Cities across the United States are negotiating with wireless broadband companies to blanket themselves in Wi-Fi. How much consumers will have to pay for the service, though, is unclear.
Wireless broadband provider MobilePro Corp. drew headlines last week after it dropped out of a deal to build a Wi-Fi network in Sacramento, Calif.
The Bethesda, Md.-based company said Sacramento’s hopes to deliver free, ad-supported wireless high-speed access were unrealistic.
The decision followed months of negotiations between the city and MobilePro, which is also working with Tempe, Ariz., on a subscription-based Wi-Fi service. The company won a competitive bid last September and had established a free Wi-Fi program in a downtown Sacramento city park.
But Sacramento officials sought a better deal after seeing other service providers court a handful of U.S. cities with offers of ad-supported, high-speed access. MobilePro considered a tiered service, offering free, ad-supported access at lower speeds to complement a faster connection for paying subscribers, before opting out of the agreement entirely.
Establishing the network would require investment of about $8 million, said Jerry Sullivan, MobilePro’s chief operating officer. But ad revenues would likely top out at about $2 per user per month-far short of the $7 per user some estimate would be necessary to cover operating costs.
“We just do not believe in the long-term that a straight ad model is sustainable,” Sullivan said. “It came down to, if this is what we have to live with, the answer is no.”
MobilePro’s Tempe service, dubbed WAZTempe, offers 512 kilobit per second access at $9 per day or $20 per week; a 1 megabit per second service is available for $30 per month. The company has inked deals to offer similar, subscription-based services in nearby Arizona cities and offers a discounted service for students at Arizona State University.
MetroFi Inc., on the other hand, won approval last week from the San Jose City Council to build out an ad-supported Wi-Fi service in San Jose, Calif. The move was the latest customer win for MetroFi, which has inked deals with Portland, Ore., as well as several California cities. MetroFi is gaining municipal partners-if not revenues-by offering free, ad-supported Wi-Fi access in addition to a premium, ad-free service for about $20 per month.
Whether such business models can survive, though, is unclear, according to Thomas Elliott, vice president of North American Consulting for Strategy Analytics Inc. Municipal Wi-Fi services are only just beginning to get off the ground, and many advertisers are waiting to see whether wireless Web surfers will respond.
“Ad-supported muni Wi-Fi may be viable, but there’s not a lot of data to go on,” Elliott said via e-mail. “Revenue is a real shot in the dark. No advertiser is likely to commit to long-term contracts until they see what the volume is like. In addition, unlike Web models, the target population is defined geographically, which means that any narrowly defined product is going to have a hard time getting a critical mass.”
As many as 6 million homes will have access to municipal wireless broadband networks within five years, according to figures released last week by Strategy Analytics. But as prices for commercial broadband services continue to drop, the firm predicted only a small number of households will come to rely on free or low-cost networks as their primary source of Internet access. And low traffic on the public networks will translate to low revenues from advertisers.
Advertising on municipal Wi-Fi services “could still make sense in local situations, depending on the specific circumstances,” Elliott said. “But if anyone was contemplating delivering eyeballs over a national network of municipal Wi-Fi projects-and I’m not aware that anyone is-I think it would be difficult to get the kind of numbers that would make hearts start beating fast at Coke, etc.”
Sacramento said it will quickly re-bid the contract for a citywide Wi-Fi network, and may look to attract mobile WiMAX services. Meanwhile, MobilePro plans to dismantle the hot spot it had established at the city’s Cesar Chavez Plaza Park.
Sullivan said the company will consider subsidizing municipal Wi-Fi services with ad revenues. But MobilePro will continue to market its Wi-Fi services to cities as a premium, subscription-based offering.
“If I would have entered into (the Sacramento deal) strictly with an ad-based revenue model, we would not be there in two years,” Sullivan said. “We will derive some revenue from ads (in other deployments), but we have not even factored that into our business model. That’s how small we believe it will be.” R
