Los Angeles Business Journal

Villaraigosa Should Ask If a WiFi Plan Is Really Necessary

Los Angeles should follow Anaheim's broadband plan

With the recent announcement that Los Angeles will seek bids for a citywide wireless Internet network, Mayor Antonio Villaraigosa has joined some 300 other U.S. cities and towns hoping to create a low-priced, ubiquitous form of Internet service.

In proposing a private-public partnership Villaraigosa has greatly improved chances for success at the outset. Under the proposed WiFi Initiative, Los Angeles would contract with a commercial service provider. In return for use of city property and right-of-way – light poles, buildings and other real estate – the service provider would agree to cover 498 square miles at an estimated cost of $60 million. The deal might also include a low-price or free tier of wireless service aimed at low-income residents, although more will be known once the city issues a formal request for bids.

The advantage of a private-public partnership is that it places the responsibility of funding, building and operating the system on the private sector. With more than 400 WiFi hotspots already in place throughout the L.A. area, any wireless venture will have plenty of competition from the get-go. So Villaraigosa has wisely taken use of taxpayer dollars and municipal loans off the table.

He knows that, with the exception of a few very small towns, governments that have attempted to build and operate their own wide-area broadband networks have found themselves in deep money pits. Chaska, Minn., for example, ended up spending $900,000, 50 percent more than planned, on its municipal wireless network, before turning to a private partner to solve chronic signal coverage problems. St. Cloud, Fla., spent $2.6 million but couldn't get a signal to most residents in a town of just 28,000.

Right now, San Francisco is the only major city seriously considering a city-owned network. The city's Board of Supervisors is battling Mayor Gavin Newsom because it wants a municipally-owned system, even though Earthlink and Google offered to build it for free.

"We never thought it would be so hard to spend money in a city – or such a hard sell to give something away," EarthLink Vice President Cole Reinwand said.

"I'm not going to take $10 million from poor people to pay for something that a private company has offered to pay for," said Newsome.

Public-private partnerships definitely present less risk, but Villaraigosa should ask if a citywide WiFi plan is even necessary at all. There's a common assumption that government needs to provide some sort of spark for urban broadband growth – a bridging of the so-called digital divide. But all evidence indicates the market is reaching new customers on its own.

Last year, the Pew Internet & American Life Project found there was a 40 percent increase in home broadband adoption from March 2005 to March 2006, double the 20 percent of the previous 12 months. Moreover, in the same period, broadband adoption grew by 68 percent among people living in households with incomes between $40,000 and $50,000 per year, by 121 percent among African-Americans, and by 70 percent among those with less than a high-school education.

Unfair competition

Secondly, even without direct taxpayer funding, municipal agreements may constitute unfair competition. After all, in most cases, the commercial WiFi partner gains exclusive access to city property, which reduces operating costs. Proponents argue that this benefit offsets anything in the deal requiring private partners to serve low-income communities. But that assertion itself assumes that serving low-income users is either undesirable or uneconomical. The evidence from Pew counters this assumption. The low-end broadband market is viable and growing. A government-sponsored project to deliver cheap broadband may not be necessary, and may in the end, serve as a barrier to competition in this segment because the commercial partner is getting a break on right-of-way costs that other companies won't enjoy.

Neighboring Anaheim came up with the best WiFi approach – offering non-exclusive, low-cost access to city right-of-way. As a result, it became one of the first cities to inaugurate a citywide system last summer, with plans ranging from $3.95 per hour or $21.95 per month. It also makes residential service available though partnerships with PeoplePC and DirecTV. Offering right-of-way to all-comers enabled Anaheim to ensure greater competition and avoid lock-in to a specific technology, which could quickly become obsolete.

L.A. seems to have bought in to the notion government needs to "do something" to make citywide WiFi happen. Villaraigosa's plan isn't as good as Anaheim's and isn't as bad as the government-run route pushed by some in San Francisco. The mayor's timetable calls for WiFi roll out in 2009, but chances are that by then, working on its own, the free market may well have pre-empted city's broadband goals.





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