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Newspaper Article

    The Worry with WiFi

    BY Cameron Sholty
    03/24/2006
    by Cameron Sholty on 3/24/06.

    Municipal wireless internet (WiFi) is all the rage nowadays. Cities such as Philadelphia, Madison, and Milwaukee also are pushing efforts to establish government run hotspots, which have cost upwards of $10 million. Municipal wireless is the latest fad for cities that wish to portray itself as a bastion for technology and commerce. Now, reports indicate that some cities in Wisconsin – Brookfield, Wauwatosa, and Waukesha – are considering a similar proposal.

    Before jumping on the bandwagon, however, Wisconsin city officials might be wise to ask why it makes sense to implement municipal WiFi networks. It can’t be for lack of competition. Cities in Wisconsin have more than a dozen broadband providers from which to choose. Local restaurants, cafes, and hotels increasingly feature free WiFi hotspots to attract business. It can’t be for onerous rates. As technology has become more ubiquitous across the state, access prices have plummeted. Five years ago, the monthly price of household broadband was around $50. Today, it’s as low as $20. It can’t be for a lack of access – most of the state is already wired, and almost anybody that wants internet can get it on the cheap.

    Solving a non-existent problem isn’t cheap, however. Unless taxes are raised, a multi-million dollar network could drive the budget into a deficit. To make matters worse, municipal government cost estimates can be notoriously inaccurate. Tacoma, Washington estimated initial capital costs of their broadband project to be $40 million, but only a few years later, the city had already spent over $100 million. A municipal network in Ashland, Oregon fell 18 months behind schedule and earned $10.7 million less than what initial estimates projected. Anthony Townsend, an adjunct professor of Communications and Urban Planning at New York University, remains skeptical of whether Philadelphia can complete its project for under its stated $10 million price tag.

    Beyond draining city coffers, municipal WiFi can exact unforeseen costs. Ironically, municipal WiFi may emerge at the expense of private competition and innovation. To see why consider the fictional case of Tim, the banana vendor.

    Tim, one of many banana vendors, has been in business for several years. For years, the banana industry was robust – each year, it gave consumers better tasting bananas at cheaper prices. But for some reason the government thought that the market in bananas was failing. So they started paying Maria to give her bananas away for free. Since Tim’s livelihood depended on the profits he got from selling bananas, he couldn’t simply give his away for free. Tim and the other vendors couldn’t stay in business because nobody bought their bananas. With all the vendors gone, Maria was free to give away rotten and mealy bananas without any consequence. Years later, when advanced farming techniques delivered exceptionally tasty fruit at scandalously low prices, the new bananas never reached Maria’s market as she had no incentive to offer them over the cheaper, poorer-quality bananas.

    This problem – government “crowding out” other businesses from the market – will afflict cities that force taxpayers to foot a hefty municipal WiFi bill. By driving out businesses, municipal WiFi eventually leads to a government monopoly on wireless internet, or if they contract the job out, as in San Francisco, it will establish a de facto private monopoly. When this happens, the monopoly won’t have an incentive to improve, and the quality of service will almost assuredly suffer.

    It will also significantly hinder technological advancement in the future. Over the last twenty years, methods of transmitting information, from video cassettes to records to dial-up internet all faded with the emergence of new technology. As telephone, cable, and power companies innovate new internet-deliverance capabilities, WiFi as we know it will eventually become obsolete. At the point that it does, municipalities that deliver WiFi will face one of two unattractive options. Either they can move to crowd out innovators by continuing their outdated policy, or they can jump ship, leaving taxpayers to pick up the tab for the multi-million dollar escapade.

    We shouldn’t have to get to this choice. As the free market helps close the digital divide, municipal governments should resist the urge to meddle with a faddish policy that would only hurt Wisconsin consumers.