Muni Wifi Flop a Bad Omen for Fcc’s Free Wireless Plan

Published December 22, 2008

Philadelphia Freedom

Philadelphia shook loose of its rust-belt image to make 2004 headlines for its visionary wireless broadband network. “Municipal WiFi”-using free, unlicensed airwaves and cheap, off-the-shelf radios-would cost taxpayers nothing. Private companies, given exclusive rights and specific social obligations, would hang those radios from street lights, linking local citizens to the Internet via high-speed connections. Presto! Government solves the digital divide.
The broadband duopoly-cable modems vs. telcos’ DSL-had met its match. Mayor John Street triumphantly announced that “the initiative will turn Philadelphia into the nation’s largest WiFi hotspot and help improve education, bridge the digital divide, enhance neighborhood development, and reduce the costs of government.”

The innovation was hailed as “world changing” by public interest advocates who trumpeted “WiFi for the people.” Venture capitalists dusted off their PowerPoint slides, showing the enormous opportunity. “Ultimately, it all boils down to disruptive economics,” touted (PDF) one VC at a 2005 trade show. “The history of technology shows that Cheap and Good Enough always wins over expensive and purpose-built.”

And so city fathers everywhere said, as a fawning Washington Monthly article was titled, “let there be WiFi.” San Francisco Mayor Gavin Newsom, proclaiming broadband access “a fundamental right,” majestically decreed, “We will not stop until every San Franciscan has access to free wireless Internet service.” Los Angeles Mayor Anthony Villaraigosa boasted that LA’s sprawl would be blanketed: “we are dedicating ourselves to the idea that universal access to technology makes our entire economy stronger.”

New York City, New Orleans, Portland, Chicago, Houston, Atlanta, Miami, Washington D.C., Boston all moved to seed wireless clouds. Earthlink, Google, Microsoft, Intel, Earthlink and a gaggle of corporate boosters joined the crusade. By Summer 2006, a law review article pronounced the issue decided: “Citywide WiFi as a public service is no longer a bureaucratic pipe dream, but has the backing of America’s technological titans.”

Today the muni WiFi experiment is a shambles. The Philadelphia system was abandoned by Earthlink in June, and sold for scrap. It never performed as promised, and served fewer than 6,000 subscribers out of a population of 1.6 million. It had promised to serve tens of thousands of low-income households; the final tally of such users: 902. Those who did sign-up for $6.95 per month found slow speeds and spotty coverage. Alas, even tech-savvy early adopters eager to sip lattés while browsing via broadband were disappointed. On some occasion, it is possible that a connection strong enough to Google search results for “digital divide” was maintained, but that was likely as close as Philadelphia’s vaunted network got to impacting it.

Boston, Houston, Los Angeles, Atlanta, Chicago-all have gone bust. New York City, early on the bandwagon, got bogged down in politics, and now has simply given up. “We don’t think municipal WiFi will succeed,” offers a city official.

Fueled by the double helix of technological bravado and political hype, the war cry for muni WiFi was “market failure.” The for-profit sector had overlooked a great opportunity to create a new broadband platform. Literally thousands of wireless Internet Service Providers exist, but evidenced scarcely a “wISP” of interest—absent a special deal with City Hall—in city-wide deployments. That might have been a clue. Markets had figured out that what links your desktop in the den to your notebook down the hall may not scale. Particularly in unlicensed frequencies, where government-set power limits are tight, and competing users impinge.

Problems engulfed deployments. Portland, Oregon residents were stunned when the ballyhooed network powered up, offering wireless Internet links only in select areas—outdoors. Citizens were offered $170 radios to boost reception inside, but not only did performance remain spotty, the price tag obliterated the “free broadband” promise. The network attracted little use, and has been abandoned by the contractor, which stuck Portland taxpayers with a $60,000 wireless node removal bill.

Tech-centric San Francisco eagerly plunged into muni WiFi. Google and its ISP partner, Earthlink, offered to develop and operate the network, promising free access. For higher speeds it would charge customers, and it would generate income from ads. San Francisco was willing to grant the firms exclusive use of city facilities. But then a “tide of requests” rolled in, according to Google, exactions demanded by the City. These included a cut of revenues and free computers for the needy. Google and Earthlink walked.

An Evolution Lesson

Given the frenetic muni WiFi buzz, it is curious that so little has been made of broadband’s marketplace evolution. About the only buzz there concerns cries of anguish from regulatory advocates who condemn the relaxation of broadband network sharing mandates at the hands of the FCC and the Supreme Court in 2003 and 2005 rulings.

Yet, DSL and cable modem subscriber growth spurted post-regulation. In the four years, 2004 through 2007, the number of residential broadband subscribers increased from 25 million to 62 million households, while access speeds substantially increased.

Even more remarkable is the explosive productivity in exclusively-controlled wireless bandwidth. With virtually no policy push beyond the liberal licenses crafted in the 1980s and 90s, US wireless carriers have adopted 3G technologies for high-speed mobile access, and Americans are gobbling up the service. From June 2004 to June 2007, FCC data show the number of subscribers rising from zero to over 35 million. Four carriers, counting the new network being built by T-Mobile (via bandwidth auctioned in 2006) now offer rival services that span the nation.

Not that more competition, or the release of additional bandwidth, wouldn’t help. But City Hall remains more an obstacle than an opportunity. Notably, Philadelphia embraced the cause of municipal broadband rivalry fresh after blocking a request, pursued by wireline broadband provider RCN from 1998 until 2001, for a municipal franchise. The proposed $220 million state-of-the-art network would have competed head-to-head with Comcast and Verizon for voice, video, and high-speed Internet access. Across the country, San Francisco officials actually boast about using local regulatory authority to deny even a single new cellular base station over the past several years. Naturally, this policy limits coverage and stifles new entrants, exposing the City’s true level of dedication to promoting economic development, protecting consumers, and closing the digital divide.

It is instructive to see where the “technological titans,” now fleeing muni systems, are flocking to. Apple, whose mega-valuation is engorged with the profit potential of the iPhone, has become a global wireless behemoth by contracting for spectrum access with carriers like AT&T. New Clearwire, a firm with billions of dollars in investments from Intel, Google, Sprint, Motorola and Bell Canada, is constructing a nationwide WiMax network using licensed bands that they effectively own.

Whether they score or bust, this is exactly how we should be playing: firms with skin in the game competing. Duh, you say? Consider this. The FCC, seemingly impressed with the near-infinite hype-to-payoff ratio of muni wi-fail, is launching a federal version. In a policy gimmick endorsed by Chairman Kevin Martin, the Commission seeks to drop a chunk of frequencies to a “bidder” (wired for M2Z, a start-up pasted together by former FCC officials) that commits to providing “free broadband” with 25 percent of its bandwidth—connections filtered, by the provider, to screen out material deemed harmful to children. Folks may have learned something about the cost of using “free” spectrum, so now the central planners are investing billions in valuable, exclusive frequency rights on this gambit. We’ve seen this movie, too.

In 2005, Philadelphia’s Chief Information Technology Officer, Dianah Neff, lectured: “Just as with the roads of old, if broadband bypasses you, you become a ghost town.” The Philly CITO surely did not know that, by 2008, well over 100 million U.S. subscribers would be linked to the Internet via advanced data networks, wired and wireless, virtually every one of them supplied by unregulated private competitors, none via municipal wireless. So, yeah, Philadelphia. We get it.

Hazlett is professor of law and economics at George Mason University and Director of the Information Economy Project. He formerly served as Chief Economist of the Federal Communications Commission.