California City Will Take Over Abandoned Muni Wi-Fi System

Published July 1, 2008

The city council of Milpitas, California has unanimously approved a city takeover of the municipal wi-fi system installed a year ago by Earthlink. The company is abandoning the Milpitas infrastructure as it exits the muni wi-fi sector nationwide.

Milpitas plans to maintain and operate the wi-fi system purely for city functions–including fire and police communications and city business operations such as billing, permitting, and internal communications. That’s a big departure from the system’s original purpose, provision of free wi-fi to all Milpitas residents.

Earthlink says it spent $1.8 million to install the 311 nodes that make up the Milpitas system. It estimated the system’s current, installed value at $800,000.

‘Extremely Disappointed’

Milpitas Vice-Mayor Bob Livengood said the city never intended to get into the wi-fi business. He doesn’t think it’s likely it will continue to operate the system in the long run.

But when Earthlink walked away, Livengood said, “We were faced with the choice of letting this equipment rot on the poles or seeing if we could do something to make it work for us. If I knew Earthlink was going to walk away from its franchise agreement after 12 months, I certainly would have looked at this thing a whole lot differently.”

Milpitas already had a municipal wi-fi system of its own in place for four years before granting Earthlink the right to install a much larger system. The previous system used about 60 nodes. With the addition of the Earthlink infrastructure and other improvements, Milpitas’s municipal wi-fi system now involves more than 370 nodes.

More Costly

Bill Marion, the city’s director of information services, said operating and maintaining the larger, more complex system will cost Milpitas an additional $12,000 to $15,000 a year in electricity and personnel. That estimate does not include upgrade or replacement costs as system components fail.

However, Marion believes the city can avoid replacement costs “for the foreseeable future” because the current system is far more robust than the city currently requires.

Livengood is skeptical that Milpitas will be able to recoup those additional costs through licensing of the wi-fi system. “If a commercial enterprise like Earthlink couldn’t make it financially viable, I don’t see how we’re going to.”

Failed Strategy

Earthlink was one among many companies that saw public-private partnerships with municipalities as a way to offer municipal wireless service at a competitive advantage over other providers. The model involved private investment in the infrastructure, and free use of the system for city operations, in exchange for exclusive access to city utility poles and other structures.

Earthlink offered its service to residential customers for $19.95 a month. When that price failed to attract the expected market share, the company offered incentives such as a $4.95 per month reduced initial rate. Even that steep discount failed to attract the customers Earthlink needed to make its model work.

The model was doomed from the start, says Daniel Ballon, Ph.D., of the San Francisco-based Pacific Research Institute.

“Any time a public entity offers private business what is, essentially, a hand-out, most private companies are going to take it and try to make money,” Ballon said. “The problem is, they vastly underestimate the cost of installing and maintaining the infrastructure, and they also underestimate the kind of interference and regulations cities tend to require that get in the way of the business model.”

In the meantime, Ballon said, other private-sector options arise that are less costly, easier to operate, and more reliable, drawing away subscribers the company hoped to recruit.

Changing Model

Marion points out many residential customers in Milpitas did not understand the technical requirements of linking to the Earthlink system. Customers often needed to install repeaters to reach the antennas placed outside their homes, and Marion says Earthlink did not do a good job of helping residential customers understand how to link into the system.

Still, Marion sees a future commercial market for municipal wi-fi, though he believes a more successful model will target “mobile workers who don’t really have another alternative. Realtors, property appraisers, and delivery companies who need access to just-in-time information could provide a better market than residential customers.”

Doug Weihnacht ([email protected]) writes from San Francisco, California.