January 12, 2010 By Russell Nichols
The idea of free Internet for all Americans looks good on screen, but the concept also raises crucial questions. And for the past few years, as cities across the country jumped on the broadband wagon, many government IT leaders kept getting stuck on the first and most important one: How?
Since 2005, various U.S. cities from Philadelphia to Houston have announced plans for Wi-Fi networks only to turn around and cancel them later because of lack of funding or subscription support. Many local governments refused to be anchor tenants because they didn't want to commit to buying a specified volume of service.
Not all municipal Wi-Fi networks fell flat. Some cities have succeeded in delivering broadband service to the public. For instance, first responders in New York can access files through the $500 million high-speed New York City Wireless Network (NYCWiN), built and operated for the next five years by Northrop Grumman Corp. Other areas such as Bristol, Va. and Corpus Christi, Texas, have also developed thriving models of a public network.
These success stories prove that municipal Wi-Fi can indeed work, but that doesn't mean there's only one way to solve the problem of the digital divide. In the past few months, two major cities have illustrated two very different ways in which a city can make that big connection.
On one side, there's Philadelphia, where IT officials announced in December 2009 that they would build the network themselves, more than a year after the EarthLink deal fell through. After their private model flopped, IT officials decided a public Wi-Fi neftwork would better serve the city by enhancing mobile applications and access for building inspectors, code enforcers and emergency responders.
But Minneapolis, which just completed its $20 million network, went a different route. Rather than build their own network, city officials chose to become the anchor tenant for US Internet, a 15-year-old international provider of Internet and hosting services. That financial security freed the company to build a network that would also serve residents. The city already boasts more than 16,000 private subscribers, said Joe Caldwell, CEO of USI Wireless, a subsidiary of US Internet.
"The difference with Minneapolis is it was never structured to be a free network," said Craig Settles, a wireless industry analyst. "They decided to step in and be the anchor. For a private company, the deck is pretty much stacked in your favor. You come in, build a network and make your money back however best you can."
As free as cities want broadband to be, the Internet is a form of public infrastructure that requires certain assets for delivery. Somebody has to pay for those assets, which brings up the second question that has stumped local governments: Who?
That was the problem in Philadelphia five years ago, when the city set out to be the world's largest Wi-Fi hotspot. The idea was that the EarthLink would invest $17 million to build the network and, through subscriptions from residents, the broadband provider could recover expenses and compensate for the ongoing loss of dial-up customers. It was a gamble. EarthLink lost.
In 2008, the company backed out of the deal with Philadelphia and many other U.S. cities with which it made similar arrangements, such as New Orleans and Chicago.
In 2005, a study called Municipal Broadband: Digging Beneath the Surface examined the financial viability of a broadband network in a city. Every model tested failed on a financial level, said Michael Balhoff, a former telecom equity analyst with Legg Mason Inc. and a managing partner at Balhoff & Williams.
"What we attempted to do was run a financial