout communities.
Software made by Fon allows users of cheap home wi-fi routers to share their connections. The company has given away equipment to form a network in a district of Madrid and plansto do the same in SanFrancisco.
"My hope is that [this month] we will be able to show what ubiquitous wi-fi looks like in a city, without the need for muni wi-fi," says Joanna Rees, US chief executive of Fon.
Such technologies are in their early stages but, as broadband access becomes more pervasive as a result of them, muni wi-fi could be harder to justify.
Copyright The Financial Times Limited 2007
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