Augusta to Build Own Metro Wi-Fi Network

The City of Augusta, Ga. plans to build a for-fee metro Wi-Fi network it plans to have in operation by the end of 2008. A Request for Proposal (RFP) within weeks. As the business model is everything, Augusta is using a grant from the state of Georgia worth about $500,000 to build and deploy the Wi-Fi network over a highly-populated area including the downtown business corridor, three colleges and the most-densely-populated parts of the community.

That basically takes care of the network's capital cost. The RFP is to choose an Internet Service Provider to operate, market and maintain the network

The chosen ISP will operate the network and share revenue with Augusta.

Why Did Philadelphia Muni Wi-Fi Stumble?

The New American Foundation, a Washington, D.C. policy advocate, argues in a new report that the Philadelphia municipal Wi-Fi effort has stumbled because it opted for private operation of the network, instead of sticking with a originally-recommended non-profit model that also avoided any use of public tax dollars. The report is critical of the decision to award a construction and operation contact to EarthLink.

"An executive committee, set up by the mayor’s office and tasked to study Philadelphia’s options for building a municipal wireless network, assessed
the city’s situation and recommended nonprofit ownership of the network," the report says. But Wireless Philadelphia disregarded those recommendations," the report notes.

"Instead, WP yielded to political pressure when it accepted EarthLink’s bid to own and operate the network."

As a result, the study argues, "WP has underperformed because it de-prioritized public input and constituent interests." The report argues that WP would have been more effective if it had assumed ownership of the network."

I don't know about that. Is it not obvious that a municipal network, even one operated as a non-profit affair, requires a resource generation mechanism? No matter what entity had been chosen to build and operate the network, some way to support construction and operation is necessary, and given the restriction on tax support, some other resource would have to have been available. Donations, grants, commercial fees or some other way of securing support is necessary.

So is it reasonable to assume that even a non-profit approach would have worked? Most observers of the municipal Wi-Fi scene now agree that the resource model is a stumbling block.That is to say, people might very well want to have free or cheap access. But there does not seem to be a sufficient resource input model to support that, if taxes cannot be used.

No approach to building and operating a network can be successful if scores of millions of dollars cannot be raised to construct the network. The legal structure of the entity does not logically seem to be the key impediment here. If tax dollars are not available, some other means of securing the inputs obviously is required. The report contains no suggestion of what that mechanism might otherwise have been. And that, it seems to me, is the big stumbling block. To the extent a non-profit entity had been chosen, what would that entity have been able to do in this regard?

EarthLink Wants to Sell Municipal Wi-Fi Assets

EarthLink is considering "strategic alternatives" for its municipal Wi-Fi business, says Associated Press, a phrase that generally means it is for sale.

EarthLink originally had hoped it might be able to come up with a revised business plan that relied on additional investment by partners, including the municipalities that wanted the networks in the first place.

The company "decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value," says Rolla Huff, EarthLink CEO.

Help Us Figure Out What We Can Do with Wi-Fi: BT

To stimulate development of new applications using Wi-Fi hotspots, BT is running a contest with a £1000 prize for the best new Symbian-based mobile application. To enter the challenge, an application should make use of the device's Wi-Fi connection for some of its operation. Applications will be judged on the innovative use they make of Wi-Fi connectivity, how easy they are to use, and their commercial potential. There are smaller prizes for runners-up. The challenge is open from October 16 and the closing date for entries is January 16, 2008.

Has Muni Wi-Fi Missed the Window?

Municipal Wi-Fi arguably had a market window within which it had to get traction or lose out to cable companies and especially telcos. With EarthLink now backing out of the remaining deals it originally negotiated, that window could slam shut. That isn't to say there might not be some niches it could fill, but they will be smaller niches.

The higher end part of the fully mobile market will be able to buy fourth generation mobile services, broadband based on 700 MHz spectrum, WiMAX and 3G broadband services. The tethered part of the market will simply find cable modem, Digital Subscriber Line and fiber to home services too attractive to ignore as well. The out of office portion of the market increasingly can use T-Mobile hotspots, hotel Wi-Fi and airport Wi-Fi.

Clearwire and satellite broadband are going to make more sense in most rural markets, though independent ISPs continue to offer basic tethered access using Wi-Fi technologies adapted for more focused line of sight deployment.

Wi-Fi had to get into place before WiMAX arrived, and it looks like it simply is too late to be a sizable mass market access opportunity. That isn't to say hotspots are not a business at all; simply that it is a niche.

That said, sizable niches do exist for providers of satellite broadband in some segments of the market. WildBlue, ViaSat, Gilat and HughesNet prove that the niche exists. And Spaceway might someday create additional niches in the smaller enterprise market as well. Wi-Fi, though perhaps not of the muni variety, might continue to provide such a niche.

EarthLink San Francisco Network Now Toast

EarthLink will not be providing free wireless Internet access throughout San Francisco. As promised, EarthLink is not proceeding with any new muncipal Wi-Fi networks when it has to pay the full cost of construction, as would have been the case in San Francisco.

Under the original deal, EarthLink would have invested $14 million to $17 million to build the network. EarthLink also expected to be able to charge $22 a month for a premium tier of service.

San Francisco officials probably will issue another proposal request. And EarthLink conceivably could get additional sponsors. But it's getting tough to make the numbers work when tethered broadband rates now are so affordable. In cities where muni Wi-Fi networks are in operation, or have been proposed, it isn't unusual to find tiers of service comparable to Wi-Fi available for $10 to $15 a month.

Also, as video becomes a more important part of the Internet experience, muni Wi-Fi networks just aren't going to be able to keep up.

No Bidders Left for Chicago Wi-Fi

Chicago has failed to reach agreement with either at&t or EarthLink, each of which had proposed building a municipal Wi-Fi network for the city. Just a few years ago, backers were arguing a business case could be made for either ad-supported free service or for-fee service at rates of $20 a month. But that was before U.S. telephone companies got serious about broadband pricing and dropped access costs behow $20 for service very comparable to what muni Wi-Fi networks were supposed to offer.

at&t charges $20 a month for speeds of 1.5 megabits a second in Chicago and will provide connections half that fast for $10 to new subscribers. In other cities such as Houston, an 800 kbps connection can be purchased for about $15 a month.

In Lompoc, Calif., the city signed up fewer than 500 users out of a population of more than 40,000.

So it looks like we are nearing the end of the muni Wi-Fi craze. Though some networks, primarily for public safety and municipal operations, might still be viable, it doesn't appear that most municipal Wi-Fi networks will prove commercially viable outside high-density urban cores.

And even there, how hard is it to find a T-Mobile hotspot at a Starbucks?

EarthLink Pays Houston Fine; Might Be Off the Hook

EarthLink is paying the city of Houston a $5 million penalty fee for missing its first deadline in building the city's municipal Wi-Fi network. The payment might ultimately let EarthLink off the hook for the entire network build, though technically the payment buys about nine months to begin construction. The contract calls for complete construction time of two years.

Of course, EarthLink already has said it is no longer interested in continuing under the original contract terms, so unless the contract is renegotiated in some way, the network won't be built, at least not by EarthLink. It might not be the last fine EarthLink pays.

The city of Houston is also free to take proposals from other vendors during the nine-month period, and could award the contract to another company, observers say.

Considering that at&t offers Houston residents a $15 Digital Subscriber Line service running at 768 kilobits a second, it's hard to see how much share EarthLink might get for a service that will wholesale to retailers at $12 a month for a 1 Mbps service. The retail price then likely will have to be set at $15 or more.

EarthLink, Helio, Muni WiFi

Given that Earthlink essentially admits it now is more than a bit unfocused, and that something has to be done about it, it is pretty easy to predict that Helio and the municipal WiFi initiatives have to go. Earthlink will keep dial-up as a cash cow. It does just fine in the Digital Subscriber Line business and VoIP is not bleeding either. That pretty much leaves losses at Helio, which doesn't appear poised to make major subscriber gains any time soon, or the municipal WiFi business, which is in roughly the same position.

And one has to assume Earthlink will ultimately be set up for a sale. In such scenarios, long-term investments that drain cash are a no-no.

Something has to go. EarthLink now expects a loss of $110 million to $140 million for the year on revenue of $1.23 billion to $1.24 billion. Back out municipal WiFi and Helio losses and that problem takes care of itself.

Earthlink had a second-quarter loss, due to mounting losses at its Helio wireless joint venture and lower revenue from dial-up services. Earthlink says its Helio cellphone business exceeded the 100,000 subscriber milestone in the quarter, but the unit's losses mounted. Helio, a joint venture with South Koreas' SK Telecom, posted a loss of $83.8 million on revenue of $33.2 million.

Earthlink had a loss of $16.3 million, or 13 cents a share, compared with a profit of $16.6 million, or 12 cents, a year earlier. Earthlink said revenue for the quarter fell 6% to $312.2 million from $332.1 million a year ago.

Sure, there were continued losses in the dial-up area, but that's expected. At the end of June, the company had 4.3 million dial-up and broadband subscribers, down from 5.3 million a year ago.

Earthlink is a profitable Internet access company if the wireless and muni WiFi iniatives are abandoned. If you assume the assets are positioned for ultimate sale, that's a clean story.

WiFi Will Supplement, Not Replace...

A recent survey by Ipsos Insight suggests a third of users would "sign up for or replace" their existing connection. As with all surveys, one should always be skeptical. Some people might attempt to replace their current service. Then they'll find out indoor coverage is a major issue, and will switch back. Or they'll figure out that the bandwidth isn't what they were expecting. Of course, there is another way to look at the results, and that is supplemental use of muni Wi-Fi for portable devices of various types, not the PC. If the cost is low enough, lots of people might be convinced to spend a bit more money for an incremental muni Wi-Fi connection to support connections to devices other than PCs or phones.But full replacement? Not many will find that a reasonable trade-off, in all likelihood.

Ad Supported Wi-Fi?

Nobody knows whether ad support for municipal Wi-Fi services will work, though most seem to have given up on the notion that a network can be supported solely by advertising. Perhaps the more germane question at this point is how much ad-support models will complement subscription and municipal underwriting models (where a government entity becomes an anchor tenant).

Microsoft's own polling on the subject suggests a combination of free and subscription is viable. Penetration for a fee-based service might range from five to eight percent, while a "free" service might be used, some times, by 21 percent of people. Offer free and fee service and overall penetration could rise to about 26 percent.

Of course, the issue is whether an operator can get any significant amount of ad support. And as others in the field now have found, user potential in dense urban areas might be four times more than in a suburban area. All of which suggests muni Wi-Fi will be a supplemental form of access, useful at times but with single-digit subscriber potential. That's not shabby. Even independent WiMAX providers can't expect to do much better than that.

Significant capture of most of the access market by telcos and cable companies is part of the answer. But increasing use of 3G and 4G services by mobile users will be a significant factor as well.

If independent providers of mobile WiMAX can offer service cheap enough, they might yet carve out a niche in the "connected personal devices" space. The issue is competition from the likes of Sprint Nextel or others who may adopt mobile WiMAX as their 4G platform.

If the equivalent of "multi-user" plans were to be offered aggressively by a mobile carrier, with reasonable broadband plans plus significant discounts for plan member use of additional devices (gaming consoles, PDAs, cameras), that will prove attractive for much of the market.

Mobile voice and broadband to a "mobile phone", plus PC data card, plus connections for other devices from a single provider offering price discounts for each additional unit. That's especially true if the user-perceived value of connectivity for things like cameras is seen as low. A mobile carrier can afford to price such connectivity at low levels if it is capturing reasonable value from 3G phones and PC cards from a single customer.

But tethered PC connections used by the mass market will be dominated by cable and telco providers. Broadband for mobile "phones" will be dominated by the wireless carriers. What remains uncertain is how the "connected personal devices" segment might develop (cameras, iPods and MP3 players, game players, PDAs). There will be niches. The issue is how big any of those niches will be, and whether providers can operate at costs low enough to serve those niches.