Wise Men Say Only Fools Rush In

Another day, another news story about municipal Wi-Fi networks running behind schedule and over cost. This one comes courtesy of the Wall Street Journal and is titled Wireless--With Strings Attached (sub req). Interestingly enough, my post from last Friday on our city's wireless boondoggle was called No Wires, But Plenty Of Strings. Great minds and whatnot.

From today's WSJ:

In recent years, dozens of U.S. cities and towns have announced plans to build Wi-Fi networks that would give their citizens a cheap and convenient way to access the high-speed Internet and provide new competition to phone and cable companies.

Now some of those projects are running into hurdles. Constructing networks that can provide Internet access to homes and office buildings and withstand challenges from nature that interfere with wireless signals -- such as hills or rainstorms -- is proving more costly than anticipated. Some Wi-Fi projects, such as Philadelphia's, are running 30% or more over budget. Many cities are discovering the true costs of the initiatives only as they begin to roll out infrastructure and test the networks. Consumer demand for the services, meanwhile, has been soft in the early going.

Companies such as EarthLink Inc. and MetroFi Inc. have been increasingly taking the lead on building and operating these networks for cities. But as the economics of the industry get tougher, the companies are asking cities to bear more of the financial burden, either by contributing cash toward construction or by agreeing to purchase Wi-Fi services for government workers.

No one over promises and under delivers better than government. It turns out that the idea that city sponsored WiFi would be much cheaper than the available commercial alternatives is not matching up with reality:

The Wi-Fi companies envisioned being able to offer subscription service to consumers at rates that were significantly cheaper than phone and cable broadband. But the unexpectedly high costs of building Wi-Fi networks -- the price tag can easily run into the tens of millions for a big city -- coupled with lower prices for broadband from some phone companies, has made it tougher for consumer Wi-Fi to be competitive. For example, EarthLink offers Wi-Fi for about $20 a month, a price that is on par with the lower-end Internet services now offered by AT&T Inc. and Verizon Communications Inc.

At the end of the second quarter, EarthLink had only about 4,000 subscribers from its rollouts in Philadelphia, Anaheim, Calif. and Corpus Christi.

The combined population of these three cities is over 2.1 million. Nice market penetration there.

The company, which is operating under new leadership after the death of former Chief Executive Garry Betty early this year, said in late July it would pull back on further investments in Wi-Fi until it negotiates better deals with cities. In particular, the company wants a commitment by cities to become a significant customer, or "anchor tenant," and thereby guarantee EarthLink a steady revenue stream. "The Wi-Fi business, as currently constituted, will not provide an acceptable return" for EarthLink shareholders, said newly installed Chief Executive Rolla Huff on a recent conference call with analysts.

Cities pitched WiFi networks based on low cost to their residents and minimal investment from city coffers. Now, the low costs aren't there and the cities (read all us poor taxpaying slobs) are expected to step in and pick up a much larger share of the tab than originally envisioned.

Esme Vos, who runs the MuniWireless site, says the pressure on cities to use the networks for government services is healthy. "It forces the cities to sit down and think about what they want to do with the networks," she says. "They actually have to come up with a business plan."

What a novel idea. It might have been nice if the cities had actually come up with a business plan BEFORE they rolled said networks out.

"The cities that didn't join the rush last year are taking it slower and are being much more thorough in their analysis," Mr. Settles said.

This is another example of why gridlock is actually good and divided government is usually desirable. In all but emergency situations, governments work best that work slowest.