Taxpayer Funding of Wi-Fi Isn’t Free

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.
(By subscription)

From the WSJ: “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. (See related article.)

“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.

“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.

“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.

“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.

“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.”

Read the whole article here.

Comment: The big question for locales to ask is whether providing Internet service to its citizens is a role or function of government. Remember folks, there is no such thing as a free lunch, so you’ll pay for it in taxes regardless. (There are two groups in this country that earnestly believe that governments provide free services, liberals and politicians…maybe not politicians, but liberals sure do.) While, it makes sense on one level if the service is tied to a police system, where patrolmen are able to access data from a patrol car, or fire fighters or EMTs for example, but for cash strapped cities like Toledo and Dayton, and rural communities like Athens, this is a complete waste of money.

As well, we should be asking if this is a suitable place to be spending grants derived from the Department of Homeland Security (DHS) like in Toledo. Frankly, this is not.

At the end of the day, we should be asking, is this a service that the private sector can handle better than government? I say it is; the telecommunications sector is one the most robust sectors in our country and no government, at any level, can compete with. Quite frankly there are not many, other than police and national defense, that any government can point to as an example of success. So be on the look out for the political class wasting our hard earned money on the irresponsible project.

On another note, I see DHS becoming increasingly like the Department of Education, in which the department hands out money and the locales become reliant upon it. Then one day Education imposes a myriad of stipulations to receive further funding. The locales have no choice and must follow the mandates because they have spent beyond their community’s needs and ability collect revenue. It is a big mistake for local communities to get dependent upon federal monies; this is how they sink their claws into you.

I predict this is how our country will start having cameras placed on every street corner and in all facets of our lives. DHS will impose a new perquisite to receive money. DHS will give the money, but the community will have to accept camera packages. Locales will be forced to comply and installation will occur over night. Take some time and see what is going on in Great Britain.