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06/06/2007Municipal Wireless a Questionable Business Model? Nope…Been There, Seen That!
Every few months there seems to be some new article from a reputable publisher that calls some element of the Municipal Wireless industry into question. Lately, it’s been the service provider business model (in the wake of EarthLink and MetroFi announcing a shift in model strategies.)
What seems to be overlooked is that Municipal Wireless is following a similar path to Hospitality Broadband – a model which has been around for over a decade now. Hospitality Broadband (high-speed Internet access in hotels) emerged with the development of the low cost gateway. Originally it was a DSL-based solution deployed by companies such as CAIS Internet and Darwin Networks.
Considering the laptop was a rare commodity and the cost to deploy was over $500 per room, it’s no wonder many of these models failed early on. It was only after the introduction of low cost WiFi gateways by vendors such as Colubris, IP3 Networks, and Nomadix that the model suddenly became viable. This technology enabled the model for Hospitality Broadband (now primarily via WiFi) to decrease deployment costs down to $150 per room (currently its half that.)
As Hospitality WiFi emerged, the model called for the service provider to deploy the network on their own dime and collect the revenues (with a revenue share to the hotel owner.) A couple of years later, usage rates were lagging. Service providers were not attaining profitable levels and the market was calling the business models of industry leaders such as Wayport and STSN (now Ibahn) into question. Even high profile Cometa Networks (with a boatload of venture capital) came and went based upon the build-it-and-they-will-come WiFi access model.
As we entered 2003, most upper class hotels had WiFi (a mere 20% of the total hospitality market) and the mid-level hotels were feeling the pressure by consumers to meet this demand – not to mention that laptops had become a business traveler’s requirement. It was at this time that Holiday Inn (normally a market laggard) jolted the market by demanding every hotel in their franchise provide free WiFi. Fearing the potential impact on occupancy, Choice Hotels followed with a similar strategy.
Free was now becoming the defacto requirement for mid-level hotels. Despite the questionable business models, the critical partner – the one holding the real estate (hotel owner) – was officially acknowledging that providing complimentary WiFi was going to be a necessity for the foreseeable future.
The model had shifted. No longer was “build-it-and-they-will-come with a revenue share component” an option. The model became one where the hotel lease/purchase the system, and subcontract the management of the network to an ISP for a fee. Some higher end hotels still do charge for access as they either still have contracts, or they believe that their guests are willing to pay a nominal usage fee. Regardless, most Hospitality WiFi service provider models are proving profitability.
So how’s this similar to the Municipal Wireless model? Well, we’re definitely following a similar pattern. Demand originally materialized out of a desire for high speed WiFi in high loitering areas (hotels, cafes, etc.) As more people demand Internet access in more places, those high loitering areas moved from the hotel (and the home) out to “all places, all the time.” Demand triggered an evolution in technology that allowed WiFi to grow from inside the hotel to outside and throughout the city.
The first Municipal Wireless deployments were fully funded by ISPs. Several models have been publicly called into question at some point, and several have changed. For example, MetroFi began with the model of fully funding network deployments with an advertisement subsidized free access component. Recently they’ve announced a shift in that model. While free access is still a service component, the city must provide a level of anchor tenancy to help financially support that service (along with other Municipal services.)
St. Cloud, FL was the first US city to build ubiquitous free WiFi. With a sign-up rate of nearly 80% of the city’s residents, it’s a model that is now being copied (or at least under serious consideration) by several nearby cities. Boston has announced their desire to build a ubiquitous free WiFi network. This is the first “NFL City” to make such as commitment. San Francisco’s community activists have provided opposition against any non-city owned free access solution.
The model is shifting…and in a couple of years we’ll see anchor tenancy support free WiFi in many more communities. One thing’s for sure, laptops are becoming more and more popular. The more WiFi access devices people have, the more they will want to be connected. And they will want it for free. Eric DaVersa is Vice President of Business Development at NetLogix, a San Diego–based wireless networking consultancy. He and partner Scott Akrie lead the Municipal Wireless Networks & Technologies Training Seminar at the W2i Digital Cities Convention.
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Related Items:
• Maine InfoNet
• Free Wi-Fi: Where's the Fon in that?
• All-Purpose Wireless Remains Free in Islington, UK
• Glenn Sangiovanni, Mayor, St. Cloud (FL)
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