A Bumpy Road for Muni Wi-Fi

Mesh service uptake slower than expected

A high-profile battle in San Francisco over municipal mesh plans, EarthLink Inc.’s dismal report on its muni Wi-Fi business and a Forrester Research report characterizing the market as “a bumpy, unpaved road with low consumer demand” have cast a pall over citywide Wi-Fi. Now, service providers are shifting their business models to compensate.

Forrester reports that many of those involved in rolling out Wi-Fi for cities and towns are struggling to realize a financial ROI on their wireless networking projects. That’s because consumer adoption of Wi-Fi is still a homebound phenomenon: Today, 76 percent of Wi-Fi users say that they’ve used wireless Internet at home via a router that extends a DSL or cable line, and 26 percent have used it at work, yet only 5 percent have logged on to city Wi-Fi at a park or other outdoor space.

Perhaps because of this low take-rate, during EarthLink’s second-quarter earnings call in late July, President and CEO Rolla Huff said the company’s approach to muni wireless was flawed, although it’s a business that has “inherent goodness” that “we should be interested in if, and that’s if, we know how to scale it in a way that provides a return to our shareholders for the money invested.” He said EarthLink, which posted a $16.3 million loss in the quarter, a turnaround from the $16.6 million profit it posted in the same quarter a year ago, recognizes that “the Wi-Fi business as currently constituted will not provide an acceptable return. As we recognize that our growth platforms are not performing as expected, we need to be prepared to change the underlying business models and cost structures. And we’re prepared to do that.”

A mesh access point from BelAir Networks

This has led to EarthLink asking the San Francisco board of supervisors to push back its highly anticipated next round of votes on the city’s municipal Wi-Fi plans (provided by EarthLink and Google Inc.) until the middle of September. The proposal — in the works since 2004 — has been contested hotly by members of the board, grassroots groups, consumer advocacy folks and others who have concerns over everything from privacy and QoS to digital divide provisions and the city’s role in the partnership. As it stands, the offering will include a paid service for home and business users provided by EarthLink, and a slower, free service from Google that’s aimed at bridging the digital divide and for “Sunday-in-the-park” access.

“These guys know that Wi-Fi is an outdoor technology that can’t possibly provide reliable service to hundreds of thousands of current Internet users and would-be nonusers in large office and apartment buildings all over the city,” says Bruce Wolfe of the San Francisco People’s Organization, a grassroots organization. “And [do they] seriously want us to believe that tens of thousands of people are going to suddenly cancel their high-speed wired DSL and cable connection to switch to inferior, spotty, Wi-Fi connections at speeds that aren’t even fast enough for smooth video and phone calls, just to save 10 or 20 bucks a month on their Internet bill? That’s ridiculous.”

EarthLink, perhaps harboring similar thoughts, now wants to require its city partners to shoulder some of the cost — and the risk — by becoming anchor tenants. The term means that the city would become the first — and likely biggest — customer for the network, ensuring the service provider some rate of return. The municipality would use the network for public safety applications, video surveillance, meter reading and the like, achieving an ROI through opex reduction and productivity enhancement.

But San Francisco isn’t ready to become such a tenant, which may put the brakes on the whole project. “Until we’re confident that we can build new networks and get an acceptable return, we will delay any further new buildouts,” Huff said.

EarthLink isn’t the only one asking for this. MetroFi Inc. also shifted to an anchor-tenant model earlier in the year, derailing deals with smaller cities like Anchorage, Alaska, over the requirement. The Wireless Philadelphia project and other proposals also are experiencing delays, making for a stalled market.

And yet, despite the shadow over the industry, hope remains. EarthLink, for its part, is doing what it can to make existing deployments viable. The company is focusing on improving consumer adoption in the cities where networks are already in place by allowing retailers to qualify, credit check and create Earth- Link Muni Wi-Fi activations at the point of sale, making it as easy as possible to subscribe to Wi-Fi services.

AT&T Inc. has partnered successfully with Riverside, Calif., in an anchor-tenant arrangement. The city pays for municipal services like traffic monitoring and in-car voice and video, and provides access to the mounting assets, while a free offering has been rolled out for residents. “Citywide Wi-Fi is a nice extension of our DSL,” says Ebrahim Keshavarz, vice president of business development for AT&T. “It adds a nice level of portability. But everyone needs to understand technical reality — there are certain physics you can’t overcome, and Wi-Fi, because of the frequency, can’t penetrate walls. So it’s good for its speed and ubiquity and applies to visitors, public safety and public service, and will really take off as more and more Gameboys, cameras and devices like the iPhone need high-speed on the go.”

“It’s way too early to say that any muni deployment or muni provider has failed,” says David Blumenfeld, vice president of marketing at JiWire Inc., a muni Wi-Fi ad platform provider. “Those of us in this industry may feel like this market has matured, but it’s really just beginning. The reason more big service providers are getting involved is because they realize that this is a new form of broadband that is here to stay and market share will be taken by other competitors if they’re not in the space.”

To find out more about city government applications for municipal wireless, read City Services for Muni Mesh.

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