Companies Grow Wary of Building Out Municipal Wi-Fi Networks

Utility workers armed with the latest wireless gadgets will be able to read electric meters remotely using Wi-Fi networks many cities are contemplating.

Police and building inspectors can file and retrieve reports on the go. City employees carrying Wi-Fi phones can also reduce cellular phone bills.

In fact, officials in St. Cloud, Fla., figured they were saving enough to pay for their network's $2.6 million construction and estimated $400,000 annual operating costs. It's how they justified giving all residents free Internet access on the system.

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Yet other municipal projects are counting on subscription or advertising revenues from residential usage. Some are in danger of failing if they cannot boost demand.

"The strength [of municipal projects] to me has been and always will be its value to municipalities as a tool to improve the municipal operations," said Craig Settles, author of "Fighting the Good Fight for Municipal Wireless."

But that case doesn't deliver as many political points for elected officials, Settles said.

"If you're a politician and promising free access or low-cost access, it becomes everyone's 15 minutes of fame," he said.

In cases where private companies are agreeing to finance the networks in exchange for rights to sell services or ads, the vendors have become more demanding of cities, insisting that they agree to spend a minimum amount for public safety and other municipal applications under arrangements known as anchor tenancy.

That would guarantee a revenue stream to supplement what vendors might be able to sell to residents and businesses.

Subscriptions or ads alone, Settles said, are "not enough to cover a multimillion dollar project."

When Sacramento, Calif., insisted on a free, ad-supported network without anchor tenancy, MobilePro Corp.'s Kite Networks walked away despite already having spent a few hundred thousand dollars plus untold time in testing.

The company said that was better than sinking $8 million into a project without a sound business case.

"You can't not provide anchor tenancy and expect a company to give away free service," said Jerry Sullivan, Kite's chief executive. "You have to pay for the recurring costs of a service."

MetroFi Inc., which offers consumers free service supported by advertising in Portland, Ore., Aurora, Ill., and seven California towns, says the company will insist that future contracts include anchor tenancy commitments.

EarthLink Inc. (ELNK) also is cooling its heels. Cole Reinwand, an EarthLink vice president, said the company would likely seek minimum spending guarantees on future projects, the way Houston must spend $500,000 a year.

MetroFi said it got the idea for anchor tenancy from Portland, even though its contract doesn't require the city to spend a dime. The city said it expects to buy network time for municipal applications but made no guarantees.

"They have talked to us more about certain target dollars they'd like us to hit, [but] contractually there is no way they can force us to buy services," Logan Kleier, the city employee who oversees the Wi-Fi network being built by MetroFi.

According to the industry Web portal, 38 of the 176 U.S. municipal systems fully or partly in place as of March are for public safety and municipal use only.

Those are more likely to succeed because expectations can be better managed and municipal applications generally don't require as much bandwidth as video and online games, said Becca Vargo Daggett, director of a telecom research project at the Institute for Local Self-Reliance.

Esme Vos, founder of MuniWireless, said potential city uses are endless, including wireless surveillance cameras, parking meters and Internet-based phone calls.

Cities just need to factor that in when building the networks.

"Some cities in the past have asked EarthLink to come in, build the network and bear all the costs," Vos said. "That's not popular anymore today. Most providers will not come to a big city, spend tens of millions of dollars to build a network and live on subscriber use" alone.