Doubts Cast on Municipal Wi-Fi as Projects Hit Potholes

Vendors have had trouble making wireless networks pay off in several cities, raising questions about the viability of the highly touted market.

Three years ago, Tempe, Ariz., was one of the first major U.S. cities to announce municipal Wi-Fi plans. Its citywide network went live in 2006, making wireless services available to all of Tempe's 170,000 residents.

Dave Heck, the city's CIO, remembers how municipal Wi-Fi advocates talked about wireless networks as shining beacons that would bring Internet connectivity to the masses. But that kind of optimism is nearly gone in Tempe, and the city's network is dead in the water.

On Dec. 28, Kite Networks Inc., a division of Gobility Inc. that had been operating the network in Tempe, cut off connections and pulled the plug on its customer service phone line and Web site. Heck said subscribers have been hounding city officials to restore the Wi-Fi service. But the city's leverage over Gobility is limited, he added.

"Obviously, the city never thought this would happen, or we would have never gotten into it," Heck said. "People are pointing fingers, with some citizens thinking [the city] had more involvement than we did. Nobody could have foreseen this."

But Tempe isn't alone in feeling the sting of unfulfilled municipal Wi-Fi expectations. For example, Chicago's government dropped a planned Wi-Fi project last August, citing high costs and low subscriber interest. That same month, EarthLink Inc. pulled out of a deal to work with Google Inc. to build a Wi-Fi network in San Francisco.

And then in November, EarthLink said it was considering "strategic alternatives" for its municipal Wi-Fi unit, after concluding that it couldn't recoup investments in networks via advertising revenue or residential subscriptions. Earlier this month, EarthLink announced that it is now trying to find buyers for its Wi-Fi assets and is checking to see "if the cities themselves are interested" in taking over ownership.

Terry Phillis, CIO for Philadelphia's government, said he is making contingency plans in case EarthLink sells or abandons a citywide Wi-Fi network that the company began building last May. A sale of the network to another vendor would be preferable to having the city take control, Phillis said. But he wants to be prepared for either possibility.

EarthLink assured the city last fall that it would finish the network, Phillis said. "We consider [the network] an asset for the city," he noted. "Our priority is to get it completed."

Tempe's Wi-Fi network had a peak subscriber base of fewer than 800 people, Heck said. He blamed poor marketing by Kite Networks, which Gobility acquired last July.

Gobility CEO Gary Brown declined to comment, citing legal reasons.

Heck said that if the Wi-Fi service isn't restored by March 28, the city may seize the network's assets, which primarily consist of 900 wireless access points installed on utility poles. Tempe doesn't want to run the network itself, but Heck said the seizure could force Gobility into action. Another option, he added, would be to charge the company rent for the space on the poles, which would amount to almost $2 million per year.

In lieu of rental fees, the city was supposed to get free Wi-Fi service for use by police officers, traffic engineers and water inspectors. Some of those capabilities were being rolled out last year, but their fate is now uncertain, Heck said.

Esme Vos, founder of the MuniWireless Web site, insisted that the municipal Wi-Fi market isn't dying. For all but the largest cities, though, a business model in which the cities themselves don't help to fund the networks through so-called anchor tenant deals isn't viable at this point, Vos said.

Jeffrey Kagan, an independent analyst in Atlanta, agreed with Vos that municipal Wi-Fi "will win" in the end. But, he added, "taxpayers have lost so far."

Copyright © 2008 IDG Communications, Inc.

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