A plan by San Francisco to blanket the city with free wireless Internet access may come as great news to residents eager to save a few bucks on broadband.
But for the companies already in the business of selling wireless fidelity, or Wi-Fi, Internet access in almost 200 spots around San Francisco, it's likely to be a bane.
Take Wayport, the operator of some 30 Wi-Fi access locations in hotels and McDonald's restaurants. Dan Lowden, vice-president of marketing and business development at Wayport, says he doesn't expect "any type of impact from muni Wi-Fi networks" like the one being built by San Francisco .
But analysts say operators like Wayport will feel a pinch from the hundreds of municipal Wi-Fi projects across the country that resemble the one in the City by the Bay.
A spate of providers, including Boingo and Deutsche Telekom's T-Mobile, now offer Wi-Fi access in places like Starbucks and other locales, charging as much as $10 a day for wireless Web access.
Wi-Fi service providers generate about $500 million in revenue a year, says consultancy Parks Associates. Those sales could dwindle -- or end up in the coffers of rivals -- as city-run Wi-Fi takes off.
In the past three months alone, the number of municipal Wi-Fi projects underway has skyrocketed by some 50 percent, to more than 300, says Craig Settles, president of municipal wireless consultancy Successful.com. "We are moving from hot spots to hot zones to metro to nationwide and worldwide Wi-Fi," says Craig Mathias, president of wireless consultancy Farpoint Group.
The movement is already ruffling the feathers of some of the biggest telecom carriers, such as Verizon, which lobbied Pennsylvania to bar the creation of city-subsidized Wi-Fi projects in areas of the state outside Philadelphia .
But the biggest impact may be felt by small hot-spot operators that offer service in cafes, hotels, convention centers, and airports. "They will fade or get acquired," Mathias says.
After all, many cities will offer Wi-Fi access for $10 to $20 a month if not for free, while many hotels charge upwards of $10 a day for access. "[Existing providers] will have to cut prices or offer additional services," Mathias says.
Boingo, founded by Sky Dayton, aims to benefit from the spread of city-run Wi-Fi programs. Many municipal plans include a free component that includes slower-speed access that won't be fast enough for "business travelers and broadband junkies on the go who depend on higher-speed connections," says a Boingo spokesperson. "Most municipal plans have provisions for higher-speed access at varying price points to the user, which provides Boingo with an opportunity to contract with the municipality to provide that higher speed access to our customers for a fee."
Another byproduct of the proliferation of municipal Wi-Fi projects is consolidation. The mergers may begin in earnest next year as more citywide projects get up and running, Mathias says. In the end, there may be only one or two Wi-Fi operators per city, he predicts. And the winners may or may not include today's largest Wi-Fi hot spot providers.
New players, specializing in muni Wi-Fi construction and operation, have entered the fray. One is EarthLink, which already has four muni Wi-Fi contracts and is negotiating terms with two more cities, including San Francisco , where it's partnered with search giant Google. "We are offering a product for $21.95 on a monthly basis citywide," says an EarthLink spokesperson. "[Current hot spot operators] are not citywide."
Another company that could emerge a Wi-Fi heavyweight is Embarq, the local-phone carrier recently spun off from Sprint Nextel. Embarq, which until now has run trials in smaller cities, is ramping up muni Wi-Fi efforts.
Earthlink, Embarq, and others are eager for a slice of what MuniWireless.com says will be some $700 million spent by U.S. cities in the next three years on muni Wi-Fi plans. Some of the companies that help build the networks will also help operate facilities once they're up and running, generating ongoing sales.
Meantime, Wayport, which deploys some 150 new locations every week, is watching the market closely and may eventually join in, says Lowden. For now, the company is waiting as muni Wi-Fi business models get ironed out.
To be certain, making money on muni Wi-Fi won't be easy. Many cities are asking Wi-Fi operators to offer free or subsidized service to residents as well as city employees, making money instead on ads.
But an ad-based model is no slam dunk. Consultancy Successful.com's July survey of 176 business owners indicated that 57 percent of them don't intend to buy ads on such networks at all. Many remaining participants said they would be willing to pay less than $100 a month for ads.
That might not be enough to cover operating costs, expected to reach 10 percent to 20 percent of initial network build-out costs, which add up to $15 million to $20 million in some cities, estimates Settles.
Achieving seamless coverage with a muni Wi-Fi network could be difficult as well. To date, muni Wi-Fi efforts in cities like St. Cloud , Fla. , have been plagued with problems such as poor in-building coverage.
Unless new Wi-Fi operators like EarthLink figure out how to overcome those hurdles, muni Wi-Fi won't be able to effectively compete with existing hot spot providers' networks, analysts say.
Rival technologies such as WiMax, pushed by Sprint Nextel and chip giant Intel could also render Wi-Fi obsolete in some areas by offering better, more seamless coverage, says Bob Rosenberg, president of consultancy Insight Research. And continued delays in the release of a new Wi-Fi standard, 802.11n, which would allow for zooming-fast transmission of video, could further hamper muni Wi-Fi's potential.
And finally, security and privacy issues remain that muni Wi-Fi, as well as existing hot spot operators, must struggle with.
Still, many residents who stand to save money or get access they wouldn't otherwise have will nevertheless opt for a subsidized Wi-Fi plan -- even with the ads and potential glitches.