Can a publicly owned municipal Wi-Fi network be viable?

The Institute for Local Self Reliance (ILSR) has published a preliminary analysis entitled “Is Publicly Owned Information Infrastructure a Wise Public Investment for San Francisco” (PDF format) on the financial viability of a publicly owned citywide Wi-Fi network. Media Alliance asked ILSR to investigate the economics of publicly owned infrastructure, i.e. when will the city get a return on its The Institute for Local Self Reliance (ILSR) has published a preliminary analysis entitled “Is Publicly Owned Information Infrastructure a Wise Public Investment for San Francisco” (PDF format) on the financial viability of a publicly owned citywide Wi-Fi network. Media Alliance asked ILSR to investigate the economics of publicly owned infrastructure, i.e. when will the city get a return on its investment, how much in revenue will the network make, etc. Please bear in mind that ILSR could not get detailed information from the city that would have made this analysis even more complete so this is the best they could do given the information they had.

Here are a few figures from the report:

• Payback its original investment in 4.2 years – almost 25 percent annual return on investment;
• Generate at least $6.1 million in surplus revenues over the first 5 years;
• Generate at least $16.8 million more in surplus revenue over the following 5 years (after the $10 million debt is retired);
• Total benefits over 10 years = $22.9 million.

ILSR says these are conservative estimates. They assumed only 10% of residents and businesses would subscribe (other cities have higher subscription rates – 25%), used a $9 per subscriber monthly wholesale rate and did not include revenue from the city or other public entities.

These figures apply to the open-network wholesale access model where the city finances and owns the infrastructure but contract swith a private entity, a non-profit, to operate the network (essentially the original Wireless Philadelphia model). The non-profit would not provide services directly to customers, except to public sector entities. It would sell wholesale network access to private sector service providers, who in turn compete to sell services to residents and businesses. This model has been adopted by Corpus Christi and is similar to the one proposed by SF Metro Connect/SeaKay, one of three finalists for San Francisco contract.

The ILSR/Media Alliance model anticipates a $10 million initial capital investment, repaid over five years from operating revenues, upgrades are $9 million over 10 years financed with operating revenues (which include all costs associated with providing services to public entities, and selling wholesale access to service providers). Revenues include wholesale access fees of $9 for 1 Mbps symmetrical connections, $4 per account per month for 300 kbps symmetrical connections (ad-supported, free to user service), and $120 for business T-1 replacement.

The ILSR report challenges the city’s claim that it cannot afford to spend public money on wireless broadband infrastructure:

An $8 million investment in citywide wireless is just one half of one percent of the Mayor’s proposed five-year $2 billion capital investment budget and 4 percent of the $87 million needed to maintain and operate the city’s existing infrastructure. Moreover, although the vast majority of both the capital and maintenance budgets are spent on non-revenue generating projects (e.g. road repair). A citywide wireless system would be an investment that generates substantial income for the city.

To download the ILSR analysis, click here.

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