The market routes around municipal wi-fi

Municipal Wi-fi projects are getting scaled back further as cities and companies begin to realize that no one is actually demanding them:

[...] 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 and demanding more assurances from cities that they can get enough subscribers to make building the network worthwhile.

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.

I am glad that the market is bringing some rationality to the situation. I've pointed out in the past that these sort of government initiatives have very few of the disciplines of a free market. Which is to say, money is spent independent of any verifiable demand.

Municipal wi-fi has been a consistent money-loser [pdf] because the market simply won't support it. Why? Think of it this way...

There are two places we use the Internet. Indoors, most people have a fast, reliable connection that is anywhere from 5 to 20 times faster than the wi-fi that SF is promising.

Outside of the house, a wireless service has many attractions. But why would anyone pay for a service that only works within the city limits? Sprint, Verizon and AT&T offer wireless Internet throughout the country, and WiMax is developing apace. The advent of the iPhone will goose this demand further.

So really, the niche for city-wide wi-fi is quite small. It's good for those people who want a mobile Internet, yet rarely leave the city. Funny demographic, no?

The good news is, the market is routing around our slow-moving, wasteful municipalities. Ubiquitous wireless Internet is happening, and (god willing) government will have little to do with it.

-----

Sadly, cities and their anointed vendors are sticking taxpayers with the bill for these unwanted toys (from link at top):

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.

The economic term for this is "circle jerk". It goes like this:

1. City leaders want a wi-fi network.
2. City leaders want to avoid appearance of spending taxpayer money.
3. Announce "public-private" partnership.
4. Create commission to choose which private companies are allowed to do business.
5. Create elaborate requirements for these partners (price restrictions, "red-lining" rules, freebies, etc).
6. Providers realize that the public not actually demanding a wi-fi network. Above requirements make profitability a longshot.
7. Providers demand city guarantees of financial success.
8. City becomes primary customer of wi-fi network.
9. Taxpayers pay anyway (see #2 above).

This is the model that gave us our current public utility system, by the way.

My prediction: municipal networks, even the successful ones, will be largely ignored by the public, even if they continue to make news. We'll keep paying for them, though.