May 2008 is definitely a dark month for the muni-wireless advocates. After EarthLink pulled the plug on its Philadelphia municipal WiFi network last week, MetroFi also indicated a sale signaling an end of its muni-WiFi initiatives in nine cities, including many Silicon Valley towns. By now, almost all major city muni-WiFi projects have died. You may wonder that when broadband activities are more embedded in our lives than ever before and Wi-Fi networks are gaining widespread adoption both at home and in the office, why did these good-willed muni-wireless projects go sour? Well, we believe there are many factors contributed to the demise of these initiatives. First, many projects in major cities went over budget and solution providers such as EarthLink were unable to finance it. As a result, deployments in Houston, Philadelphia, Cincinnati, and a few other cities were either delayed or shelved. Second, the business model of muni-wireless was difficult and contradictory. The commitment from the municipal governments, who wished to leverage the projects to bridge the digital divide, attract business visitors, and increase the productivity of public workers, was shaky to say the least. Many could not reach agreement with the providers, and the use of public funds has become a debatable political issue. For instance, Pennsylvania pushed through laws restricting municipal-backed broadband services in December 2004, with Philadelphia being the only exemption. Further, competition has become stronger. DSL providers are deploying super-fast fiber networks and affordable mobile broadband services. In addition, a nation-wide WiMAX network is imminent. So, whether or not it is worthwhile financing the network or to just use some third-party service providers such as Verizon or AT&T became a big question for the city governments.
However, as we discussed in our recent report North American Broadband Market Update, on this subject, “there have been success stories in smaller cities such as Corpus Christi, TX, and St. Cloud, FL, where it is less costly and complex to build a network. But these small deployments are largely dependent on specific cities’ needs and situations and will not have material impact on the overall broadband market.”