Muni Wi-Fi Gravy Train ... Coming to a Stop?

Sacramento is the latest city seeking a free municipal Wi-Fi network whose project has stalled. See this report. SacBee also had a number of write-ups. Google said "no" to this Silicon Valley project (see SF Chronicle story) earlier this year.

I think that we will continue to see more stories like this now that the Municipal Wi-Fi effort is underway. The "window of opportunity" for free or subsidized networks is, for the most part, closed. Moreover, cities thinking that others are getting free networks haven't read the fine print in the deals. Here are a few comments/reasons why companies are saying "no" to building networks:

- All public or municipal Wi-Fi networks will require a collection of revenue streams to cover costs or even to generate profits. (JupiterResearch quantified this in a report a few years ago.) The cost of obtaining the revenue can also not be out of control - hence the need for cities to be anchor tenants. A collection of revenue streams is required, but it can't be hundreds of pieces.

- Most young companies and businesses invest in their first few deals. New businesses need to trial their technology and business models. They often help fund early projects or work with charter customers in partnership to develop their technology. Half Moon Bay - one of Tropos' first deployments probably didn't pay a lot if anything for the network. However, Tropos is the technology now being deployed in lots of Muni deployments - they don't have to build networks for free anymore. I'm sure Earthlink (though I don't know the details) was more flexible in their negotiations with Philadelphia and San Francisco than they will have to be going forward. They have their test beds for the technology/network. Intel also chose a dozen cities initially to assist. They also just need a few to get things going - generate awareness, see how it works, etc.

- Expecting that ad revenue alone is going to fund these networks is unrealistic in the near term. There are some scenarios like malls where there is a captive customer (advertiser) base, and a simple, low cost deployment is all that is needed to provide coverage to a handful of shoppers surfing the Internet. However, funding a citywide network is difficult. Even Google isn't doing that in SF - they are paying Earthlink some money that will cover a portion of Earthlink's costs, but certainly not all. Moreover, Google has an existing sales structure and business model for selling search/ads. Business models built on online local ads can be hard for a lot of reasons - consumer adoption, amount of inventory, local advertisers don't care about clicks, education of small business owners, etc. It will take time for this market to evolve and it's unlikely to support a network alone any time soon. Moreover, Google doesn't have to be trialing this in 100 markets nationwide to learn about the market and see how it goes.

Municipal Wi-Fi is definitely a market where early movers (e.g., SF, Philadelphia) gained some advantages. That said, they will also be projects where the vendors and service providers are learning - it's not necessarily going to be that smooth. Later adopters will benefit from the learnings gained in these early deployments. These benefits may outweigh the added costs of building out the network.

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