Cheesesteaks with a side of Wi-Fi

Yesterday, Governor Rendell of PA signed into law a bill that, among other things, requires cities to offer the incumbent telephone company the right of first refusal to provide the proposed service. If the ILEC waves its right to provide the service, the municipality may proceed with its proposed network. While the bill is a victory for telecoms, helping to prevent the intrusion of government into competitive private services, the extent of victory seems questionable. The right of first refusal allows for a private veto of a municipal project. The question remains, however, as to how much this helps the incumbent. If a municipality is contemplating entry into a market, it is usually because there are no viable private alternatives. This generally would indicate that private investment in infrastructure and services in that area would not make economic sense, or else an incumbent would already provide service there. To this end, it does not seem unreasonable that incumbents would not exercise their veto power, because they would not want to invest in a losing venture.

The Philadelphia Wi-Fi case is a perfect example of an incumbent allowing a muni to provide service rather than provide the service itself. Verizon chose to allow Philadelphia to go ahead with its municipal Wi-Fi plan, because, as can be assumed, Verizon did not see it as a profitable endeavor and thus had no interest in deploying a city-wide hotspot.

This leads to another question: what is the value added by creating a city-wide hotspot in a city such as Philadelphia? While not a very costly venture, it also does not seem terribly practical. There are currently over 50 hotspots in Philadelphia, at locations such as Starbucks, Cosi, and several hotels. With a city already so well-endowed with hotspots, the need for city-wide Wi-Fi makes little sense. Further, cities generally are very well wired for broadband access. Since the incumbents in cities already provide several viable means to access broadband either at home, work or public access points, there is little need for municipal intrusion into the broadband markets of cities. If the services were profitable, an incumbent would already be offering it.