Municipal Wireless: Evaluating "Public-Private Partnerships" and Other Private Business Models

Excerpted from a report from the Institute for Local Self-Reliance entitled
Localizing the Internet: Five Ways Public Ownership Solves the U.S. Broadband Problem.

The term "public-private partnership" is widely used to describe a bewildering variety of municipal broadband projects, projects as different as Philadelphia, where a private company will own and operate the network, and Saint Louis Park, where the city will own a fiber and wireless network and contract with a private company to manage and provide services over the wireless portion of the network.

It might be best simply to drop the term "publicprivate partnership" since it obscures more than it enlightens. What follows is an overview of business models in which the private sector owns the infrastructure, and an assessment of their risks and benefits to the public sector.

The Status Quo: The dominant business model for telecommunications networks in the United States is a network owned and operated by a private, forprofit company that is also the only or primary provider of monthly subscription services. This is true of your local phone and cable companies. They own the infrastructure, and you as a customer have no choice in who delivers the service.

Cities have little regulatory authority over these networks. (As explained above, these networks are subject to few regulations at any level of government.) For example, they do not have the authority to require phone companies to expand their DSL coverage, nor can they include provisions related to equitable or affordable Internet access in their cable franchise agreements.

Franchise Model: A privately owned and operated, for-profit network that does not have the city as a major customer. The city grants the private company use of public assets for some period of time, and the company compensates the city for use of those assets. Cities typically work with a company that asks for a franchise and do not issue a request for proposals (RFP), although some have done so as a way of soliciting competing offers. One of the first wireless franchise agreements was in Anaheim, California. Earthlink will pay the city a fee for use of the public assets needed to support a Wi-Fi network. The city will not be an anchor tenant on Earthlink's network, because it is deploying a city-owned Wi-Fi system for municipal use. The franchise agreement does not include any requirements beyond the network providing a certain level of speed, coverage and reliability.

This model poses few risks, but also few benefits. It requires no public investment and little public involvement of any kind. The benefits are modest amounts of revenue from pole attachment fees, and the possibility of additional competition. The city has little influence over the network coverage quality of service, or the prices charged. Franchise models do nothing to overcome the digital divide between higher and lower income households.

Anchor Tenant Model: A privately owned network, with the city agreeing to become the anchor tenant by agreeing to buy a minimum annual level of services. The city grants the private company use of public assets (or assists in negotiating access from private entities), and also agrees to be a major customer of the network (an anchor tenant). In exchange, the city is compensated for use of public assets. The agreement contains a public benefits section that may include a share of revenue or limited free access to the network.

One of the first anchor tenant models was in Minneapolis. As explained above, under the terms of the contract, the City will pay the private owner of the network a minimum of $1.25 million annually for services over the 10-year life of the contract. The company will give five percent of net revenues to a digital