Springfield, Mich. Wi-Fi Underway Despite Failures in Other Cities

Published October 10, 2008

Springfield, Michigan has started a municipal wi-fi operation only months after several other initiatives in different parts of the country have stalled or failed completely.

Advanced Computing Devices, a Lansing-based independent telephone and Internet service provider, is installing the network and providing the service. Its initial funding comes through a $750,000 grant from the Michigan Economic Development Corp.

Battle Creek Unlimited, an economic development group, brought the project to Springfield after Battle Creek, Michigan failed to qualify for the grant.

Some parts of Springfield went live with the service early in August, with other neighborhoods expected to follow within the next few weeks. Residents will pay $10 to $49 a month for access after a couple of free months while the network is being completed. Some users may need to buy repeaters in order to access the signal indoors.

Success Called Unlikely

“The upside is that there is no immediate taxpayer risk,” said Steve Titch, a telecom policy analyst for the Reason Foundation in Los Angeles. “The question is what happens when the money runs out.”

Municipal wi-fi systems tend to be expensive, and the expected benefits are questionable at best, Titch said. “Whether [municipal wi-fi] creates economic development at all is a matter of great debate. There’s not that much documented benefit,” he said.

Numerous Failures

The financial troubles of municipal wi-fi projects are well documented. In late 2007, Internet provider EarthLink announced it would no longer make significant further investments in its wi-fi division, laid off 900 employees, and sought to sell the operation.

Also last year, the city of Chicago announced it was scrapping plans for citywide wi-fi. The major obstacle, according to published reports, was the city’s refusal to sign on as an “anchor tenant” providing base revenue and ongoing funding for the venture, which city officials had expected Earthlink and AT&T to bid on. Anchor tenant requirements have killed other municipal wi-fi projects as well.

Municipal wi-fi “tends to benefit travelers much more than the people who tend to pay for it,” Tich said, referring to the local taxpayers, whose taxes typically finance such systems.

Small Scale Might Work

Titch says the costs of such systems go up rapidly with increases in the number of people they’re intended to serve. In a small town such as Springfield (population 5,000), municipal wi-fi might succeed while it has failed in larger cities such as Chicago and Aurora, Illinois and Corpus Christi, Texas.

Wi-fi antennas don’t cover a very wide area, Titch notes, so the larger the community, the greater the capital cost. For example, each antenna for the Springfield project is expected to cover only about two square city blocks. Springfield covers approximately 3.81 square miles.

The larger cities whose systems failed couldn’t get anyone to pay the initial underlying cost of developing the system, and the ongoing costs would have been so high the commercial wired and wireless broadband providers would offer consumers a better deal than the ongoing cost of municipal wi-fi, Titch explained.

“The economics are not viable. That’s what’s keeping most cities and towns away from it. It’s great for travelers, but they’re not usually the people who are paying for it,” Titch said.

Taxpayers on Hook

“A lot of these municipal wi-fi ventures start to sound like the same story over and over again,” said Daniel Ballon, a technology policy fellow at the San Francisco-based Pacific Research Institute.

“Typically, it’s a monopoly agreement,” Ballon said, “and they [wi-fi providers] find technology is inadequate and underestimate the cost of the project. If they pull out, the city is on the hook to take [the equipment] down. The city usually is on the hook if the project fails.”

“These projects promise there’s going to be ubiquity, lower prices, and better quality of service,” Titch said. “But I know of no project that has achieved all three. Sometimes they become operational, but something else gives. These projects ultimately are just not viable.”

Projects have failed in other areas because there was only limited accessibility without repeaters to bring signals indoors, Ballon noted, pointing to the recent failure of a municipal wi-fi project in Rio Rancho, New Mexico.

“They miscalculated,” Ballon said of the Rio Rancho project. “The signal couldn’t get through the stucco walls of the homes. So most of the access was outside. But some cafés already had free wi-fi.” That meant the addition of another wi-fi signal brought only marginal benefits.

Becoming Obsolete

Another problem with granting a franchise to a wi-fi provider, Ballon noted, is that the firm that gets municipal approval has an edge over competitors that might come to the market later—and hence consumers don’t get the benefits of competition.

Even with the advantage of municipal approval, these municipal wi-fi ventures may be only short-lived at best, Ballon cautions. “The next generation of wireless is being developed. It would supplant [current muni wi-fi technology] with an IP-based service.”

Ballon points to Sprint Nextel’s venture with Clearwire, which involved the merger of Sprint’s WiMax business unit with Clearwire to build a nationwide 4G network. Cable companies Comcast, Time Warner, and Bright House Networks, along with Intel and Google, are contributing a combined $3.2 billion to the $14.5 billion venture that plans to roll out a nationwide WiMAX network.

Similar partnerships and WiMAX projects could become commonplace in the next five to 10 years, Ballon said—without government mandates or subsidies.

Phil Britt ([email protected]) writes from South Holland, Illinois.