Sunday, June 3, 2007

Municipal Wi-Fi: what’s the point?

There were a lot of interesting sessions at the LA GMR. As with most conferences, I learn the most when the knowledge gradient is greatest (as long as I understand the subject well enough to know what’s going on).

So the first aha! moment at the conference was at the session entitled “WIMAX/Muni-WiFi Experiences: LA, Philadelphia.” Moderator Richard Grimes (of Wireless Capital Partners) introduced some of the common issues: the use of municipal Wi-Fi to provide universal access (to address the so-called “digital divide”), the ownership of the system (public, private, hybrid), and the expected impact of WiMax. (Here I focus on systems being built, and will consider the WiMax vaporware in another blog entry).

The first paper was by a friend of a friend (previous acquaintance) who by the end of the conference had become a good friend. Youngjin Yoo of Temple U. described his fascinating Philadelphia story. (The effect was accentuated by his use of Larry Lessig-style slides: 2-5 words per slide, black & white.)

Yoo briefly reviewed the history. In 2003, the CIO for Philadelphia convinced his political masters that it should be “the first major city in the US to declare we have a 21st century infrastructure.” (That they believed this suggests that the politicians are pretty dumb, but more on that later).

So in 2004, the city announces its plans, and forms the Wireless Philadelphia public-private consortium. The next year, the city plans to spend $15-18 million to build the network, until Earthlink proposes to run it as a business. Due to city delays, the pilot test doesn’t begin until the end of 2006. Today, there is limited coverage (which I’ll test in August) but the whole system is supposed to be done at the end of 2007.

The consortium used four “pillars” to justify its involvement:

  • digital inclusion for four key political constituencies: low income families, single parents, senior citizens and HIV/AIDS victims. Yoo said that Philadelphia is one of the poorest cities in the US (next to the poorest place in the US: Camden, NJ), but the inclusion of the other groups suggested that some served in those groups would be non-poor (middle class or even affluent).
  • tourism.
  • small business development.
  • e-government (although it was not clear what this meant).
The plan took off because of the combination of the socio-political (politicians trying to look good) with the techno-economic forces (Intel, Motorola trying to sell hardware), in what Yoo called “a perfect storm.” He and his co-authors mapped out the relationship of the different actors, as shown below:

At the end of the day, the plan had two major flaws. First, the purported beneficiaries were really stick figures to justify what people wanted to do. When asked, they gave many reasons why they wouldn’t use or benefit from the plan, as in this quote: “Why wasn’t the [budget for the initiative] spent on schools, or flue shots? Wireless is still a luxury and there are still many unmet basic needs.” Yoo said that for some non-profits, half of their constituents can’t even read but won’t admit it out of shame.

Second, Philadelphia is emblematic of the dubious technical and economic viability of muni Wi-Fi. The cost structure is pretty clear: one base station on a city lamp post every 1,000', or a 5x5 grid per square mile. Earthlink’s pricing plan was set early: $10/month for the underprivileged, $22 for everyone else. The presumed use of the network seemed to be residential and small business, rather than anything involving mobility (college students sitting in the park with their laptops).

But, as the entire session made clear, there is a very narrow window of demand for municipal Wi-Fi. If people are too poor, they don’t have the computers and computer skills to access a network (a related problem that all muni Wi-Fi advocates hope to solve someday). If people are too rich, they are also using other, possibly technically superior solutions. In Philadelphia, that’s Comcast cable modems and Verizon fiber optics (50 megabit) at $45/month. Even if promoters justify Wi-Fi expenditures based on a “public good” claim, they are obliged to give the honest cost, including any government operating subsidies.

Back to this “21st century” claim. 802.11b first caught on when Apple started including it in its laptops in 1999, 18 months (yes, 18 months) before the new millennium. 802.11g started shipping in December 2002. So is it worth spending $15 million to build an infrastructure that will be obsolete before 2010? And if it’s obsolete, where will you get the revenues to keep it operating? Still, the city of Los Angeles and many other cities keep marching forward with their plans.

All this prompted me to ask at the end of the session: If it’s not economically viable, why are we talking about municipal wireless at all? (Another academic said she plans to use this question to provoke discussion in one of her own studies).

One speaker mentioned the experiment of Lompoc, a small California military town. I looked up the numbers, and they would be laughable if not for the waste of taxpayer money. Here’s how the AP reported it in the Los Angeles Times:
A $3-million plan to blanket Lompoc, Calif., with a wireless Internet system promised a quantum leap for economic development: The remote community hit hard by cutbacks at nearby Vandenberg Air Force Base would join the 21st century with cheap and plentiful high-speed access.

Instead, nearly a year after its launch, Lompoc Net is limping along. The Central California city of 42,000, surrounded by rolling hills, wineries and flower fields located more than 17 miles from the nearest major highway, has only a few hundred subscribers.

That's far fewer than the 4,000 needed to start repaying loans from the city's utility coffers, potentially leaving smaller reserves to guard against electric rate increases.
Other cities (including Los Angeles) are proceeding ahead, with total spending by US cities in 2007 expected to exceed $400 million. A the AP noted, the consequences of failure carry a real price:
Without revenues they had counted on to offset that spending, elected officials might have to break promises or find money in already-tight budgets to subsidize the systems for the low-income families and city workers who depend on the access. Cities might end up running the systems if companies abandon networks they had built.
I love technology — and always want more — but sometimes the numbers just don’t work. Firms can make dumb bets and their investors pay the price — and thus investors reign in the most foolish ideas. However, when politicians do something stupid, they don’t pay the price — the public does.

I guess a public/private partnership can work out OK. The city cannot guarantee any shortfall, and should recover its out-of-pocket costs through a floor on the revenue sharing. Under these conditions, the firms face all the risks (and almost all of the upside) and so need to go into the deal with their eyes wide open.

Technorati Tags: ,

3 comments:

NSP Strategist said...

You certainly expressed how the networks have not worked out, but you have not seemed to grasp that the reasoning behind them is political, economic, and PR. As I post here, you have to look at a larger picture. Governments burn lots of money on foolish endeavors, and if you think the money would have been spent on education, you don't understand politicians.

Joel West said...

Dear NSP,

You are jumping to conclusions when you say “have not seemed to grasp,” assuming that I don’t understand something just because I don’t mention it. For example, I was a newspaper political reporter for 2 years. While I believe politicians and city employees should make efficient use of taxpayer dollars, I am no more “shocked” when they do not than Clause Rains was to discover gambling in Casablanca.

Just because politicians can spend other people’s money to get themselves re-elected, doesn’t mean they should. Certainly if they claim (or imply) that the system can be run without taxpayer subsidies, they should be held accountable if it is not. (But then political accountability is an alien concept in many big cities, particularly in one-party cities without term limits).

The claimed benefits of attracting jobs, tourists etc. reflect the standard (pre-game theory) fallacy: our city will put this commodity infrastructure in, and no one else will. But if Philadelphia thinks it gains advantage, then the Bostons and Baltimores will copy it and there will be no advantage.

Certainly having a broadband infrastructure is a prerequisite to winning certain types of employers, but most cities have both a cable and DSL choice already. Meanwhile, who will be using an 802.11g network 5 years from now?

Anonymous said...

Just because politicians can spend other people’s money to get themselves re-elected, doesn’t mean they should.

True, but because they can they will! That is the failure of "democracy". Elected politicians will always pander to a greedy (get something for nothing or make somebody else pay) voter.

National Health care anyone?

who will be using an 802.11g network 5 years from now?

The same folks that are using CDs 20 years from now. What new optical device hasn't included reading CDs?

How many public schools still use memograph machines?

Not everyone jumps to the latest greatest techno-junk silicon valley spews forth.