Cities make financial sense of 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.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 .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.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.'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''tre, 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.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.