Why Wi-Fi Networks Are Floundering

Faced with weak user demand, AT&T and other telecoms are vowing to tear up their muni Wi-Fi contracts if cities don't foot more of the bill. Perhaps the clearest hint of trouble ahead is that some of the companies partnering with cities on these projects, including EarthLink and AT&T, are having second thoughts about remaining in the municipal Wi-Fi business.

San Francisco Wi-Fi, perhaps the highest-profile project among the hundreds announced over the past few years, is in limbo. Milwaukee is delaying its plan to offer citywide wireless Internet access. The network build-out in Philadelphia, the trailblazer among major cities embracing wireless as a vital new form of municipal infrastructure, is progressing slower than expected.

These potholes in the nation's wireless rollout of civic ambition—criticized by many as an improper use of tax dollars—are hardly the exception. While 415 U.S. cities and counties are now building or planning to build municipal Wi-Fi networks, "deployments are slowing down slightly," says Esme Vos, founder of consultancy MuniWireless.com.

When EarthLink and MetroFi first bid for Wi-Fi contracts several years ago, they often agreed to foot the bill for network build-out, operations, maintenance, and upgrades. They also frequently agreed to pay cities to lease public facilities, such as light poles, to hold Wi-Fi transmitters. If that wasn't enough, the companies also promised some cities a chunk of their subscription and advertising revenues, as well as free usage of the Wi-Fi networks by city workers.

One major flaw in these arrangements has been that initial forecasts for Wi-Fi subscriptions used to justify the investment in these networks have proven to be overly optimistic by a wide margin. In many cases, 15% to 30% of an area's population was expected to sign up for muni Wi-Fi. But only 1% to 2% have signed up so far figures Glenn Fleishman, editor of an industry blog called Wifinetnews.com.

[ C ]ities that have deals that don't currently require a government investment are being asked to renegotiate existing muni Wi-Fi contracts. In Portland, Ore., MetroFi says it is pushing the city for a formal commitment to buy network services. Thus far the network is about 20% complete, and serves the downtown area. "The days of a service provider coming in without a city commitment are over," asserts Pelosi of MetroFi. "It's to help us out, but also to help them out."