Ambitious plans for big Wi-Fi networks to provide free or low-cost wireless Internet access are being abandoned or scaled back by US cities as the economics of the deals turn out to be more challenging than expected.
San Francisco and Chicago in recent weeks abruptly halted plans to set up municipal Wi-Fi networks while Internet giant Earthlink, a partner for a number of cities, has begun a reorganization that will limit new projects.
Wi-Fi, one of the most popular standards for wireless Internet access, had been seen as a means of connecting more people at a relatively low cost, and city leaders across the United States had been rushing to use the technology for "digital inclusion" programs for low-income residents.
But cities and companies are finding the economics more difficult, with many expensive access points needed and relatively small numbers of subscribers signing on.
"I think it's a troubled market," said Daryl Schoolar, senior analyst at the research firm In-Stat.
"Some thought a lot of people would rush out with laptops and would use it. But Wi-Fi doesn't really penetrate buildings well. And people use Wi-fi mainly in hotels, airports and cafes."
Although some privately operated Wi-Fi deployments in these high-density locations have become popular, analysts say the notion of a large municipal network blanketing cities is questionable.
MuniWireless, a website tracking municipal projects, counts over 400 cities in planning or development of Wi-Fi networks. But analysts say only a small percentage of these are operating, and many are primarily for police or public-safety access.
"The problem is finding a business model that really works," said Stan Schatt, analyst with ABI Research.
"Originally the municipalities came into this by saying they would offer Wi-Fi and get a free ride for their internal networks, and it turns out it doesn't work that way."
In San Francisco, Google was preparing to back a citywide Wi-Fi program with Earthlink that would be free for users who agree to view online ads, with paying customers getting an ad-free version. But the city was unable to come to terms with Earthlink before the firm pulled out and announced a massive reorganization on August 28.
Chicago officials announced August 31 they would "re-evaluate" their plan after two potential partners failed to come up with a suitable plan because a network required "extraordinary financial support" from the city.
"In Chicago and in many other cities, a municipal Wi-Fi network was initially envisioned as a way to provide cheaper, high-speed access to consumers," said Hardik Bhatt, the city's chief information officer.
"But given the rapid pace of changing technology, in just two short years, the marketplace has altered significantly."
Ahead of the other major cities, Philadelphia meanwhile is rolling out its Wi-Fi network, having covered more than half of the city's 350 square kilometers (135 square miles).
The nonprofit Wireless Philadelphia organization has provided some 300 low-income residents with laptops and wireless "bundles" at a price of around 10 dollars per month. Free access is provided in many parks, and customers can sign up for citywide access for about 20 dollars monthly.
"Philadelphia remains the showcase city for municipal wireless networks," said Wireless Philadelphia chief executive Greg Goldman, who indicated partner Earthlink's reorganization would not affect the project.
Earthlink said it would keep its commitment to that city but would not take on any new projects using the "old business model."
"We will not devote any new capital to the old municipal Wi-Fi model that has us taking all the risk by fronting all the capital, then paying to buy our customers one by one," Rolla Huff, EarthLink president and chief executive, told a conference call with analysts. "That model is simply unworkable."
"EarthLink's reorganization may be the reality check that the municipal broadband market needs," says analyst Joe Panettieri, writing on MuniWireless.
"Too many municipalities continue to focus on large, ambitious public wireless projects that have no clear path to profitability."
Yet analysts say that despite the problems of municipal Wi-Fi programs, wireless Internet access is growing and more networks will be coming in some form.
Other technologies are promising including WIMAX, which has a longer range for each access point. Spint Nextel and Clearwire are planning big WIMAX rollouts in the United States and other countries, analysts say.
"There are many versions of this wireless technology, some will work and some won't, and we're in the early innings," said Jeff Kagan, an independent telecom industry analyst.
But Kagan said the idea of cities providing Internet access appears doubtful.
"This is a technology that is changing so quickly that you have to allow the industry to handle it on a competitive basis to keep the prices low and innovation high," Kagan said.
"When government gets involved in these projects, no matter what government, it just trips over itself."
Ambitious plans for big Wi-Fi networks to provide free or low-cost wireless Internet access are being abandoned or scaled back by US cities as the economics of the deals turn out to be more challenging than expected.