Tim Wu has an absurd piece in today's New York Times comparing America's broadband marketplace to OPEC. This really is quite outrageous, beginning with the fact that OPEC is a GOVERNMENT-RUN cartel. Wu also had a comment in the Washington Post today saying that he didn't think broadband metering was an outrage. Well, that's nice. I'm happy that we have Tim's permission to experiment with new business models for financing broadband networks going forward!

This is indicative of what we can expect in the future once Net neutrality laws get on the books: A world of incessant "Mother may I?" permission-based forms of preemptive Internet regulation. Tim and his radical band of regulatory advocates over at Free Press will incessantly petition the FCC to review each and every business model decision and encourage the unelected bureaucrats at the agency to manage the Internet to their heart's content.

And what does Tim offer for an alternative vision of the way the world should work since he doesn't believe private markets can handle the job? Well, it's back to the Big Government drawing board for more tax-spend-and-subsidize solutions! "Amsterdam and some cities in Utah have deployed their own fiber to carry bandwidth as a public utility," he says. Yeah, that's the promised land. After all, it's working out soooooo well at the municipal level. Please.

Oakland Wireless appears to be in trouble. Add it to the list.

[Actually, is anyone out there keeping a running tally of the muni failures? If so, let me know so I can just start linking to it instead of all the random blog links. ]

I've posed that question over at the Tech Liberation Front blog and asked people to comment. Please join the conversation.

Back in 2005, I released a report entitled "Risky Business" about Philadelphia's muni wi-fi plan, which was then in the planning stages. In that report and some subsequent blogs, I laid out a few possible scenarios for what might unfold as problems developed with the municipalization plan, as they always do. I predicted that, as those problems developed and costs grew, it wouldn't be surprising to find the city proposing a bailout for the plan, or look to selling it off to some other established provider at fire sale prices.

At the time, I got a bunch of grief from pro-muni wi-fi advocates for that prediction. They tried to paint me as some sort of enemy of the people and anti-progress, but I just explained to them that the government's track-record on the municipalization front was consistent; consistently disappointing that is. That's usually because the best laid government plans can't keep pace with marketplace / technological developments in this fast-moving field.

Anyway, I felt strangely vindicated today after I read this blurb from Broadband Reports under the title, "Philadelphia Makes Back-Up Plan In Case Earthlink Bails: The city is prepared to take over if need be":

Terry Phillis, Chief Information Officer for Philadelphia’s Mayor’s Office, has stated that the city expects EarthLink to bail on its construction of a citywide wireless system. He says that more will be known within the next sixty days but the city is making back-up plans for municipal Wi-Fi based on the belief that EarthLink will sell (or entirely abandon) the system. They would prefer if EarthLink sold the system to another provider but are prepared to take it over themselves if need be. Phillis was vague about the city's plans but stated that the city sees the network as a valuable asset for residents as well as for their tourist economy.

Valuable for the tourist economy? Yeah, I know I make all my travel plans according to which government's offer muni wi-fi systems. Please.

utopia: [yoo-toh-pee-uh]
n.
"nowhere."
"an impractical, idealistic scheme."
"an imaginary place."

The fate of the project seemed preordained, no?

I agree with Adam's analysis. One sympathizes just a bit with the officials behind this well-intended public project, especially in a sparsely populated geography. Broadband bridges in Utah seem more useful, at least superficially, than Alaskan bridges to nowhere. But in the fast-moving world of broadband technology and digital media, the hardware and software -- and especially the content business plans -- change so fast and are so experimental that tax-funded public works projects are unlikely to succeed. The large capital and operating expenses of these networks require long-term commitments from well-capitalized companies -- companies large enough to make mistakes and still recover. Beyond Utopia's big network investments, it had a particular "open content" business model that may someday arrive but hasn't so far. This isn't to say there aren't entrepreneurial entrants in niche markets, especially small-town wireless providers. But before we throw our hands up and turn over bleeding edge technology projects to a state or city bureaucracy, shouldn't we first remove federal and state barriers to private network investment and see how that works first? In the states that have deregulated telecom in the last few years, broadband investment -- both cable and telecom -- is booming.

I've been trying to keep tabs on the status of various municipal wi-fi experiments going on across the nation by posting local news reports about them whenever I see them. The results so far have not been encouraging, but this hasn't been that surprising since those of us who study these issues know that most wireline muni experiments failed too.

And speaking of failed wireline experiments, it appears there's another one that might soon be added to the list. The Utah Telecommunications Open Infrastructure Agency--or "UTOPIA" as it is known--was created in 2002 by local Utah officials who wanted to bring high-speed Internet access to their communities. Eleven communities pledged roughly $200 million over 20 years to back the bonds needed to finance the construction of advanced fiber-optic facilities. Utilimately, the goal was to ensure inexpensive broadband for the masses at minimal cost to taxpayers.

But there are problems in paradise. According to this recent article by Steve Oberbeck of The Salt Lake Tribune:

[F]our years after 11 Utah cities... pledged to financially back the UTOPIA system, its finances are in shambles. Construction is behind schedule. Its top promoters have quit, and its newest chairman has uttered the unthinkable - that despite promises to the contrary, the cities that pledged their support eventually may have to pony up hundreds of millions in taxpayer dollars to prop up the system.

What went wrong?

EarthLink appears to be getting out of the muni wi-fi business for good. The company is at least is abandoning the major Philadelphia experiment it was in charge of. According to today’s press release:

“After thorough review and analysis of our municipal wireless business we have decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value," said Rolla P. Huff, EarthLink president and CEO. “Accordingly, at this time, we are considering our strategic alternatives with respect to this business," Huff added. EarthLink will seek to work closely with the municipalities in which it has operations as it considers these alternatives. The net book value of the assets attributable to EarthLink’s municipal wireless business is approximately $40 million.

A few years ago, many folks were telling us that muni wi-fi was like manna from heaven; the ultimate free lunch that would give us a broadband nirvana. As some of us predicted--reality often proves more complicated. Indeed, one lesson from this experiment is that demand counts. There was always a bit of "if-you-build-it-they-will-come" reasoning behind the Philly deal and other muni wi-fi proposals. But you can't build a network without a customer base, and recent news reports indicated that demand was lacking.

A second lesson: Network-building is a tough, time-consuming and expensive task. Networks aren't like lemonade stands; you can't just erect an entire network overnight and expect things to be functioning smoothly right away. Almost all networks involve significant upfront investments (sunk costs) that constitute an extraordinarily risky investment given uncertain market demand. And problems always creep up, for both public and private networks alike. The difference is that the private (or unsubsidized) network owners usually have a better incentive to fix whatever ails the network in order to build and retain a customer base and (hopefully) become profitable.

This doesn’t necessary mean that muni wi-fi efforts are dead entirely. Other experiments are still underway and hybrid models are emerging. Civitium, a consulting firm that helped devise the Philadelphia plan, is still bullish on other experiments. Some might work out, but the business models will likely need to change to take into account demand factors and the enormous challenges and expenses associated with network-building. If some companies (think Google, Apple, or even Starbucks) or other institutions (think universities) are willing to generously subsidize money-losing, low-demand muni wi-fi efforts, then they might work. But I remain skeptical that the old models like Philladephia's have any chance of panning out.

In today's Wall Street Journal, Ben Charny has an article discussing why "Free Wi-Fi [is] Still an Elusive Goal." He notes:

The same forces slowing development of single-city wireless Internet networks are now overwhelming their supersize versions that cover thousands of square miles and scores of municipalities. A telling example of the malaise can be found in Silicon Valley, where plans to provide free, high-speed wireless Internet access to 42 cities in an area of more than 1,500 square miles have come to a standstill, says Russell Hancock, the man in charge of the effort.

It was once thought that municipal wireless networks of all sizes could be supported through the sale of advertisements that appear during the free Internet sessions and the small fee paid by those who want a faster, ad-free Internet service. However, many cities with wireless networks say that there's been little demand for their premium services and that technology issues have limited the networks' reach. Moreover, while businesses were willing to invest in advertising on these single-city networks, they complain about very little return on their investment.

So, once again, we see that demand counts when it comes to broadband diffusion. That's been a point that many of us made in the past when critiquing grand plans for muni wi-fi nirvana that all seemed to be premised on the "if-you-build-it-they-will-come" theory of economics. We're now realizing the cost of that hubris. It's one thing for private companies to be forced to eat the expense of over-estimating demand, it's quite another when taxpayers might be on the line for the mistake.

I've written about muni wi-fi problems many times before. (Here, here, here, and here). [Tom and I also wrote separate papers about the Philly plan.]

Here's another one to add to the list. The Chicago Tribune reports today that:

Chicago is curtailing its digital dreams, deciding to back away from municipal Wi-Fi service after failing to reach agreement with either of two companies that sought to build a wireless Internet network in the city. The move comes as municipal broadband wireless projects around the country face difficulties, and EarthLink Inc., a major player in the field, is re-evaluating its future in municipal Wi-Fi.

And here's the key line from the piece:

[T]echnology is advancing and the cost of online access for consumers is declining so dramatically that Chicago has other avenues to promote more use of the Internet. As a result, the Wi-Fi deal lost luster when negotiations bogged down, according to sources close to the matter.

In other words, markets are working.

More bad press for the muni wi-fi movement. It seems like each week brings another story of how things haven't quite turned out as planned. This week, it's Business Week with a story about "Why Wi-Fi Networks Are Floundering." In the piece, author Olga Kharif argues that:

The static crackling around municipal wireless networks is getting worse. San Francisco Wi-Fi, perhaps the highest-profile project among the hundreds announced over the past few years, is in limbo. Milwaukee is delaying its plan to offer citywide wireless Internet access. The network build-out in Philadelphia, the trailblazer among major cities embracing wireless as a vital new form of municipal infrastructure, is progressing slower than expected.

These potholes in the nation's wireless rollout of civic ambition—criticized by many as an improper use of tax dollars—are hardly the exception. For the road is getting bumpier for cities and the companies they have partnered with in a bid to blanket their streets with high-speed Internet access at little or no cost to users.