Why Municipal Wi-Fi May Be a Bad Investment for Cities

Why Municipal Wi-Fi May Be a Bad Investment for Cities
April 1, 2006 By News Staff

This is a response by Walter White, vice president state and local government, for Verizon Communications, to a March 18 Viewpoint by John Eger titled: "Freeing Cities from Cable and Telco Monopolies."

Firstly, let me say we have a common bond in our passion for broadband. I have opportunities to speak to state and local officials all across the country, and I often remark to the fact broadband has quickly become a "critical infrastructure in the 21st Century."

Now, if I read your article correctly, I get the unmistakable impression you believe the telecom industry is dead set against municipal networks.

I'd like to take this opportunity to attempt to ratchet down the intensity of the debate a bit, perhaps to a more sober and practical discussion about whether having municipalities offer Wi-Fi makes sense.

First let me briefly state Verizon's policy position on muni Wi-Fi, since I don't believe it has been accurately reflected either in the press or the blogosphere.

• Verizon is not against muni Wi-Fi.
• e were not the ones who inserted the muni Wi-Fi provision in the 30-page Pennsylvania legislation that set the rules for all of telecom.
• We were not the ones who inserted the muni Wi-Fi provision in the 30-page Pennsylvania legislation that set the rules for all of telecom.
• We will work with cities to offer broadband where it makes sense. In fact, we're working with a few municipalities today in a public-private partnership to aid them in offering local broadband services.

With all of that said however, let me also be clear -- we are highly skeptical about whether muni Wi-Fi is a good idea. From our perspective, taxpayers should ask hard questions about whether pouring money into muni Wi-Fi is a good use of scarce resources. There are several reasons it almost certainly is not.

First, this isn't Field of Dreams -- even if you build it, often they don't come. The city of Orlando shut down its system, having logged an average 27 visitors a day. Other muni Wi-Fi systems are also struggling. While some may succeed, the many that ultimately fail will leave the taxpayers holding the bill. If a private company risks capital, private investors foot the bill, not taxpayers. From our vantage point, that's a better way to go -- let the private sector take the risk.

Moreover, even if cities could attract users, there still may be better uses of taxpayer money than muni Wi-Fi. Economists call this the opportunity cost. Cities around the country are making very difficult choices about what to fund and what not to fund. Very basic city services are being cut back. Is Muni Wi-Fi on a par with aid to the homeless, drug rehab, and fixing potholes on the street? That's not for me to answer for you, but it's a question that begs an answer.

I will suggest my own answer. Muni Wi-Fi is at best a "nice-to-have," not a "must-have."

Web access is widely available to all -- the headline in the New York Times June 23, 2005 said it all -- "almost all libraries offer free Web access." What's more, 18 percent of libraries already offer free wireless access and 21 percent plan to offer it within the next year. That's in addition to the almost ubiquitous commercial broadband availability in cities like Philadelphia as well as the ubiquitous availability of dial-up for e-mail and Web access.

The benefits of muni Wi-Fi above and beyond what's already in place simply don't live up to the enormous hype. Faster wireless connectivity is certainly good, but it's already available today from Verizon Wireless and other competitors.

Technology Challenges
But there's more -- from our perspective, muni Wi-Fi has several technical challenges as well:

• Wi-Fi is a short range technology. It operates in unlicensed bands. It's prone to interference. It's not suitable for mission-critical public safety applications. That's unlike commercial wireless service, or landline service, that operates well.
• Wi-Fi generations change rapidly. Sometime soon, the city will have to upgrade technology at some expense, and users who have Wi-Fi modems may have to buy new ones as well to take advantage of that upgrade.
• There's no proven demand for Wi-Fi beyond wireless enablement of households and corporate campuses. There isn't a large market of people so far who've been willing to pay for Wi-Fi. Cometa went bust after a big splash and hundreds of millions in venture funding. Willingness to pay is a measure of value. That may change as wireless carriers move their marketing and technical prowess into hybrid technology -- but that's going to be driven by the private market.

Now let me briefly address the rationales given for muni Wi-Fi. Key rationales are affordability; economic development; lack of competitive alternatives. Let me address these in turn. First, there are plenty of alternative suppliers -- there's certainly no monopoly issue. In Philadelphia, Verizon covers 96 percent of the city with DSL, and Verizon wireless the entire city with its high-speed wireless service. Comcast offers broadband. Many of the customers who subscribe to broadband have their own Wi-Fi, and it is possible, as many have found, to find open hotspots. T-Mobile, Starbucks and others offer hotspots in selected areas, and almost all hotels at this point offer some kind of broadband service.

Nationwide, broadband is booming. The Internet boomed without the government constructing local or national networks -- and continues to do so. Why is Wi-Fi -- which just makes that Internet connectivity wireless -- any different?

Second, affordability may be a broadband issue for some, but is muni Wi-Fi the right prescription? If the concern is affordability, having the government enter the business of paying for companies to build and maintain networks is not the right way to go.

There are many people without the money to buy enough food, but the government typically doesn't build or run supermarkets that have free or heavily discounted food. It gives food stamps or gives money to private organizations that distribute food. If the concern is government enabling affordability, then broadband stamps would seem a better way to empower people to buy the service they need and create the demand that will stimulate the supply. I'm not advocating them on behalf of Verizon. My point is only that there are better ways to go about addressing an affordability concern than getting governments into the telecom business.

Third, given all the issues discussed above with muni Wi-Fi -- its lack of widespread use, the availability of alternatives, technical issues -- it's hard to see how muni Wi-Fi would be a spur to economic development. Orlando didn't find it so.

That's the list of practical issues with muni Wi-Fi. Municipalities have to go into this with their eyes wide open. And although we may not always be happy if they do, Verizon will not oppose them if they choose to deploy Wi-Fi in a way that doesn't interfere with commercial services. Instead, Verizon will compete with them by offering what we think would be better service and superior functionality.

Two Issues
I'd like to end by discussing two issues that are important. First, who will guard the guardians?

• Municipalities tax wireless and wireline services heavily. There was an article recently about how cities were worried VoIP would take away city tax revenues. This raises two issues: why would the city try to put a system out there that would decrease its own tax revenues at a time when cities worry about this? And isn't there something not quite right about a municipality taxing competing services heavily and also complaining that those services are too expensive, thus justifying large muni investments
  Governments have the power to determine the terms and conditions of entry. They control permits, rights of way, access to government buildings.
  
• Governments control the ability of competing providers to enter the broadband market. Governments often have a lower cost of capital than private companies.
  Second point -- Verizon does prefer private markets to government investment.

Markets are better than governments in allocating capital and figuring out the most efficient ways to deploy networks and offer customer service. Indeed, that's what has happened. We've already deployed DSL across most of our footprint, Verizon Wireless has covered most major U.S. cities with fast wireless broadband, and we're now deploying fiber to the home in large parts of the areas where we provide service. Other companies are pursuing similar strategies.

As a result, it seems a particularly unwise time for muni Wi-Fi. Competition in broadband is intense and prices are dropping. Wireless carriers are rolling out hybrid Wi-Fi and cellular deployments which will spur private investment. So again, Verizon doesn't think all muni Wi-Fi should be illegal. But we do think it unwise.

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While the arguments in the article may be true, it certainly would not be the case in South Africa. With the high cost of ADSL and other wireless services, competition in the access market is much needed.

Some points are valid, but there is the question of telco's wanting money (or more money) for services the public could provide themselves for free or at a lower price than telco's would want to. I am not refering to technically difficult telecommunication services like high speed fixed line services or overseas connectivity, but services like Wi-Fi where the equipment is so advanced these days that a network can for all practical purposes run itself without much input from anybody but the users themselves. Telcos are important, but not as important as they want to make themselves. Remember that the public includes government and where government can it should allow the public to self provide. They should do this even if it is through tax breaks for self provisioning.

I still don't understand why Verizon is so upset? Reading this text it seams like they think they are doing the noble thing by pointing out the pitfalls of muni wireless. What difference does it make to them? If they want people to use their network, do a better job than the municipalities. Simple. If the municipalities keep them from doing so, that would be a problem, but if it is a free market, surely telco's can just go about doing their business. I suspect they see a cut in their profits.

Telcos need to understand that they don't have a right to make profit. They must earn it through services the public wants them to provide, not the services they (the telcos) want to force us to let them provide.

Look at the South African situation for this kind of evil in action. Telkom is overcharging for everything through a clever but extremely cruel practice.

Telkom cripples new cheaper alternatives to old/classic telephony by charging rates that prevent the cost benefit from reaching the man on the street. ADSL isn't so expensive because it costs Telkom so much to provide the service. It costs so much because the services that could possible run ontop of ADSL would rip a hole into Telkom's analogue voice (per second billing) business and its other (also outdated) data services.

If Telkom want's to prove me wrong they are going to have to disclose figures they have been keeping restricted and secret to a degree that surpasses the legend of the Holy Grail...

Well one thing is for certain. Verizon and the other fixed telco's are starting to see the threat that a wifi net ala googlenet would be to them.

Think a few hundred years ago. If you wanted water in your house you had to be quite rich to afford the luxury. The normal consumer of water had to make do with a communal well/river. Nowadays having fresh clean water available to you where ever you go is thought of as a basic human right.

FutureShift. Having a always on always available mobile enabled internet connection is going to become the defacto standard of living.
The way imho i see the world moving is that a typical user would always have a connection to the net where ever he is albeit a bit slower/more latent.
At home a user would have a more stable and stronger broadband connection providing him with more capabilities to enable the person.


Statements like this from verizon is a scare tactic designed to make the uninformed public or even gub'ment think that the almost humanitarian goals of muni wifi's is a waste of tax payers money and so call into question the provision of said technology.
Basically their saying "Stay the hell away from our pie. We already cut the pie and we don't want to share it with anyone else."

Some points might be valid in the states but they hold no water here in SA. These muni wifi networks are going to kill telkom once their stranglehold on the sat3 cable is broken.

iBurst and Sentech have also demonstrated a lack of foresight by not deploying outside of the big 3 (Cpt/Dbn/Jnb) - these potential markets will be lost once if wifi is rolled out.