WSJ: Philadel-Fi

Sometimes reform comes in very strange ways. The Battle Royale between the City of Philadelphia and Verizon over who will provide citywide wireless Internet-access plans couldn’t be more confusing. Free-market types have got to root for publicly traded Verizon over any local, politicized branch of government, right? Cmon, isn’t this City Hall were talking abouta building wrapped in red tape (as if by Christo)! Their track record teaching our kids, hauling our garbage and running the buses does not portend success. Surely theyre not first choice for megabit broadband.

But then, why hasn’t Verizon already slapped up Wi-Fi hotspots in the city? The estimated cost of $9-$13 million to cover 135 square miles is a drop in the bucket to their billions. The PR from bridging the Digital Divide for “low income, minority, disadvantaged neighborhoods” (as Philly’s chief information officer, Dianah Neff put it) would be priceless.

Instead of investing in building wireless capacity, however, Verizon lobbied hard to quash public-sector competition. And close to midnight one evening last November, lawmakers in Harrisburg quickly passed House Bill 30, whose fine print barred any political subdivision (government or nonprofit set up by the government) from providing a public telecom service for a fee. After an outcry, Philadelphia got a waiver, but Verizon is the one that sounds like a political subdivision. For the cost of their lobbyists, they should have just installed the citywide system and held off competition. Clearly Verizon is hiding something: But what? I told you it was confusing.

Now I can’t decide who to root against, bureaucrats or monopolists. But someone is missing. Where are the entrepreneurs? Why aren’t venture capitalists spreading wireless Internet all over Philadelphia or Pennsylvania or the entire country? Is this a profitless pit? Sort of.

Now I can’t decide who to root against, bureaucrats or monopolists. But someone is missing. Where are the entrepreneurs?

A company named Cometa blew through lots of cash trying to do this. And Philly has that implied the Wi-Fi system will lose a million-plus dollars a year. That certainly would keep most investors away. The city is contracting with private companies, and they claim no taxpayer money will be spent, but that they might have to raise bonds. Right.

But it turns out cities get to sort of cheat, cite eminent domain, and place a lot of gear on their own light poles and radio towers. No startup gets that deal. And new mesh technologies mean Philly can plug into the Internet just once, paying wholesale rates, unlike the folks that run Starbucks or hotel hotspots, who overpay (probably to Verizon) for the Internet connection their Wi-Fi users share.

But the real whopper is that - as Ms. Neff claims - by the third year, Philly will be saving $2 million a year on their $150 million IT budget by not having to pay Verizon for Internet access at their 24,000-employee city offices. Hmmm. That whole disadvantaged thing is just icing. Sounds like some sort of arbitrage.

It is, and its not going to be pretty for Verizon. By rigging the city with wireless hotspots, under the guise of helping the disadvantaged, Philadelphia may completely bypass Verizon. A T-1 line from Verizon, which is 1.5 megabits of data per second, runs anywhere from $400 to $1300 dollars a month. With Municipal Wi-Fi (Mu-Fi), that could drop to $300, heck, maybe even $20 a month. Consumers (read voters) are happy and small businesses will save tons of money. No wonder phone companies are circling the wagons. Think of it as a Telco tax cut. Cheese steak sales are gonna boom.

Its about time (for cheaper access, not cheese steaks). If municipalities across the U.S. are willing to lose $1 million a year to save $2 million, this is going to spread like wildfire.

San Francisco is next. Gavin Newsom, who was elected on a platform of getting rid of the homeless, now wants to offer them Internet access. One-upping Philly, he is quoted as saying “We will not stop until every San Franciscan has access to free wireless Internet service.” And a chicken in every pot? Local phone company SBC is none too pleased, especially since the San Francisco Giants play in SBC Park, which by the way, has free Wi-Fi access (but just in the ballpark).

Every city may go for it - Atlanta is now accepting bids for Mu-Fi - and Tempe, Arizona, may actually roll out first. Legislators are getting in on the catfight. John McCain introduced the Community Broadband Act of 2005 to counter Texas Rep. Pete Sessions bill which would seem to give telcos a veto. Those sounds you hear are lobbyists printing invoices. Dave Hagan, the CEO of Boingo Wireless, told me, “competition will ultimately make monopoly telcos compete rather than protect their turf through lobbying and other means.”

Its more turf than you think. SBC and Verizon are now offering $15 DSL lines, in response to cables success selling data lines. But its not just Web pages. We already know Internet connections can handle voice callsbut services available now are generally for home use. With citywide coverage, inexpensive Wi-Fi phones (Motorolas got one) will threaten telco-owned cellular carriers Verizon Wireless and Cingular. I can see Rocky at the top of the Museum of Art steps yelling ‘Yo Adrian’ into his Wi-Fi smart phone.

New technologies exist that adapt Wi-Fi signals as they bounce off walls and buildings, guaranteeing 15-megabit speeds, enough for one high-def or three regular TV channels. One of the hottest consumer electronics products in Japan is a flat panel Shower TV that displays Wi-Fi video streams. So lets seecustomers might shut off their home phones, their cellular phones and maybe even their cable connection. Ouch. Want to bet Comcast joins the fight against Mu-Fi?

While we wait for the Telecom Reform Act of 2021, cities will set these systems up and could radically change the economics of telco and cable. But do we really want city hall between us and our Google searches? Dont worry. You can bet that after being inundated with customer service calls - “Where do I stick my dongle?” - these Mu-Fis will be sold off to the private sector. W.C. Fields supposedly proposed his own epitaph, All things considered, Id rather be in Philadelphia. Maybe this will be on Verizons tombstone as well.

Mr. Kessler is the author of “Running Money” due out soon in paperback from HarperBusiness.

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The lobby bar was filled with happy pretty people and were not Jesus in the corner waggling his finger at me saying, bonsoir my son there are four more weeks in Lent, I'd have bellied up and made me some new friends. Not that you have to be drinking to make new friends. But if you are they're so much more fun.