Posted by: Costas Troulos | May 19, 2008

Philadelphia WiFi shuts down. What’s next for Municipal WiFi Networks?

On May 13th EarthLink announced that is shutting down Philadelphia WiFi Network. Philadelphia WiFi Network has been often referenced as a unique business case of cheap municipal wireless broadband network; and it was started with a lot of fanfare. Yet, the facts proved otherwise.

Most of the analysts argue that it was EarthLink’s business model that was flawed, not necessarily the concept of municipal (wireless) broadband. The failure of many other EarthLink’s wireless projects (New Orleans, Corpus Christi, Texas, Milpitas, California & San Francisco[1]) increases the weight of this argument.

According to Glenn Fleishman “The failure in Philadelphia, and EarthLink’s exiting the entire muni-Fi business, represents the end of a bad model in which a company agreed to assume all risk and costs associated with building a public access network. When the assumptions were that networks would be cheaper and easier to build in 2005, and that citizens in many larger cities had few affordable broadband options, it made some sense to build a network on spec.”

“Three years into this, however, it’s clear that that capital investment is 2 to 3 times higher than what was anticipated to reach a level of service quality that people will expect; that, when presented with potential competition, DSL and cable operators will slash prices and offer cheap 1-year or “lifetime” rates with long-term contracts; and that wireless broadband delivered via Wi-Fi isn’t the best of ideas for indoor service.”

I would add that the short depreciation period (and expected ROI) of electronic equipment used makes WiFi business models very susceptible to miscalculations and bad decisions[2].

Nevertheless, municipal support to a broadband operator has to go much further than just letting the operator freely, at low or no cost installing the infrastructure. The municipal use of the network for back-end or front end operations (as an anchor tenant – as proposed in academic and business literature[3]) can provide the operator with

  • significant incentive (i.e. a source of revenue for a pre-arranged period of time) to sustain its business during the first months (or years) of operation (where low penetration, limited brand recognition and reputation prevails) and
  • certain degree of financial and operational flexibility to timely plan the expansion to the (business and residential) market.

In Greece, local governments are currently covering IT expenses through infrastructure/services funding projects such as “ΣΥΖΕΥΞΙΣ”. In this perspective, the transfer of all these services offered today to the new broadband infrastructures (FTTx & Wireless) that are currently announced, scheduled, under construction or completed throughout the country[4] may not be such a bad idea[5].

I will finish up in a more optimistic note. The WiFi Dinosaur is Dead – Make Room for the Mammals is an article providing a different view in municipal WiFi prospects:

“What reporters are not writing about is the other side of this story, the hundreds of communities in which networks are living up to their potential. Here in Lawrence, Kansas home of the 100,000 raving Jayhawk fans, the municipal WiFi network is not only healthy – it’s thriving.”

 


[1] San Francisco WiFi network was later supported by start-up meraki, partly funded by Google

[2] Compared to fiber investments, WiFi projects are much more vulnerable to market conditions, cost developments etc.

[3] Another term for this is “demand aggregating”, where municipalities aggregate local government demand and contract a service operator to provide incentives to start business in the local market

[4] Municipal broadband infrastructure projects are funded within the Operational Programme for Information Society – OPIS – http://www.infosoc.gr of the Greek Ministry of Economy & Finance under the codes “Call 93”, “Call 145”, “Call 107” etc.

[5] In similar practice, many US municipal WiFi networks are financed via funds allocated for public safety and national security projects. These networks are then used for other purposes (monitoring public utilities operations, traffic management etc.)


Responses

  1. Are there any plans for municipal broadband infrastructure in Athens, Greece?

    Also what about the cellular telephony companies that are desperately trying to sell data contracts? Are they just going to stand down and see their investment in frequencies being devoured by the (possibly explosive) voip growth?

  2. EU & National funds finance municipal broadband initiatives outside the prime markets of Athens and Thessaloniki. There are some municipalities in Athens that are considering deploying their own municipal broadband networks. However, since they can’t finance it from EU funds, things are tough. Whatsoever, synergies with private sector (with one way or another) will be required eventually.

    From my standpoint cellular and fixed (fiber) broadband are complements, not substitutes. They are products with different characteristics and different prices.

    However, 3G data compete with DSL in many countries, especially, due to high priced (low speed) DSL services that makes 3G offerings more attractive to consumers.

  3. fancily says : I absolutely agree with this !


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