Cities’ Wi-Fi projects falter

A $3 million plan to blanket Lompoc, Calif., with a wireless Internet system promised a quantum leap for economic development: The remote community hit hard by cutbacks at nearby Vandenberg Air Force Base would join the 21st century with cheap and plentiful high-speed access.

Instead, nearly a year after its launch, Lompoc Net is limping along. The central California city of 42,000, surrounded by rolling hills, wineries and flower fields more than 17 miles from the nearest major highway, has only a few hundred subscribers.

And Lompoc isn’t alone. Across the United States, many cities are finding their Wi-Fi projects costing more and drawing less interest than expected, leading to worries that a number will fail, resulting in millions of dollars in wasted tax dollars or grants.

More than $230 million was spent in the United States last year, and the industry Web site MuniWireless projects $460 million will be spent in 2007.

Without revenues they had counted on to offset that spending, elected officials might have to break promises or find money in already-tight budgets to subsidize the systems for the low-income families and city workers who depend on the access. Cities might end up running the systems if companies abandon networks they had built.

The worries come as big cities such as Philadelphia and Portland, Ore., complete pilot projects and expand their much-hyped networks.

“They are the monorails of this decade: the wrong technology, totally overpromised and completely undelivered,” said Anthony Townsend, research director at the Institute for the Future, a think tank.

Municipal Wi-Fi projects use the same technology behind wireless access in coffee shops, airports and home networks. Hundreds or thousands of antennas are installed atop street lamps and other fixtures. Laptops and other devices have Wi-Fi cards that relay data to the Internet through those antennas, using open, unregulated broadcast frequencies. In theory, one could check e-mail and surf the Web from anywhere.

About 175 U.S. cities or regions have citywide or partial systems, and a similar number plan them, according to Esme Vos, founder of MuniWireless.

Because systems are just coming online, it’s premature to say how many or which ones will fail, but the early signs are troubling.

“I will be surprised if the majority of these are successful and they do not prove to be drains on taxpayers’ money,” said Michael Balhoff, former telecom equity analyst with Legg Mason Inc. “The government is getting into hotly contested services.”

Most communities, including Lompoc, paid for their projects. Elsewhere, private companies agreed to absorb costs for the chance to sell services or ads.

The vendors remain confident despite technical and other problems. Chuck Haas, MetroFi Inc.’s chief executive, said Wi-Fi networks are far cheaper to build than cable and DSL, which is broadband over phone lines.

Demand could grow once more cell phones can make Wi-Fi calls and as city workers improve productivity by reading electric meters remotely, for instance.

Balhoff, however, believes the successful projects are most likely to be in remote places that traditional service providers skip – and fewer and fewer of those areas exist. Cities, he said, should focus on incentives to draw providers.

In Lompoc’s case, officials say construction was delayed about a year once they realized wireless antennas had to be packed more closely together. Then the city learned that its stucco homes have a wire mesh that blocks signals, making Internet service poor or nonexistent indoors without extra equipment.

But more importantly, just as Lompoc committed to the network, cable and telephone companies arrived with better equipment and service.

D.A. Taylor, who runs a software business from her home, said Lompoc’s Wi-Fi service lacks key features she gets through DSL.

“It’s a really great idea, but they didn’t spend a lot of time thinking who their target market was,” Taylor said.

Lompoc Mayor Dick DeWees acknowledged that the city might have to pull the plug if it cannot boost subscriptions, but he said the city still has an aggressive marketing push in store. Lompoc recently slashed prices by $9, to $16 a month, for the main household plan.

Just a few years ago, these municipal wireless projects seemed foolproof.

Politicians got to tout Internet access for city workers and poorer households – many programs include giveaways for lower-income families. Some cities bear no upfront costs when a company pays for construction in exchange for rights to use fixtures such as lamp poles.

Vendors such as EarthLink Inc. saw a chance to offset declines in dial-up subscriptions. MetroFi, offering free service, got to join the burgeoning market for online advertising. Google Inc. also is jumping in for the ads, partnering with EarthLink in San Francisco, although the city’s Board of Supervisors is resisting their joint proposal.

As projects get deployed, both sides are seeing chinks in their plans.

Many cities and vendors underestimated the number of wireless antennas needed. MobilePro Corp.’s Kite Networks wound up tripling the access points in Tempe, Ariz., adding roughly $1 million, or more than doubling the costs.

“The industry is really in its infancy, and what works on paper doesn’t work that same way once you get into the real world,” said Jerry Sullivan, Kite’s chief executive.

Networks like St. Cloud, Fla., and Portland, meanwhile, shared Lompoc’s difficulties penetrating building walls, requiring indoor users to buy signal boosters for as much as $150. And service can be slower than cable and DSL.

The vendors insist they have been upfront with customers about limitations. But MetroFi’s Adrian van Haaften said managing expectations can be challenging.

EarthLink said it has 2,000 customers in four markets – New Orleans; Milpitas and Anaheim, Calif.; and Philadelphia – paying $22 or less a month. MetroFi said it had 8,000 free users in Portland in April, averaging 10 hours online.

Although both companies say their numbers are good given that their networks aren’t fully built yet, they also are realigning expectations.

MetroFi will insist that future contracts commit cities to spend a specific amount for public safety and other municipal applications. Municipalities, meanwhile, are becoming more cautious.

Competition and expectations will only increase as DSL and cable modems get faster. Users today are struggling with e-mail and the Web over some wireless systems, yet video and online games require even more capacity.

“Most people if they are going to do serious work aren’t looking to be sitting in a park,” said Eric Rabe, a spokesman for DSL provider Verizon Communications Inc. “They want to be at a desk where they have their papers or business records.”