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April 13, 2006

The Next Huge Thing – Muniopoly?

The march to US-wide municipal Wifi gained speed today with the announcement that Portland, Oregon has selected a vendor for a citywide installation.  According to the press release, the free (ad-supported) version of the service will operate at a full megabit speed – three times as fast as the free service Google and EarthLink are promising San Francisco and faster than most DSL.  The same speed will be available without ads for about $20/month.

Earlier this week, I predicted that all US cities (but not necessarily rural areas) will have free sponsored WiFi available in three or four years.  The reported low cost of the Portland project - $10 million dollars which is less than a medium to small bridge or a short stretch of highway  - reinforces how little obstacle there is.  In fact, according to Om Malik, a board member of the small company which was selected promised to cover the cost out of his own pocket if the company comes up short.

But there are some downsides to municipal broadband project like those announced for San Francisco, Portland, and Philadelphia.

All these projects involve granting monopolies.  The real-estate on city-owned light poles, parking meters, etc. is valuable.  Cities get companies to put up their own money for projects like these by granting a monopoly on the right to use these locations for service.  Without these locations, it’s hard for any competitor to enter the market.  Without the monopoly, it would be hard to get any company to put up the money for installation.

We’ve been here before.  Phone companies had absolute monopolies for a while and have virtual monopolies now thanks to the infrastructure they built in their monopoly days.  Cable companies have local monopolies.  Neither telephone nor cable service is as good or as cheap as it would be if there were more competition; most other developed countries have better broadband access at lower prices than the US has.  The Wall Street Journal says cites an OECD report saying that the US has slipped to number 12 in percentage of broadband subscribers with only 16.8 subscribers per 100 residents.  Moreover, our service is both slower and more expensive than in many other countries.

Granting monopolies is a good way to get a service built and to raise municipal revenues; monopoly providers, however, have little incentive to improve the service they deliver. 

So should these municipal projects be discouraged?

I don’t think so.  The new wireless monopolies will compete with the existing cable and telephone company monopolies in Internet access.  The net is a gain in competition.  It would have been better if the Bells had actually been forced to share the facilities they inherited from their monopoly days as specified in the last telecommunications bill; such sharing has been very effective in incenting better services in countries like the UK.  But it didn’t happen.  Granting a new monopoly may be the best way to compete with the old ones.  Duopolies are sometimes as anti-competitive as monopolies.  But having cablecos, telcos, and muni-wireless providers all competing is likely to lead to better service – I hope.

Would be good if the cities would bargain hard on the length of the monopolies they grant.  Looks like there IS competition developing among those who want the muni contracts so that ought to be possible.

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