MuniWireless

This is a guest commentary submitted by Stan Stringfellow. It is his Response to the FCC Notice of Inquiry on Mobile Wireless Competition (WT Docket No. 09-66).

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In this Notice of Inquiry, the Commission says:

Investment is critical to the development of the mobile wireless market. It impacts how many providers offer service as well as the development and deployment of next-generation technologies and devices… We seek comment on the relationship between competition and domestic investment in the mobile wireless ecosystem. We also seek comment on any barriers to entry or growth that exist in the mobile wireless market. [from Section E, "Investment, Entry and Growth"]

In this letter, I propose a bold step that the FCC can take in order to truly open up the competitive landscape of the wireless broadband industry in the United States. The elevator summary is:

Do what Earthlink did, only do it right this time, and don’t run out of money half way through.

Joint Venture Public-Private Partnerships

Public-private partnerships (PPPs) have a long history in the United States, dating back as far as the 1950s. They can take several different forms. In a “joint venture PPP”, both the public and private partners must be willing to take a calculated business risk. [1] If the National Broadband Plan were to put in place a joint venture PPP model that involved shared financial risks/rewards among public and private partners, the Federal government could INVEST – rather than grant or loan – a portion of the $7.2B that Congress has allocated.

By working with reputable private partners – potentially including private venture capital firms, who could be made responsible for much of the business analysis and due diligence that precedes a funding cycle – the Federal government can utilize expertise from the private sector while it advances the national broadband goals that Congress has set forth. The approach would be to nurture those projects that can provide a Return on Investment (ROI), and utilize the resulting revenue streams to fund projects that have little chance of making a profit, such as inner city and rural broadband development programs. Thus, the Federal government can grow it’s initial investment in a “startup industry”, just as a venture capital firm grows its initial investment in a startup company.

As with any such endeavor, not everyone will agree with the specific business case. This is, of course, the nature of taking a business risk.

Wi-Fi Hotzones and Municipal Wi-Fi as a Target Industry

In this letter, I will promote large-scale Wi-Fi projects as an excellent (contrarian) investment opportunity, and also as a very effective way to foster competition and innovation in the broadband industry. This is not the only possible “startup industry” that could be targeted by this “über venture capitalist” approach, but it is one that I believe is extremely attractive for a variety of reasons.

Currently, of course, this industry in the doldrums, at least in terms of municipal Wi-Fi projects in major cities. Los Angeles, for example, recently completed (in January, 2009) a municipal Wi-Fi study where the conclusion reached by contractor Civitium LLC was that the costs to build and operate such a network were too great relative to projected revenue, unless LA were to commit to a significant level of anchor tenancy, which the city cannot afford. [2]

Why should this industry do any better if the Federal government (along with private and municipal partners) were to invest in it? The answer to this is central to my overall proposal: As with any venture capital funded startup in the technology or telecommunications sector, it takes time and resources to develop the business momentum and ecosystem that are necessary for the startup to begin turning a profit. It takes a lot of money to do this, even with a small startup company. It takes even more to nurture a municipal Wi-Fi “startup industry” to the point of self-sustaining success. Moreover, it’s not all about money. It’s also about market timing, momentum, belief, perceived opportunities, investors’ moods, cultural shifts, evolving technology/product ecosystems in related markets, reduced costs of deployment, growing consumer demand and more. I believe all of these factors are converging (or could converge in some cases, in the right environment) in a way that positively impacts the outlook for large-scale Wi-Fi deployments. And, just as Google created a lot of momentum with it’s Android OS – while other excellent Linux-based handheld OS efforts struggled to get out of the gate – so the weightiness of the FCC and Congress can generate the necessary impetus for the municipal Wi-Fi industry.

But why Wi-Fi? I’m not intending to promote Wi-Fi to the exclusion of other approaches, such as fiber, licensed spectrum with conditions attached, or new approaches like “White-Fi”, etc. All of these, along with wireless commercial services such as 3G and 4G/WiMAX, can and should work together. But, what I believe is that increasing the competitive stance of large-scale Wi-Fi within the overall context can provide important benefits vis-à-vis the National Broadband Plan, including:

(1) The nation’s broadband spectrum is not owned exclusively by a handful of private sector companies, regardless of how responsible or good intentioned they might be, and regardless of the benefits of a wholesale model which some have proposed;

(2) Significantly faster broadband speeds can be made widely available to the public, especially given the recent approval of the 802.11n standard;

(3) Lower consumer prices will surely result from the competitive pressure of broadly deploying a technology that is relatively less costly to build out and operate;

(4) This approach results in a much more open business/technology environment that will tend to foster innovation and lower the barriers to entry;

(5) The Wi-Fi ecosystem is already in place, and can only grow due to forces such as the proliferation of Wi-Fi enabled smart phones and applications, wide-spread adoption of wireless LANs in the enterprise, and growing usage of Wi-Fi networking within a host of vertical markets.

Getting the Business Model Right

In my view, the notion of free Wi-Fi on a large scale is not tenable in the long term. What consumers really want, and what they are willing to pay for, is a low cost service that provides excellent features such as high broadband speeds, wide availability, and a host of cutting edge applications such as high quality VoIP and location-based services. There is no way that a non-profit organization or government run operation can keep up with this industry, and market it effectively. It requires true commercial enterprises run by the private sector, with strategic investments from the Federal government in order to give the overall industry momentum and broad direction.

Each individual public-private entity that builds and operates a given municipality’s broadband offering might seek to issue stock in an IPO, thereby becoming a kind of public trust, while enabling the founding investors – including the Federal government – to benefit from a potentially significant and relatively near term return on investment. Such entities can be required to have bylaws that call for them to act in the interests of the municipalities for which they were formed, and to adhere to the broad principles set forth by Congress in a national broadband bill – if these entities are to receive investment from the Federal government. There might be specific limitations on the level of participation for incumbent broadband providers in these entities, as a mechanism for increasing competition. The allowed levels of participation might be made inversely proportional to the level of investment on the part of the Federal government, as a means of stimulating private investment in the national broadband infrastructure. While this requirement might seem at first glance to have an overall net negative impact on such incumbents, I believe that is far from the case. By building a rich, robust cooperative ecosystem – where efforts are managed by the private sector, with impetus and broad vision given by the Federal government – and nurturing it to a threshold point where it is profitable and rapidly expanding, all parties can benefit from the rising tide of new customers, products, services and opportunities which result from the more swiftly evolving value chain that such a cooperative environment inevitably produces. This is a win-win situation, with substantial benefits for the people at large.

[1] Bult-Spiering & Dewulf. Strategic Issues in Public-Private Partnerships: An International Perspective. Blackwell Publishing, 2006.
[2] City of Los Angeles. Feasibility Study Completed by the LA WIFI Working Group.

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About the Author

Stan Stringfellow has been around a long time (although he hardly looks it). He worked with the team of college students who developed the OS for the Apple II, the world’s first highly successful personal computer. He wrote all of the user manuals for Sun Microsystems’ well-known Starfire server in the ’90s, the original back-end workhorse of the Internet. He worked recently with Boingo Wireless in Los Angeles, and is now an independent consultant and industry analyst. This article is also posted on his blog.

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