Municipal Wi-Fi hits financial hurdles

SAN FRANCISCO — A year ago, it seemed like just about every major U.S. city was drawing up ambitious plans to build wireless Internet networks so more people, both rich and poor, could have online access wherever they wanted.

Now, economics is blurring the Utopian vision as city leaders and the companies proposing to build the Wi-Fi networks haggle over whether the projects make financial sense.

The problem came into sharper focus recently as once-ballyhooed projects in San Francisco and Chicago unraveled while a high-profile deal in Houston neared a breaking point.

"Cities and companies are rethinking the models that they are adopting," said Esme Vos, founder of MuniWireless.com, a Web site that tracks trends in the industry. "It's all about economics and risk-sharing now."

MuniWireless estimates Wi-Fi networks have either already been built or are under consideration in 455 cities and counties across the United States, up from 122 two years ago.

Locally, some parks and neighborhoods in Seattle, Kent, Bellevue and Kirkland have installed Wi-Fi, but the areas are small zones and have largely been viewed as experiments. In particular, the city of Seattle has resisted rolling out Wi-Fi and instead has said it will encourage building a fiber-optic network that could deliver voice, video and data services to stay competitive.

The second thoughts about municipal Wi-Fi revolve around questions about whether the networks will generate enough revenue to justify the multimillion-dollar investments to build and maintain them.

There's technology considerations, too.

Just appearing on the scene is an emerging wireless broadband technology called WiMax, which is similar to Wi-Fi, but can cover longer distances.

Kirkland-based Clearwire and Sprint Nextel have partnered to build out a nationwide network, and it has significant backing from such chip and equipment makers as Intel and Motorola.

Already, Clearwire has rolled out a wireless network in Seattle and many other cities in the U.S. and Europe are using a similar technology. Sprint Nextel expects to turn on one of its first WiMax markets in Chicago before the end of the year.

On the financial front, EarthLink, an Internet service provider that had been one of the chief evangelists in the crusade to blanket cities with Wi-Fi, decided it can no longer afford to foot the bill by itself as the Atlanta company tries to bounce back from $46 million in losses during the first half of this year.

"We will not devote any new capital to the old municipal Wi-Fi model that has us taking all the risks," Rolla Huff, EarthLink's chief executive, told analysts during a Wednesday conference call.

Later Wednesday, Huff told San Francisco Mayor Gavin Newsom that EarthLink was rescinding a proposal to cover the estimated $14 million to $17 million cost of building the city's Wi-Fi network.

Had the San Francisco system been built, EarthLink planned to charge about $20 per month for Wi-Fi access that would have been three to four times faster than a free service subsidized by ads sold by Google.

San Francisco still hopes to find vendors willing to build a Wi-Fi network, an effort that Google said it will continue to support.

"Google is committed to promoting alternative platforms for people to access the Web no matter where they are, and we encourage others to think creatively about how to address access issues in their own communities," Google spokesman Andrew Pederson said.

Last year, Google completed a free Wi-Fi network in its Mountain View, Calif., hometown that it says attracts 15,000 users per month.

EarthLink had doubts about whether it could sign up enough San Francisco subscribers to recover its costs there, based on its experience so far in other cities, including Philadelphia and New Orleans, where it has already completed or is still building Wi-Fi networks.

Houston was counting on EarthLink to invest about $50 million to build a Wi-Fi network there, but those high hopes are now fading. The city just notified EarthLink that it will fine the company $5 million for missing its contractual deadlines.

The payment will give EarthLink more time to consider whether it wants to abandon the Houston project or find other partners willing to help defray the costs.

Chicago canceled its $18.5 million Wi-Fi project after concluding it would require the city to spend too much money to help finance it.

Financial worries also have jeopardized a $20 million Wi-Fi network in Milwaukee. The project remains in its testing phase, but the vendor, Midwest Fiber Networks, has publicly expressed concerns about whether the network will attract enough customers to recoup the investment.

MuniWireless' Vos and other industry observers believe the dreams about wireless Internet access in big cities can be realized if some of the financial burden is shifted from the private sector.

"What is happening right now is a black eye [for Wi-Fi], but I don't think it's a death blow," said Godfrey Chua, who follows wireless networking issues for the research firm IDC. "We just need to work on new business models."

Some cities already have agreed to help finance Wi-Fi by sharing some of the upfront costs and guaranteeing subscriptions. Minneapolis, for instance, has agreed to become the "anchor tenant" on its Wi-Fi network — a commitment that will cost the city $1.25 million annually.