Lessons from the
Professor Heather E. Hudson[1]
Director, Telecommunications Management and Policy Program
Abstract:
In December 2005, the city of
Responses submitted included two
proposals from consortia of major high tech firms (EarthLink and Google, IBM
and Cisco) and four proposals from smaller firms and consortia. The
EarthLink/Google proposal was selected as the winner. This initiative has
achieved significant national and even international attention, largely because
of
While
1. The Context:
Broadband in the
Affordable access to services
available over broadband is becoming increasingly recognized as an important
contributor to social and economic development. Yet utilization of broadband in
the
Broadband costs in the
Some
2. The San Francisco TechConnect Initiative
2.1. From Affordable
Internet to Ubiquitous Wireless Broadband
The city of
In mid 2005, the City of
Between the initial strategy
announcement and the RFI/C release, “affordable Internet access” had become
“affordable wireless broadband
Internet access.” Yet there was little rationale for the emphasis on wireless
as a city-wide solution.
However, following the RFI/C process, the City issued a request for proposal (RFP) with the goal of providing “universal, affordable wireless broadband access for all San Franciscans, especially low-income and disadvantaged residents” (italics added). The RFP listed detailed specifications including:
· The network should be built, operated and maintained at no cost to the city.
· There should be a free (basic) level of service.
· Premium services can be fee-based, but should be priced lower than existing service alternatives.
· Outdoor coverage shall be provided for a minimum of 95 percent of the city’s area.
· Indoor coverage shall be provided for ground and second floors of a minimum of 90 percent of all residential and commercial buildings in the city.
· Indoor perimeter room coverage above the second floor shall be provided for ground and second floors of a minimum of 90 percent of all residential and commercial buildings.[8]
Given
2.2. The Bidders
The city received six proposals, one of which was very sketchy and is not included in this analysis. The five complete proposals were from:
For a summary of key elements of their proposals, see Table
1. A few distinguishing elements included:
2.3. The Google
Effect?
The proposals were evaluated by five reviewers, four of whom were city employees with various IT responsibilities. The written proposals were scored out of 80 points, 20 being for firm qualifications and 60 for degree of compliance with the city’s specifications. The top three were EarthLink/Google and MetroFi, separated by only 4 points with 260 and 256 out of a possible 400 aggregated from the five reviewers, and SeaKay a distant third with 148 total points. Three of the reviewers ranked EarthLink higher on firm qualifications, while four ranked MetroFi higher on compliance with city specifications. See Table 1. The oral interviews, which covered a wide range of issues including technical solutions, costs to the city, user interfaces, digital inclusion, experience in other municipal wifi projects, etc., turned out to be critical to the outcome. Here EarthLink/Google was rated highest by the four city employees (the outside consultant gave identical ratings to both), so that EarthLink/Google received a total of 69 points of the aggregate 100, compared to only 57 total points for MetroFi. Thus EarthLink/Google won the combined review, but the aggregate scores differed by only 16 points out of a possible 500 point total.
Was this the Google effect? Since the written proposals were scored very closely and covered many of the same topics, the EarthLink/Google presentation must have been highly persuasive. Did the opportunity of having Google as a partner make the difference? The press coverage (both popular and professional) of the project since the winner was announced has overwhelmingly highlighted Google’s involvement.
3. Other Bay Area
Municipal Wireless Initiatives
3.1. Wireless
Another major Bay Area RFP for
municipal wireless was released in April 2006 by the San Mateo County
Telecommunications Authority (SAMCAT), for service to some 35 communities
in four counties in the area referred to as
Seven proposals were received. On August 16, 2006, SAMCAT announced that it would interview three finalists:
SAMCAT announced on
September 5 that it had chosen the Silicon Valley Metro Connect consortium as
the winner.[16] This is basically the same group that ranked
third in
Interestingly, EarthLink chose not to submit a proposal. Its rationale, submitted in a letter to SAMCAT, identifies some of the key issues in developing sustainable business models for municipal wireless. EarthLink states: “…we have not been able to reconcile the RFP’s strong desire for a basic free layer of access throughout the coverage area.” It points out the quality of service (QOS) problems that may result from low node deployment densities on some free systems: “Some of the operators … have attempted to obscure these problems by switching to free or advertising-supported business models, hoping that because end users are no longer required to pay for the service, they would be willing to overlook the poor performance and poor coverage of the networks.”[17]
EarthLink appears to see municipal broadband as an opportunity to compete with incumbent telco and cable companies, i.e. to provide intermodal competition: “EarthLink … believes that municipal Wi-Fi connectivity will serve as a viable third broadband alternative to the home, at prices that will spur competition and choice in those progressive cities that elect to build.”
It notes that its network design, using dense mesh of 36 Wi-Fi nodes per square mile, pushes the signal further into the consumer’s home and requires higher investment. EarthLink concludes that advertising revenue alone would not cover its capital costs or provide a sufficient revenue stream. (Metro Connect apparently proposes that users can bring the outdoor signal indoors with the aid of special, signal boosting equipment that they will be able to purchase for $80 to $120.)[18] EarthLink also notes that free or ad-supported networks typically ignore other items that “comprise a comprehensive broadband solution” such as CPE and technical support. It also foresees needs to update and upgrade the network: “We do not believe that user needs five years from now will be the same as they are today.”[19]
In
But is this the same EarthLink
that won the
3.2.
Two other Silicon Valley
communities,
It appears from early press
releases that MetroFi originally intended to use the same business model as
adopted in
MetroFi states that the service in
4. Critical Issues
4.1. A Threat to Incumbents?
The incumbent telecom industry is claiming several points of view about the growth of municipal broadband, including wireless. First, they say that municipal broadband isn’t the answer to increasing broadband access. For example, some industry analysts are skeptical about whether municipal wireless is a viable means of bridging the digital divide. Pyramid Research questions “whether the dream of ‘cheap Internet for everyone everywhere’ will ever materialize as expected.” Their view is echoed by incumbents: “We expect that municipal Wi-Fi networks will not match other offerings’ unique content, security features, and reliability.”[28]
Second, incumbents claim that public investment in
communication networks crowds out private investment. They have lobbied
vigorously at the state level to prohibit
or severely limit municipal broadband. Baller notes that in 2004: “Not just small rural communities, but even large cities,
such as
However, new entrants see municipal
wireless as a means to increase competition. In Congressional testimony,
EarthLink stated that municipal broadband is an antidote to facilities-based
duopoly. It made the analogy to the
A
Yet incumbents also appear to think that may need to get in the game, if only to stave off the likes of new competitors such as EarthLink if partnered with major investors such as Google or possibly Yahoo or Microsoft. One consulting firm predicts that municipal networks (not only wireless) could grab up to 35 percent of the market share for video, fixed voice and high speed Internet services, and up to 20 percent of the mobile services market. It notes that “The competitive impacts will be especially threatening to incumbents to the extent that municipal networks can be cost-justified by increasing efficiencies, cost-savings and other ‘internal’ or ‘social’ benefits captured by local governments, schools, schools and other public institutions.”[34] Thus “… broadband incumbents may have to deploy their own competitive Wi-Fi network offerings, and offer mobility as a differentiation tool.”[35]
4.2. Business Models
and Sustainability
Several business models have been
proposed for municipal broadband. More than 2000
For wireless, municipalities are typically contracting with the private sector to build and operate the network, which may be owned by the municipality or the contractor (the latter investment model is known as build, own and operate or “BOO”). The revenue models are typically:
· Free service, advertising-supported;
· Subscription service, often with various tiers or options;
· Hybrid with free service in some areas or some users, and fee-based services elsewhere.
The verdict is still out on whether any of these models are sustainable. Given the insistence of many communities to include free service, advertising seems to be necessary, assuming that subscription fees would not be sufficient to cross-subsidize free service. The requirement of many municipalities to keep subscription fees low, or even to specify that they must be lower than available alternatives, limits operators’ pricing flexibility. In addition, some cities require revenue sharing, in return for providing free or discounted access to their infrastructure (such as light poles).
EarthLink raises two additional issues, namely that quality of service must be adequate if municipal wireless is to be seen as a viable alternative to DSL or cable, and that user needs, and therefore technology requirements, are likely to change over the next five years. Thus, capital and operating costs may be higher than foreseen by some community access proponents.
So why would the private sector want to get into this game? There appear to be two major drivers for the operators and content providers (as opposed to the equipment vendors, who have a clear interest in sales for this new market). First, some see it as a means to compete with incumbents without being forced to use their networks. It appears that MetroFi, which was started by former executives from Covad, and EarthLink fall into this camp. If they succeed, this might become the “third pipe” envisioned by the Hundt FCC or a form of the intermodal competition championed by the Powell FCC. Second, content and service providers are looking for new markets and testbeds. Google definitely appears to be in this category.
4.3. A Stepping Stone
to 3G?
For incumbents, is municipal wireless an opportunity to try out services that could be offered over 3G? The real goal for content and application providers such as Google may also be to develop strategies and content that can be transferred to 3G networks. Of course, this scenario would also affect the business model of municipal wireless. Will 3G be the “killer response” that wipes out revenue for municipal wireless once mobile users have access to broadband on their cellphones and PDAs, or on notebook computers (as is currently being offered by Verizon and Sprint in some markets on EVDO networks)? If so, what happens to the goal of free or very cheap broadband access throughout communities?
4.4. Community Access
and Demand
To achieve the goal of affordable broadband for
low-income and disadvantaged populations,
Some national-level research may provide insights. For example, Flamm and Chaudhuri found that males are less likely to be Internet users, but once involved, more likely to opt for broadband. They also found that age, race and income have statistically significant impacts on propensities to use the Internet in general, but no additional impact on choice of broadband vs. dialup.[36] Of course, these and other findings would need to be tested at the community level.
We also know from other community access experience that many who are not connected will need training, access to computers, and an understanding of how the Internet could be useful to them and their families. Community outreach will also likely be needed. As Strover et al. note: “The formidable access issues surrounding mounting meaningful access programs, reaching populations unused to and involved with computers, and creating economic advantages for individuals and businesses require strong communities and a leadership cognizant of community dynamics.”[37]
If a key
barrier is availability or affordability of computers,
If price of broadband service is a significant barrier (and if most unconnected households already have computers), the goal of affordable access for the low-income and disadvantaged could be achieved through a discount or voucher for those who meet low income criteria.
4.5. Pricing
4.6. Is Ubiquitous
Wireless the Only Solution?
The San Francisco RFP states: “Universal, affordable wireless broadband internet access is essential to connect all residents of San Francisco to the social, educational, informational, and economic opportunities they deserve.” This pronouncement confuses the means with the ends. The goal should be universal (i.e. available and affordable) access to broadband.
If the goal is universal and affordable access to broadband, should not wireless be only one solution? Wireless is very appropriate for outdoors and public spaces. It is less suitable for individual households, multiunit dwellings, high rises, office buildings, etc. Besides, many of these could already be served by commercial cable or DSL. (In fact, nextLAN proposed to provide indoor access by renting wireless micronode repeaters that subscribers would attach to existing DSL lines.)
5. Conclusions
The advantage of wireless for a city is that it can provide coverage for public spaces. San Francisco should be seeking wireless coverage first for outdoor public spaces and other community and public access locations such as public squares downtown and along the waterfront (some of which are already covered), parks and squares in residential areas, public areas of Chinatown and Japantown, community centers and other community meeting places.
A second priority for the City should be facilitating broadband access for low-income areas and disadvantaged populations that do have other potential options such as DSL or cable, but cannot afford them. Discounts or vouchers for broadband access could be solutions. They should apply to service from any broadband provider, including cable networks and resellers as well as DSL from the incumbent, AT&T.
A third priority should be to
require that all commercial and residential buildings in
The San Francisco TechConnect initiative and the experience of other Bay Area communities seeking wireless broadband coverage suggest that there remain many unanswered questions about the need for ubiquitous wireless, the barriers to broadband usage, and the financial and technical sustainability of municipal wireless.
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Table 1: San Francisco Wireless
Broadband Proposals* |
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Proposal |
EarthLink/Google |
MetroFi |
nextWLAN |
RedTAP |
SeaKay |
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Participants |
EarthLink, Google |
MetroFi |
nextWLAN |
Razortooth Communications |
SeaKay (nonprofit), Cisco, IBM |
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Motorola, Tropos |
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Business Model |
EarthLink build, own, op |
MetroFi build,own, op |
free 384/384 service |
wireless coop under |
City owned, Seakay managed |
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free low speed service, |
free 1mbps/300 kbps service |
"zero infra,
advertiser-funded" |
RedTAP brand |
Cisco equip, IBM support |
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300/300 kbps, ad supported |
various premium rates |
higher spd premium service |
commty access centers with |
financed thru nonprofit |
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"T1 alternative" $20/mo. |
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financed by subs deploying |
for-pay services |
fundraising: cash and inkind |
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~100k micronode rptrs |
free for city, state, fed |
free basic service |
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attached to ~40k DSL lines |
$5/mo premium srv for |
sponsored higher speed |
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others |
service |
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City Role |
leverage city assets: lights, bldgs |
no cost to city |
no use of city assets |
free service for city |
city owned |
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pay city for pole access, etc. |
no revenue-sharing with city |
no revenue-sharing with city |
requests $25k from city |
use municipal infrastructure |
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no revenue-sharing with city |
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no revenue sharing with city |
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Proposed Term |
10 yrs with two 4-year |
5 years with two 5-year |
5 years |
5 yrs with one 5-year renewal |
5 to 10 years |
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renewals |
renewals |
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Network |
30 wifi nodes per sq mi. |
26-32 wifi nodes per sq mi |
~100k micronode CPE devices |
citywide network Linksys |
Cisco Aps plus WiMax |
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Architecture |
Motorola canopy, Tropos wifi mesh |
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microwave links btwn towers |
802..11a and microwave backhaul |
connected to DSL lines |
routers, custom firmware |
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CPE with high gain antennas |
CPE with high gain antennas |
contract with other provider for |
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premium portable services |
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SF RFP Evaluation: |
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written proposals/400 |
260 |
256 |
71 |
56 |
148 |
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oral interviews (top 3)/100 |
69 |
57 |
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60 |
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Total Points/500 |
329 |
313 |
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208 |
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* A sixth proposal, from
Communication Bridge Global, was incomplete. |
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Derived from: Civitium,
"Preliminary Review of Proposals Received," February 23, 2006, and
TechConnect Aggregate Evaluation and Scoring Worksheets. |
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NOTES
[1] Contact
details: Email: hudson@usfca.edu, phone:
415-422-6642; fax: 415-422-2502. Address:
[1] Source: www.oecd.org/sti/ict/broadband, data from December 2005.
[2] Turner, S. Derek. “Broadband Reality Check”. Free
Press, August 2005.
[3] Turner, S. Derek. “Broadband Reality Check”. Free
Press, August 2005.
[4] US census data from www.sfgov.org
and http://censtats.census.gov/data/CA/05006075.pdf.
[5] Actually, the
City and
[6] Source: www.sfgov.org.techconnect.
[7] Source: www.sfgov.org/site/uploadedfiles/dtis/tech_connect/BroadbandFinalRFIC.doc
(italics added).
[8] See www.sfgov.org/site/uploadedfiles/dtis/tech_connect/TechConnectRFP_2005-19_12-22-05Rev1-17-06.pdf.
[9] Promotions
from AT&T and Comcast as of August 31, 2006. These rates increase to $30
and $35 per month respectively after introductory periods.
[10] MetroFi is privately held, and was cofounded by
former Covad executives. See www.metrofi.com.
[11] NextWLAN is a privately funded wireless LAN company
founded in 2003, headquartered in the Bay Area (
[12] Razortooth
does business as RedTAP, a grassroots Internet company headquartered in the
Mission District of San Francisco. See www.redtap.com.
[13] RedTap
Proposal Executive Summary.
[14] Census data listed in the SAMCAT RFP. See www.jointventure.org/programs-initiatives/smartvalley/projects/wirelesssv/documents.
[15] SAMCAT request for proposal: See www.jointventure.org/programs-initiatives/smartvalley/projects/wirelesssv/documents.
[17] Letter from Cole Reinwand, Vice President, Product
Strategy and Marketing, EarthLink, to Brian Moura, Chairman, SAMCAT (
[19] Letter from Cole Reinwand, June 26, 2006.
[20] Verizon now offers 768 kbps for $14.95 per month in
[21]
EarthLink/Google presentation to San Francisco TechConnect, March 15,
2006.
[23] Neither RFPs (if any) nor contracts between the
cities and MetroFi are publicly available electronically.
[24] Source: www.metrofi.com/press/20060130b.html.
[25] Census data
provided at www.cupertino.org.
[26] See www.metrofi.com and www.muniwireless.com.
[28] “Municipality WiFi: Despite EarthLink, Google,
Viability remains Unclear.” Pyramid
Research Analyst Insight, November 28, 2005.
[30] “State Barriers to Community Broadband Services”, APPA Fact Sheet, December 2004. Available
at www.appanet.org and www.baller.com/pdfs/Barriers_End_2004.pdf.
[32] Testimony of
Christ Putala, Executive Vice President, Public Policy, EarthLink, before the
Committee of the Judiciary, US Senate, Hearing on Reconsidering our
Communications Laws: Ensuring Competition and Innovation,” June 14, 2006.
[33] Ford, George S. “Does Municipal Supply of Communications
Crowd-Out Private Communications Investment?” Applied Economic Studies, Feb
2005.
[34] “Municipal Broadband will pose growing threat to
for-profit operators.” Pike and Fischer press release, available at www.pf.com.
[35] “Municipality
WiFi: Despite EarthLink, Google, Viability remains Unclear.” Pyramid Research Analyst Insight, November 28, 2005.
[36] Flamm, Kenneth and Anindya Chaudhuri, “An Analysis of
the Determinants of Broadband Access” TPRC, 2005.
[37] Strover,
Sharon, Gary Chapman and Jody Waters. “Beyond Community Networking and CTCs:
Access, Development and Public Policy.” TPRC, Sept 2003, p. 24.