City-Run Wi-Fi Hype Doesn’t Pass Muster

City-run wireless broadband networks (Wi-Fi) -such as those now under discussion in Chicago, Philadelphia, Las Vegas, New York, and San Francisco – are being hyped on the strength of dubious claims about benefits and have faced almost no hard-nosed feasibility studies, according to a major New Millennium Research Council (NMRC) report compiled by six leading scholars and telecommunications policy experts. The NMRC report authors warn that “beneath the positive media coverage and glowing press pronouncements are troubling signs that these publicly held networks can result in less than anticipated outcomes,” leaving taxpayers to fund outdated technology from already strained city budgets.

The NMRC report authors conclude: ” … municipal Wi-Fi networks present a number of serious problems that are being overlooked as cities rush into committing millions in taxpayer dollars to pay for network development and expansion … [W]hile the intentions of city officials and administrators are admirable, the roll-out of municipally held Wi-Fi networks will likely have a detrimental affect on city budgets and on competition in the telecommunications industry, and fail to produce the economic growth and jobs promised by municipal leaders. … [C]ity ownership of Wi-Fi networks is not the solution for bridging the Digital Divide or encouraging competition in the broadband market.”

Among the identified “grave flaws” in city-run Wi-Fi schemes are the following: potential major cost overruns that would draw more taxpayer dollars away from other city priorities; damage to legitimate commercial broadband competition resulting from taxpayer-subsidized municipal entry; a lack of evidence that economic development and jobs will result from publicly funded citywide Wi-Fi systems; the fact that nearly all previous municipal attempts to deploy broadband networks have failed; and a disturbing reliance by proponents on unsubstantiated “if you build it, they will come” assumptions that are at the heart of most city-run Wi-Fi scenarios.

In his contribution, U.S. Internet Industry Association President and CEO David P. McClure details the numerous expenses that cities will face to operate a Wi-Fi network, expenses not often discussed in the media. He states: “Municipal broadband networks are most frequently described in terms of the cost to build the network, and a cost to operate the networks if all economic conditions come to pass. But such accounting overlooks major elements of the cost of operations as well as the hidden cost of lost opportunities. For example, the projected budgets seldom cover the administrative costs of billing and contracts … the cost of compliance with the myriad of state and federal laws visited upon broadband networks; or the cost of maintenance and replacement.”

The Heartland Institute Senior Fellow for IT and Telecom Policy Steven Titch challenges the assertions by some cities that competition is lacking, there are an insufficient numbers of providers, and consequently that the city must deliver the service to its constituents. He notes: “While city officials often present the commercial side of the [broadband] business as concentrated in the hands a handful of large corporations, commercial Wi-Fi service providers actually run the gamut from nationwide telecom companies such as T-Mobile and SBC to specialists such as Boingo Wireless, Clearwire, Airpath, and iPass.”

Dr. Ron Rizzuto, professor of finance at the University of Denver, states: “If the city is allowed to price its service below cost and use its taxing authority to subsidize the municipal operation, the private sector will have no incentive to reinvest in its network.”

The NMRC report is available at http://www.thenmrc.org/.

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