New Yorkers who since 2004 have accessed the Internet for free in parks across the city can no longer do so in Central Park as Wi-Fi Salon, a private corporation that offered free wi-fi in the city’s most famous open space, has shut down due to a lack of funds.
Unable to generate ad revenue to support its business plan, the company last October began to remove the technology across Central Park that allows New Yorkers to log on to the Internet for free.
Wi-Fi Salon’s collapse comes as no surprise to Robert Crandall, an expert in telecommunications regulatory policy at the Brookings Institution in Washington, DC.
“I am not surprised that ‘free’ wi-fi is failing,” Crandall said. “Internet service providers apparently cannot support the service from advertising or other revenues.”
No Government Bailout
Crandall says he’s not convinced the government should provide Internet access for free, either.
“Why should such a service be provided by government at a zero price?” Crandall asked. “I doubt that many taxpayers will be willing to fund such a service from taxes that they pay. Surely, given the widespread availability of DSL, cable modem services, 3G wireless, and commercial wi-fi, most consumers need not fear that they lack connections to the Internet, but obviously they must pay for such connectivity—much as they pay for water, electricity, and transportation.
“Even ‘free’ [TV and radio] broadcasting services are in decline as advertising revenues and entertainment services shift to the Internet,” Crandall added. “Apparently, consumers are finding that these ‘free’ broadcasting services are less and less valuable relative to those obtained elsewhere.”
George Ou, an expert on Internet policy at the Washington, DC-based Information Technology and Innovation Foundation, thinks the reasons behind Wi-Fi Salon’s collapse are complex, but he notes, “There has never been a sustainable free network model, and targeted advertising has never been a sufficient subsidy to keep the business model afloat.”
Ou believes the fundamental problem with free Internet network models is that they cost a huge amount of money to maintain.
“The free service craze started with the dotcom boom, where the goal was not to come up with a viable business plan but to create a large user base which would generate a lot of hype that would hopefully either lead to a successful IPO with a massively inflated stock with an infinite price-to-earnings ratio, or hope that a larger company would pay a few billion dollars for the startup,” Ou said, pointing to NetZero as an example.
‘Free’ Internet Fails
NetZero was one of the first companies to initiate free Internet service, and it was wildly popular, but the firm eventually had to end the service.
“NetZero shut down their free dial-up service when the venture capital and stock market dried up, and other companies that, for example, tried to offer free phone calling also ended their free services,” Ou said.
Earthlink likewise tried to offer Internet access for free—including partnering with municipalities kicking in some funds—but lost about $10 million per quarter for six straight quarters operating the system.
Earthlink CEO Rolla Huff said at the time of the company’s pullback from muni wi-fi programs, “It quickly became evident that we would have a really difficult time changing the perception by some of the cities that we owed them a free network rather than the city stepping up to make the business model viable for both them and for our shareholders.”
“Earthlink ended up not being able [even] to give away their network, and they had to spend more money to dismantle the network,” Ou said, noting the municipalities were likewise left with nothing to show for their investments of manpower and public money.
Other Muni Wi-Fi Failures
Philadelphia’s city government tried to begin a publicly funded Internet network in 2007, but that plan also failed. The city sought to charge $22 per month to residents who wanted to access the network, and it discounted the rate to $11 per month for low-income residents.
“[Philadelphia] simply didn’t offer a sufficiently compelling service for the money,” Ou said. “Services were notoriously unreliable and oversubscribed because the node density was simply inadequate. There were still way more dead spots than what consumers are used to with their cell phone service.”
No Sustainable ‘Free’ Models
James Gattuso, an expert in regulatory policy at The Heritage Foundation, does not think there is a sustainable model to support free Internet service.
“The number of sustainable business models that involved giving away your main product for free is surprisingly small,” Gattuso said.
To Ou the problem with free Internet networks boils down to two issues.
“It simply costs too much to operate the service, and cities aren’t willing to pay what they need to pay to keep the service viable,” Ou said. “They unrealistically expect to use the service for free.”
Market Rejects It
The second problem, Ou said, is wi-fi technology is not designed for large-scale use, a theory validated by the complaints of countless New Yorkers who said Wi-Fi Salon’s free Internet service in Central Park was maddeningly slow.
“Wi-fi technology was never designed for this sort of citywide endeavor,” Ou said. “Most of us who have attended conferences know that wi-fi won’t even scale a small building packed with people, much less a city.”
Those New Yorkers lamenting the collapse of free Internet access in Central Park can take comfort that free Internet is still offered in some city parks such as Bryant Park and Jackson Square Park.
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.