Out of Control

Last week Minneapolis designated EarthLink and U.S. Internet, a ten-year-old nationwide ISP based in nearby Minnetonka, Minn., as finalists for a citywide Wi-Fi system that it aims to have in place by early next year. The two companies will now build pilot systems which the city will evaluate as part of its final determination. As the plan stands now, the winner will receive a contract to provide wireless telecommunications services to the city, and as part of the deal, gain access to city-own right-of-way and be able to sell wireless Internet access to residences and businesses, as is the case in Philadelphia and Anaheim.

Both are using different technology approaches, reported here in the Minneapolis Star Tribune. Whoever wins, however, will be given ownership of the network and will have the right to set terms for how wholesale and retail service is marketed or sold. The winner will ultimately compete with wireless service providers such as Sprint Nextel, Verizon Wireless and Cingular, as well as other independent Wi-Fi hot spot providers and aggregators.

Like Philadelphia and Anaheim before it, Minneapolis took a long hard look at the realities of network ownership. Significantly, its decision to back away from outright municipal ownership came after it examined the highly-touted municipal system in Chaska, Minn., an outlying Twin Cities suburb. While the city reports that 2,300 of 8,000 households have signed up for Chaska.net, David Pokorney, Chaska city manager, told the St. Paul Pioneer Press that about one-third of the users complained about poor performance in the early months of operation. In the end, he said, optimization of the radio network contributed to a 50 percent increase in costs, from $600,000 estimated to $900,000. It looks like fears of those types of cost overruns, which would be proportionally higher in Minneapolis, led city leaders question the wisdom of funding the cost of the network.

I’m not completely sold on the latest model, which is closer to a franchise concept than the public-private models that were talked about earlier in the year. Still it’s far better than pouring city resources into a bureaucratic effort at competition that would likely muck up an otherwise fast-developing and competitive market in the Twin Cities. And unlike most city franchise agreements, such as cable TV, competitors will still be able to build their own networks and provide competitive services. Over the last few weeks there’s been a welcome outbreak of level-headedness that has countered months of hype that 1) reliable municipal wireless networks can be built on the cheap, 2) municipalities could operate broadband backbones as good as or better than experienced national commercial enterprises, and 3) the private sector does not see opportunity at the low-end.