May 3, 2007 4:00 AM PDT

Facing economic realities of muni Wi-Fi

In the movement to blanket cities with Wi-Fi, economic realities are setting in as service providers look to tweak their business models to turn a profit.

Since the municipal Wi-Fi movement started taking shape a couple of years ago, politicians, community organizers and the companies building the networks have touted Wi-Fi as a cheap solution to myriad social and economic problems plaguing cities today. Some cities see it as a way to bridge the digital divide, while others see Wi-Fi as providing a third alternative to a broadband market dominated by the cable and phone companies.

As a technology, Wi-Fi is seen as being able to solve all these problems and more. But the stark reality is that someone still needs to pay for the infrastructure and the cost of running the network.

Up to this point, the financial risk has mostly fallen on the service providers that have put up the capital to build the wireless mesh networks. These companies are spending millions of dollars on their initiatives with mostly no guarantee that they will ever turn a profit.

Now as operators move beyond proof-of-concept networks, they are re-evaluating their business models to ensure they can make money. This means carefully selecting the cities where they want to build networks and demanding more assurances from cities that they can get enough subscribers to make building the network worthwhile.

"The economic realities of building these networks is coming to the forefront," said Craig Settles, an independent wireless consultant and the author of the book Fighting the Good Fight for Municipal Wireless. "What we'll see coming out of the shute is a greater emphasis on selling to businesses and the cities themselves, which together offer the best opportunity for a return on investment."

The biggest sign of a shift came last week when EarthLink, which has won 13 citywide Wi-Fi contracts, said it plans to cut its spending for municipal Wi-Fi and will refocus its strategy to build out networks in cities where it already has contracts. Chief Executive Michael Lunsford said during the company's first-quarter conference call that it would only consider taking on new contracts in larger cities, such as Chicago or Los Angeles, where presumably the chances of turning a profit are higher.

"There are still some cities that want the network for free. They don't want to have to commit to getting service from us."
--Chuck Haas, MetroFi CEO

"I would not say that we have pulled away from talking to other cities at this point," Lunsford said during the call. "We are focusing our efforts on some of the larger ones. We have to swallow some of what we have gotten already though. I think we have to build out, focus our efforts there before we go get more markets and then not do a good job of building those out for the cities that we would partner with."

The shift in strategy comes as EarthLink reported that it lost nearly $30 million during the first quarter of 2007 on revenue of $324.4 million. This compares with a year ago when the company earned $16.3 million on revenue of about $308 million. As a result of the loss, the company is cutting back on spending, particularly on its Wi-Fi network construction.

Recently, MetroFi, which has signed contracts for several major cities including Portland, Ore., also shifted its business strategy. The company is now requiring cities in which it provides free, ad-supported Wi-Fi access to commit to being anchor tenants. This means that the city will be contractually obligated to buy an agreed upon level of service from MetroFi in exchange for the company building the network in that city.

"There are still some cities that want the network for free," said Chuck Haas, CEO of MetroFi. "They don't want to have to commit to getting service from us. We built our first networks without anchor tenants in Sunnyvale and Cupertino. But those were proof-of-concept networks. In order to replicate that elsewhere, we need anchor tenants."

See more CNET content tagged:
municipal Wi-Fi, city, EarthLink Inc., reality, Wi-Fi

9 comments

Join the conversation!
Add your comment
wrong focus... again. broken political system?
"...politicians, community organizers and the companies building the networks have touted Wi-Fi as a cheap solution to a myriad social and economic problems plaguing cities today. Some cities see it as a way to bridge the digital divide..."
"But the stark reality is that someone still needs to pay for the infrastructure and the cost of running the network."
"Now as operators move beyond proof-of-concept networks, they are re-evaluating their business models to ensure they can make money. This means carefully selecting the cities where they want to build networks..."

OK, maybe I'm not reading this correctly, but it seems to me the great philanthropic effort of providing internet access to the masses, who cannot afford $50/month cable broadband is not about philanthropy at all, but about making piles of money for private companies.
Why are we even talking about "profit" here? If the goal is a community service, why isn't the idea of covering costs sufficient?
If internet access is infrastructure, why is profit a necessity? Does the city "make a profit" on roads, schools, water, or police service? Did the federal government make a profit when they made the freeway system?
And in this rush to make a profit, we're already seeing, before we've even started, a trend to offer the service in places where these companies can make money - i.e. more affluent areas. I'm sorry, but they don't really need this initiative. They can already buy service.
Don't get me wrong, I'm not advocating socialism, but making a profit is something for private endeavors, not municipal services. Municipalities can feel free to subcontract functions, but the companies accepting these contracts should be soaking the citizens of the municipality for a profit. Privatization is supposed to lower costs, not raise them.
If you're farming out municipal functions to private companies focused on profit, you're just using political power to line the pockets of well connected individuals and companies. Smells bad to my nose.
Posted by skeptik (590 comments )
Reply Link Flag
You may have missed the point
I would agree with you that there shouldn't be a need to make a profit if the cities were actually buying the equipment, installing the gear and running the networks as a service for their residents. But that isn't what is happening. The cities aren't putting up any capital. In fact in some cases they are generating small amounts of revenue by leasing rights of way to lamp posts etc. to companies like EarthLink and MetroFi. EarthLink and MetroFi are building the networks using their own money. They aren't asking tax payers to foot the bill. So it's unrealistic to expect these companies to provide a philanthropic service or to simply break even. They need to make profits to grow and thrive. If they can't make a profit, they simply won't build a network. It's a simple economic reality and that is what the story is about. You'd never expect a local grocer to give away food for free. He has to sell his goods so he can make a profit to be able to provide a service to the citizens in the community. If people like his grocery store and they find his prices fair compared to the competition, he will stay in business. Otherwise he goes out of business. It's simple economics.
Posted by MaggieReardon (140 comments )
Link Flag
over come the EMF war lords
Every which way and how with no fear of fatalistic death.
Posted by wildchild_plasma_gyro (296 comments )
Reply Link Flag
over come the EMF war lords
Every which way and how with no fear of fatalistic death.
Posted by wildchild_plasma_gyro (296 comments )
Reply Link Flag
Useful in anti- Net Neutrality debate
Boy, this griping sounds an awful like the Bell's legitimate pleas that politicians let them build out their new services in the manner they see fit - which is the proper way in my view.

These are risky endeavors - return on investment does matter, especially when these new services will be built by the private sector, laboring in an, as-of-yet, unregulated and hyper-competitive market.

I hope Rep. Markey's office reads this for next week's hearing in his Subcommittee. This sould give him some pause before asking for more regulation on the Net.
Posted by mwendy (64 comments )
Reply Link Flag
What is Missing
This is a well written analysis of the Metro Area Wireless Mesh Markets.
Here are few additional points to keep in mind:
1. These networks were oversold by the first-to- market providers and vendors, in that they are primarily designed for Outdoor Portable and select Mobile coverage. In short they caved to the Social/Digital Devide requirements and the politicians need to provide everyone coverage and were disapointed when indoor coverage was weak and or more expensive.
2. Without the City as Anchor and a large commercial subscriber base these 1st Generation networks are and will continue to fail.
3. The Muni and some of their Consultants focused to much on the provider and not enough on the equipment these entities selected (deployed 1 & 2 Radio Mesh nodes)and that is hurting their business case now and will continue to as the demands on these networks increase. Just wait until users demand the P2P, Video and Music Sharing, commercial VPN services-these all need symmetrical services (solid return path) while in portable/mobile mode. MultiPlayer gaming will also have a major impact on overall performance.

4. If Earthlink does not change its approach in hardware selection and deployment, its focus on only the major cities will kill their business case instead of helping it. For 2 reasons:
a. Backhaul between nodes is critical to the long term survival of these Mesh Networks-big demand for bandwidth and high latency, on many of these 1 & 2 Radio nodes, will bring these networks to their kness and require major on going upgrades/expansion of these Networks. These systems need very robust backhaul pipes and need multiple radios assigned to this function if they are to survive, meet the big demands and be profitable.
b. As these poorly designed Mesh network continue to suffer the commercial markets will shun their use and look more to the emergence of the new WiMAX networks (both Fixed and Mobile)for their Portable/Mobile and PTMP Fixed services.
I am not convinced the new 3G Cell carriers Narrowband (Max 1Mbps)can compete with the demands these users will have for full time real Broadband links, especially in major metro markets (vs rural areas). The Mesh and Cell networks will more then likely compliment each ove rthe long hall via convergence (FMC).

Someone that is not influenced by advertising on their blog sites needs to do a serious review of the technical reasons these Mesh networks are struggling and or failing to deliver. The rest is Politics and misrepresentaiton of these systems design capabilities.

Jacomo
Posted by jacomo (115 comments )
Reply Link Flag
What is Missing
This is a well written analysis of the Metro Area Wireless Mesh Markets.
Here are few additional points to keep in mind:
1. These networks were oversold by the first-to- market providers and vendors, in that they are primarily designed for Outdoor Portable and select Mobile coverage. In short they caved to the Social/Digital Devide requirements and the politicians need to provide everyone coverage and were disapointed when indoor coverage was weak and or more expensive.
2. Without the City as Anchor and a large commercial subscriber base these 1st Generation networks are and will continue to fail.
3. The Muni and some of their Consultants focused to much on the provider and not enough on the equipment these entities selected (deployed 1 & 2 Radio Mesh nodes)and that is hurting their business case now and will continue to as the demands on these networks increase. Just wait until users demand the P2P, Video and Music Sharing, commercial VPN services-these all need symmetrical services (solid return path) while in portable/mobile mode. MultiPlayer gaming will also have a major impact on overall performance.

4. If Earthlink does not change its approach in hardware selection and deployment, its focus on only the major cities will kill their business case instead of helping it. For 2 reasons:
a. Backhaul between nodes is critical to the long term survival of these Mesh Networks-big demand for bandwidth and high latency, on many of these 1 & 2 Radio nodes, will bring these networks to their kness and require major on going upgrades/expansion of these Networks. These systems need very robust backhaul pipes and need multiple radios assigned to this function if they are to survive, meet the big demands and be profitable.
b. As these poorly designed Mesh network continue to suffer the commercial markets will shun their use and look more to the emergence of the new WiMAX networks (both Fixed and Mobile)for their Portable/Mobile and PTMP Fixed services.
I am not convinced the new 3G Cell carriers Narrowband (Max 1Mbps)can compete with the demands these users will have for full time real Broadband links, especially in major metro markets (vs rural areas). The Mesh and Cell networks will more then likely compliment each ove rthe long hall via convergence (FMC).

Someone that is not influenced by advertising on their blog sites needs to do a serious review of the technical reasons these Mesh networks are struggling and or failing to deliver. The rest is Politics and misrepresentaiton of these systems design capabilities.

Jacomo
Posted by jacomo (115 comments )
Reply Link Flag
shute
Who's spelling checker liked "shute" in the quote from Craig Settles? Is that a word coined from "shoot" and "chute?"
Posted by c|net Reader (856 comments )
Reply Link Flag
I have Earthlink Wi-Fi, its good and bad points
I recently moved to Philadelphia, and needed an ISP. While in the process of getting ready to call Verizon or Comcast for DSL/Cable, I noticed my laptop receiving a 4 bar signal for "FeatherbyEarthlink". I connected to it and it redirected any website to its pages seeing if you want a 1 hour, 1 day, or 3 day "pass" at relatively high prices. Because I needed to use the net, I got a 3 day pass and received a user name & password and it worked well. I started investigating the site to see about monthly plans, and all I could find was something that said it was $44.95, at which point I might as well get cable. I decided to call Earthlink, and when they told me $21.95/month for unlimited service, I signed up. After using the service for a couple of weeks now, I'll list the pros and cons:

Pros:
- Much cheaper than Cable or DSL at $21.95, and doesn't require having to deal with phone or cable companies at all, which is a blessing. I use my cell phone for all calls, and pull HDTV off the air with an antenna, so it is a large money saver.
- It's very fast, maybe I'm lucky and live really close to an antenna, but inside an apartment I receive 4 bars, and downloads average from 150-250k/sec which is on par with DSL. Multiplayer games (world of warcraft, xbox live) have worked well.

Cons:
- It requires you to re-login at the website after inactivity or a computer reboot.
- I am somewhat concerned about security, with having to log in to a webpage before I can use the rest of the internet, are they tracking my internet usage? Is it possible for some one else connected to the network to somehow eavesdrop? They want you to use their connection client, which takes over Windows wireless networking and didn't seem to work to well.
- Their websites specifically say the service is for use on only one computer. I have gotten around this by setting up Internet Connection Sharing on my laptop when it is in the docking station, this works well and I have 3 computers and an xbox 360 all on it at the same time. They should definitely provide a way to connect it to normal routers, because many people have multiple computers and if it can only be used on one laptop without high technical knowledge, it is never going to be able to compete with cable or DSL.
- One day last week, the service was down for an entire day, calls to Earthlinks tech support said it was an "outage" and that it could be out all day, which it was. Trying to get a credit was too painful to bear, as I kept getting transferred to Earthlinks dial-up department which had no clue what I was talking about.
- They seem to hide the fact that you can get it for a cheap monthly rate, doesn't seem to make much sense.

Hopefully this provides people with some first hand information about the subject.

Louis
Posted by louisb6 (1 comment )
Reply Link Flag
 

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot

Discussions

Shared

RSS Feeds

Add headlines from CNET News to your homepage or feedreader.