US municipal Wi-Fi loses its shine
Business models followed technology too closely
Mesh equipment has become more sophisticated in the second generation, supporting voice as well as data and with improved hand-off and routing, but this has also increased the capital investment required. For instance, the general rule in dense urban environments is now to install about 60 access points per square mile, double the number needed for the early data-only meshes. Wi-Fi is certainly not the cheap and cheerful solution it was once portrayed to be, and yet without the security and QoS of licensed bands – or at least licenseexempt bands that are subject to stronger good conduct rules than 2.4GHz typically is in the US – it is difficult to deliver a carrier class experience that would justify high ARPU. ‘Real’ operators remain primarily interested in ARPU, and that will change very slowly.
So the Google/Earthlink model emerged, with the internet players running a best effort, free service supported by advertising, and the experienced provider taking responsibility for managing the network, and offering higher value, tariffed services. On paper this looked fine – and will still work, if a carrier class network in licensed spectrum is introduced for the premium and enterprise services, hence the interest in WiMAX/Wi-Fi combinations among operators like Clearwire. But with Wi-Fi, the carrier was stuck with a network that could not guarantee to deliver premium services effectively. And at the best effort end of the scale, most municipal networks – as Chicago has found – have been launched in city centers where users typically expect better quality, and have access to other free networks.
Here is the fundamental conflict at the heart of the failure of muni Wi-Fi – successful advertising depends on targeting user bases that are attractive to the advertisers, but in many cases these are the least likely bases to take advantage of a low quality service, while the underserved communities that would genuinely welcome free access are ignored, as not being desirable to the clients.
Municipal networks tried to achieve two goals that have proved incompatible in the free market US – though may work better in emerging economies or in some European nations where public funding is not yet a dirty phrase. Chicago’s comments, including a statement that the municipal network would still require “massive public financing” even with an advertising model, show that digital divide projects need tax dollars, and must compete for these with other candidates for the city budget.
The other goal, to introduce a disruptive and open service model to challenge that of the cellcos and broadband giants, will be achieved, just not using city Wi-Fi. The municipal networks have proved a catalyst, heightening interest and confidence in open access and ad-driven approaches, but to attract the broad uptake by a wide range of users that advertisers will need, far more sophisticated offerings will be needed than Wi-Fi could support in 2.4GHz.
Full mobility, location awareness on handsets, advanced multimedia – these will be the bottom line for advertisers in advanced economies, and these need the robustness of carrier class technologies like Wi- MAX and spectrum that has some rules and safeguards. This puts the ball back in spectrum owners’ courts, and some are making innovative moves in their own right, notably T-Mobile USA with its parallel and increasingly tightly integrated hotspot and cellular systems; or Sprint and Clearwire, with their plans to support the open access model, but on their own spectrum.
Google’s mission now is to ensure that bands such as 700MHz have those rules, but rewritten to favour a mobile internet/advertising model that will really work, and generate profit, rather than being just a glorified publicity stunt.
Chicago’s city authority said last week that it was cancelling its plans for a municipal Wi-Fi network because it would be “too costly and too few residents will use it”, and would require “massive public financing”. EarthLink and AT&T were the operators involved in the project, with AT&T dropping plans to build a mesh network for nearby Springfield, Illinois.
EarthLink has been pulling back rapidly from its once fervent commitment to city Wi-Fi as a means to build itself a broadband base that would bypass the telco networks. Last week it said it was cutting 900 jobs from a total workforce of about 2,000 and closing several offices. It has eliminated the post of president of municipal networks and says it will now only commit to municipal projects if the city pays for the construction. "Where we are building or have built networks, we will continue under the old business model," said a spokesperson. "But in cities where there are no signed contracts, we are revisiting the issues." Officials in 12 cities in negotiations with EarthLink were not available for comment, but the ISP has already pulled out of the much vaunted San Francisco plan.
This could spell the end of Google’s aim of making San Francisco the showcase for its free access model – it was EarthLink’s primary, but increasingly silent, partner in the project. The company did reveal some results from its own free muni Wi-Fi system, in its native town of Mountain View, California, and reported that the network now covers 12 square miles, based on 400 mesh routers, and counts 15,000 unique users each month. It said traffic has grown by 10 per cent per month and the network now carries 300Gb of data every day.
The slowdown in municipal build-outs will have a knock-on effect on the mesh vendors, and growth is slowing, although it will still be about 90 per cent in 2007, according to In-State. The researchers say that the Wi-Fi mesh equipment market had more than 100 per cent shipment growth in 2006, and will have more than 90 per cent growth this year, and that strong growth will continue for mesh access points for the next several years, as shipments grow more than threefold between 2006 and 2011. However, most of that growth will come between 2006 and 2008, with rates rapidly declining in 2009. “Cities will continue to deploy municipal mesh networks, but the rate of new deployments after 2008 will slow, due to concerns over the business model,” said analyst Daryl Schoolar. This means mesh vendors will start to focus more on enterprise systems – a sector some companies like Strix sidelined to chase the municipal boom – and on introducing new technologies like WiMAX.
Copyright © 2007, Faultline
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