Municipal Wi-Fi Series: The End of the Philadelphia Model?

When Wireless Philadelphia accepted Earthlink's bid to build, own, and operate a citywide wireless broadband access network, it sparked a wave of enthusiasm. This "Philadelphia model" became the dominant model for other large cities considering such networks.

Robin Chase, CEO of Meadow Networks and a member of the Boston Wireless Task Force, said the Philadelphia model was the starting point for their deliberations. "For just about everybody who hasn't thought about the communications network value chain, the Philadelphia model seems like a win-win-win solution."

Soon after Philadelphia's announcement, Minneapolis selected Earthlink to build and own a system there. In San Francisco, where Mayor Gavin Newsom had promised to deliver free wireless Internet to everyone without spending city dollars, the city accepted the bid submitted jointly by Earthlink and Google.

The Philadelphia model was billed as a no-cost way to spur economic growth, lower the cost of municipal government, and fund "digital inclusion" programs to bridge the digital divide. But its ascendance had as much to do with the timing of the deal and the circumstances surrounding it as with the merit of the business model.


Philadelphia
The committee Mayor Street appointed in August 2004 to make recommendations on citywide wireless originally considered five business models ranging from fully corporate, to a municipal utility, to a free community network.

At about the same time, a bill that placed heavy restrictions on municipal broadband development was advancing in the Pennsylvania legislature, driven by Verizon. Incumbent phone companies had successfully pushed laws in more than a dozen statehouses that severely restricted or completely eliminated cities' right to provide this service to their residents, including a recent complete ban in Nebraska.

The bill in Pennsylvania, House Bill 30, came late in the legislative season, after people had taken notice of these new laws, and it ran smack into the most prominent wireless broadband project in the country. The popular outcry from Philadelphia created the very real possibility that Governor Rendell would veto the bill, so Verizon and the city compromised: Verizon agreed to waive its right of first refusal in Philadelphia, and the law went through, becoming Act 183.

The public argument for these laws was that building Internet infrastructure should be left to the private sector, that municipal governments should not be competing directly with commercial providers as system owners. Even though Philly carved out space to choose whatever path it wanted, the pressure of this argument remained.

At a City Council hearing on the Wireless Philadelphia-Earthlink contract, Comcast distributed articles that called the project into question including one from the AP about St. Cloud's city-funded project titled, "Free, but frustrating: Fla. city's new Wi-Fi network holds lessons for other cities."

Comcast provided technical advice to Councilmembers from the beginning of the process, which "certainly assisted in asking the right questions of Wireless Philadelphia," David Forde, Chief of Staff for Councilperson Blondell Reynolds Brown, says.

Derek Pew, who negotiated with Earthlink as the then-CEO of Wireless Philadelphia, does not think pressure from the incumbent broadband providers was the primary factor in shaping the deal. He just saw Earthlink's offer as an opportunity. "In the end, I think we felt that if we could raise money, we would rather raise it for education, computer distribution, motivation and community outreach than to build the network if someone else was willing to do that," he said.

Earthlink's offer to remove the financial risk clearly appealed to politicians who were already taking a risk on a new technology. The proposal removed the politically and economically daunting task of floating a rather large bond for the project or otherwise raising the money for buildout beforehand. Shifting the cost -- and the potential revenue -- of building the system to the private sector seemed to answer