Beyond Municipal Wireless
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Beyond Municipal Wireless BY STEVEN TITCH he harsh daylight of fiscal reality has rudely closed that it was considering a bankruptcy filing.This awakened city administrators across the coun- followed the company’s 2007 decision to limit partner- Ttry to the unfeasibility of funding or partnering ships to cities that agreed to purchase a significant level in citywide consumer wireless-broadband services. of wireless services themselves, thus providing the oper- Over the past year, city after city has retreated from ation with immediate cash flow. Azulstar, which had large-scale municipal wireless projects. Most, including won the contract to construct a multicity municipal Houston, Chicago, Los Angeles, and Anchorage,Alaska, wireless system covering much of Silicon Valley, was backed away before committing any forced to exit the deal after failing to substantial funds or city assets. raise the necessary capital. That fol- The final nail in the municipal The case for lowed Rio Rancho, New Mexico’s wireless coffin may have been Earth- municipal wireless decision to pull the plug on an Azul- Link, Inc.’s May 13 announcement that star system there after the company it will be shutting down its system in was founded on the failed to pay $33,000 in electric bills Philadelphia. The City of Brotherly premise that owed to the city. Love was the first major U.S. city to In policy circles municipal wire- wade into the municipal wireless broadband service less, a subset of the larger municipal- waters, announcing its deal with Earth- was equivalent to broadband concept, intensified the Link in 2005. The agreement was debate over what role, if any, local launched with high hopes. Philadel- basic consumer governments should have in the phia’s chief information officer, Diana funding, construction, and ownership Neff, who engineered the deal, was utilities, such as of infrastructure designed to provide named the city’s public official of the electricity, water, retail phone, cable-TV, and high- year. Meanwhile, EarthLink had hoped speed Internet services, often in com- that municipal wireless would be the or sewerage. petition with commercial providers. springboard to rebuild its flagging The case for municipal wireless telecommunications business, which had never recov- was founded on the premise that broadband service was ered from the dot-com bust.Three years and $17 mil- equivalent to basic consumer utilities, such as electric- lion later, EarthLink can’t even give the network away. ity, water, or sewerage. Conventional wisdom consid- The company was set to begin dismantling the network ered broadband, like water and power, a universal need. June 12, after Philadelphia turned down its offer to take San Francisco Mayor Gavin Newsom went so far as to over ownership at no charge. call broadband a human right. Conventional wisdom EarthLink’s competitors fared no better. In late May, MetroFi closed down its remaining municipal systems Steven Titch ([email protected]) is the telecom-policy analyst at the in Portland, Oregon, and Naperville, Illinois, and dis- Reason Foundation. THE FREEMAN: Ideas on Liberty 34 Beyond Municipal Wireless also held that the market was failing to reach lower- Roosevelt, where per capita incomes range from income households because commercial providers $16,950 to $32,532. believed they were unprofitable to serve. To some At the same time, wireless Internet services from the extent, these critics were correct. The first half of the legacy cellular companies—AT&T,Verizon Wireless,T- decade, when most municipal plans were hatched, Mobile, and Sprint Nextel—greatly improved.Verizon broadband buildouts were limited to wealthier areas as Wireless introduced V Cast,which delivers full-motion service providers calculated that it would take average video to cell phones. AT&T and Apple teamed on the monthly revenue of $50–$100 per household to justify snazzy iPhone, which combines the functionality of a a cable or digital-subscriber-line (DSL)—the two most phone, web browser, and digital-video and music player common hardwired broadband platforms—investment into one pocket device that can use both cellular and in a given neighborhood. WiFi networks. Google unveiled plans for Android, a Municipal advocates believed that wireless systems new type of software for wireless phones that would could be cheaper to build and could provide enough allow users more freedom and control over wireless bandwidth to support no-frills high-speed Internet (no web surfing. Each of these developments required cable or phone) to the point where ubiquitous service municipal officials and their wireless business partners could be offered for as little as $10–$20 a month, if not to revise costs and budgets upward. Broadband was not free. But cities, while hatching their like water and power, where annual plans two and three years ago, failed to revenues and costs were predictable take the speed of market and technol- Even before and infrastructure could be amortized ogy evolution into account. By the municipal wireless over 20 to 30 years.The telecommu- time they began to rev up for launch, nications industry seemed to change commercial service providers, not to became all the rage, every six months, and cities just mention hotel chains, coffee shops, and couldn’t keep up. shopping-mall food courts, had the government-owned Finally, the announcement that same WiFi technology in operation broadband had a Sprint and Clearwire were planning a that the cities had hoped to pioneer— nationwide rollout of local wireless in the very places that cities had hoped poor record. services using WiMax, a broadband would generate early revenues. platform that can cover areas meas- ured in square miles, versus WiFi, which is measured in Falling Rates in the Private Sector feet, forced most governments to realize that any net- eanwhile, rates for wired residential broadband works they build today, to remain remotely competi- Mservices were dropping. Low-end DSL service, tive, would have to be substantially upgraded, if not which was still faster than wireless, reached the replaced, in less than five years. $20–$25 per month level in 2006. Verizon in 2007 Smaller cities and towns that jumped on the munic- began an extensive rollout of more robust fiber-optic ipal bandwagon early suffered the greatest financial networks across all demographic markets. For example, penalties, but in doing so they gave pause to larger cities in 2006 Nassau and Suffolk counties in New York, that, in deciding to back off, may have saved their which make up suburban Long Island, proposed an already beleaguered taxpayers millions. extensive government wireless network in the belief What’s been learned so far? First, municipal broad- that the private sector was leaving many Long Island band still is a bad idea. Even before municipal wireless communities behind. Municipal talks faded after Veri- became all the rage, government-owned broadband had zon began rolling out fiber-to-the-home service not a poor record. Since the 1990s numerous cities have just in towns like Laurel Hollow, where, according to attempted to finance, own, and operate competitive the U.S. Census Bureau, per-capita income is $83,366, cable-TV and high-speed Internet networks. In the past but also in Massapequa, Mineola, Valley Stream, and several years the focus has been on extending fiber 35 OCTOBER 2008 Steven Titch optics to the home, often at a cost of more than $100 telecom networks more efficiently and inexpensively million. In a 2007 report the Pacific Research Institute than national businesses with more than 20 years of estimated that 52 municipal broadband systems had experience working with low-power, short-range consumed a total of $840 million over the past 20 radio technology. years, falling deeper into debt while failing to gain pos- Although proponents of municipal broadband and itive cash flow. wireless often deny or rationalize the string of docu- Municipalities that followed the government-own- mented failures, the experiences of Chaska, St. Cloud, ership model for wireless fared no better. Even munic- and Lompoc led many of the larger cities to pursue ipal wireless advocates were shaken when city officials partnerships with companies like EarthLink, MetroFi, in Chaska, Minnesota, who had long touted their sys- and Azulstar. Under this model, which was adopted in tem as one of the first municipal success stories, dis- Philadelphia, the private-sector partner would finance, closed in June 2006 that it had gone over budget by build, and operate the network, sharing a portion of $300,000—some 50 percent. At the same time the city the revenues with the city, or in the case of Philadel- also reversed a long-standing claim that it had been phia, a nonprofit corporation, Wireless Philadelphia, providing citywide service since early 2005. TechDirt, that would fund digital-inclusion programs in the city. an online technology publication, reported that most In return for pledging citywide buildout, the partner residents were unable to access the system until May would get exclusive, discounted access to city rights of 2006, a few weeks before the news of the cost overruns way where it would place antennas and wireless access broke.The city has since privatized the system, selling it points. to Siemens Communications. The approach initially looked promising, chiefly In addition to running over budget, cities struggled because it took local governments out of the competi- with the sheer physics of radio-system engineering and tive telecom business. Still, in the end, the private sector design. In April 2006 St. Cloud, Florida, reportedly underestimated the costs of covering an entire city. In a became the first city to launch free (read tax-subsi- number of cities, including Philadelphia, EarthLink dized) WiFi service. Coverage was so bad that few resi- concluded it would need as many as twice the wireless dents could connect to it.