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« Internet Radio on the Cheap | Main | Let's Hold the Wake for Wi-Fi, Qualcomm-ne-Airgo Exec Says »

December 7, 2006

Reason's Reasonable Reasoning

Reason Foundation releases report that seems, at first, to decry municipally built Wi-Fi: The report appeared yesterday, and I've taken some time to read it and its conclusions. I don't think it's quite what it seemed to be when first looked at.

The bulk of the report looks at whether government should get in the business of paying for and operating municipal networks, looking at the history of fiber optic, coax, and other networks. This ground has been hashed over before, and it's frankly a little too technical on the economic details for me to provide expert analysis of.

No large city since Philadelphia's announcement has chosen a plan that would put the brunt of expense, risk, and operation on itself. St. Cloud, Flor., and St. Louis Park, Minn., are smaller cities that have chosen to build networks, but are funding operations, not building departments to run them. Really, I'd like see the response from the loyal opposition, The Institute for Local Self-Reliance, which is distinctly opposed to this report's primary viewpoint.

So the universe of new (and especially wireless) projects in the U.S. that seem to fit the criteria established by writer Jerry Ellig seems to be rather small. I don't think government is as limiting or incompetent as libertarians believe by philosophy or many believe by real-world experience. But I also tend to agree that in a fast-moving field, there has to be a very particular need for any medium-to-large city to find the funds and build the network in such a fashion that the network meets its financial goals and remains relevant and up to date.

There is little critique in the report of municipally authorized proposals except as relates to the issue of de facto franchises, something I've sounded the horn on since Minneapolis first revealed their plan to find a company to build a network. As Ellig notes, there's a risk in squelching competition and providing unfair advantage when a city allows exclusive access to rights of way and utility poles.

While the Telecom Act of 1996 provides for non-discriminatory pole access, in practice, that's been a mixed bag. There are a lot of logistical and technical reasons why poles can't be used by every party that wants to use them in a reasonable timeframe. And there are many ways to drag one's feet in providing legitimate access. Even Toronto Hydro discovered that poles that they owned--that were sold to them by Toronto--weren't capable of handling Wi-Fi access points 24 hours a day.

While Ellig misstates the San Francisco deal--noting just Google's free 300 Kbps service, not EarthLink's intended 1 Mbps for-fee offering--he 's clearly right that exclusive, franchise-like agreements are not in the best public interest, as they protect only the city's anointed Wi-Fi provider and exclude the potential of competition by making good real-estate locations cost more (if obtained privately) or unavailable (if no private alternatives exist).

He writes, "Any local government that grants one Wi-Fi provider an exclusive right to use right-of-way and poles risks distorting competition in whatever markets are generating the revenue stream that will subsidize the Wi-Fi service."

What's interesting about this is that Clearwire has now entered the metro-scale market from the municipal side with their win this week of Grand Rapids, Mich. Clearwire keeps saying that they are happy to have a Wi-Fi network running citywide operated by another party, and see that network as a cooperative partner. The mobile WiMax that they will deploy there as the first real North American rollout of true mobile WiMax has different parameters and purposes than Wi-Fi, and could be substantially easier to provision with reliable throughput rates across the system. (The mobile part, for instance, although many metro-Wi-Fi vendors will tell you how they can make Wi-Fi work for moving vehicles, too.)

Clearwire thus now has a stake as a municipal partner in preventing competing initiatives--whether Sprint or others--from gaining the same rights to real estate, because the cost of finding appropriate antenna venues is a key aspect in setting up new networks and providing the density of coverage necessary to meet customers' needs. Ultimately, it's just a stumbling block for established cell operators, but it could prevent newer firms with no existing towers or real-estate arrangements from gaining a toehold.

Is Reason's report a condemnation of the general trend in building citywide wireless networks? I can't see how encouraging non-exclusive access to poles, buildings, and towers reduces competition. It does increase the risk for companies entering the field that other competitors might follow, but that's what competition is supposed to be about.


I think Ellig comes to the debate a bit late. Much of what he (rightfully) raises as concerns about competition, path-dependency and market capture should be taken seriously by municipalities looking to deploy broadband networks. I think it's telling that Ellig focuses on cities like Philadelphia and San Francisco without mentioning the Boston model. I'd recommend taking a look at:

Glenn: Many of us have taken a look and we see a number of inaccuracies also. This is one point-of-view they offer, and we offer up a couple of counterpoints.

First - As you point out, we aren't offering the free tier in San Francisco and as part of the post-Katrina support, we are offering a lower speed service in New Orleans, along with our 1 mbps, symmetrical paid for service. In all of our other markets we've won, or are negotiating contracts for at this time - we are talking about paid services.

Second - The old zip code argument doesn't hold water. Everyone knows that high-speed services can be cost-prohibitive for those that are economically-challenged, and the fact that the cities want Muni Wi-Fi isn't just for 'technology sex appeal' but to offer a service to residents who otherwise can't afford the costs of the existing incumbent service! Without getting into political argument, I will simply state, that without the type of thinking around digital divide/muni wi-fi issues, that broadband in lower income areas is simply not being widely addressed, or built out. Of course, the folks over at Wireless Philadelphia can go into more detail on this if you want to talk to them.

You've discussed our biz model with us over the course of the past year and as you said, not many of the major cities are considering paying for the build outs themselves. Companies like EarthLink, that will build, own and operate these networks, build in the cost to upgrade networks. Further, we've been more than transparent that we are advocates of an open access business model, the more providers on the network, the more choices consumers have. None of this is addressed in what has been reported on from the Institute over the past couple of days.

Nonetheless, by having EarthLink bear the brunt of the costs - we know the score and will do what it takes to bring the service that customers want to the marketplace - or they will walk away to another service.

In a way, this is the 'don't use Wi-Fi, wait for Wi-Max argument' many made last year - why not do Wi-Fi now and bring Wi-Max in when certified and ready for prime time? They aren't mutually exclusive, and we see a day, and way, where Wi-Max will play a role in our networks in the future. The point, when you are building and paying the costs of the network, you consider all options for future needs and upgrades. That's why so many cities like this type of biz model for their potential citywide wireless network solutions.

Glenn, I could go on and on - but you know our position, and I just think this report, to date, doesn't jive with how the market place is shaping up at this time. Thanks for the soapbox, Jerry Grasso, Corporate Communications, EarthLink

Jerry, I think there is definitely a missing piece in critiquing open access versus non-discriminatory pole/facility access. The former has become more or less a given in RFPs. I can't think of a major or medium RFP that doesn't require the winning bidder to provide wholesale access to anyone--although there are questions about the qualifications to be "anyone." (Deposits of funds in advance, etc.)

Some have argued, notably in Boston, that wholesale access by a retail provider still puts the retail provider in a position of control that could allow it to manipulate the market. I think that there's going to be so much scrutiny of EarthLink and others in this position, that even were you or other firms to attempt to make it hard for other retail providers to offer service, that citizens and cities would make so much noise and invoke so many contract provisions, that it would be highly detrimental.

That's distinct from non-discriminatory facility access. That's addressed less because, I believe, most analysts and people in companies building service think the first-mover is likely to be the only mover in the market, regardless of discrimination.