Are Governments Missing the Mark with Muni Wireless
Funding Options
One thing I can say about municipalities is that, given the uniqueness of most cities and counties, there's a consistency of thought about how to pay for muni wireless networks that's a little unsettling. Unsettling because starting your wireless initiative locked into a business or funding model potentially shortchanges your constituents, and increases your odds of failure.
Municipal high speed networks are great projects that are worth doing, but the way some governments pursue them needs a different thought process with regards to how these projects are funded.
The common thread uniting many RFPs is that local governments want a private company to come in, assume all of the network buildout costs and recover their investment. The resulting networks are supposed to improve government operations, spur economic development, provide affordable access for the masses, close the digital divide, make their city the Mecca of the hip and young, etc. etc.
This is a great vision. But a vision that in some places is hampered by free market myopia clouded by rose tinted glasses.
Do people really understand what it really costs to build a carrier-grade network to do all of these things? No matter how much cheaper WiFi is than cellular networks to build, the price tag to adequately address the above mentioned laundry list is greater than you think. And I wonder if officials fully understand how much their ability to achieve muni wireless goals is governed by economic reality once they turn everything over to a private company. A different approach to funding can tip the situation in your favor.
Logically, a service provider with any financial sense plans to build a network to meet a basic level of need so they can get it launched. Then they'll market like mad to generate revenue to keep operations afloat long enough to enhance the network to where it's able to support more complex applications for which it can charge more money per user.
Logically, most providers realize up front that government officials, by promising with great fanfare a grand network to solve all of the ills of the 21st Century, are on the hook for this network. Once the RFP is awarded, there's no turning back for a government wanting an easy re-elected campaign.
Furthermore, once you abdicate responsibility for the network to the service provider, they own it. Sure, the cities own the light poles and other infrastructure that the network hangs on, but any good lawyer knows that in a tug of war over issues such as network capacity, whoever owns it will do whatever's in their best interests.
The bottom line? Achieving great goals with muni networks cost a lot of money. The ability to fulfill those dreams is compromised from the get-go if you lock yourself into a funding model before you start.
Here's how you put yourself and your citizens into the drivers seat.
What are these networks good for, anyway?
Decision making on muni wireless is prone to two major dangers at the outset of these projects: the propaganda of friends and the propaganda of foes. I'll address the latter in the section "Resist the propaganda of foes."
Given the four primary reasons governments are pursuing muni wireless, building a network to provide general public Internet access makes the least financial and political sense unless there are no other viable alternatives. All this talk about having cheap access to bring young people to an area, upgrading the image of the city and so on is great propaganda for local politicians, but a weak business decision for the government.
Whether the city or the provider owns the network, selling Internet access to consumers is a brutal business. It's incredibly risky for governments, and risky for private companies given the structure of deals that some cities want. Consumers are expensive to sell to, they want to get the cheapest price possible and have little sense of provider loyalty. Yet they often put the greatest strain on networks in terms of bandwidth usage.
At the outset, don't dictate how you want to pay for the network. Focus heavily on the other reasons to build a network, AND keep an open mind during a needs analysis and technology due diligence process. You subsequently will find there are many ways you can fund these networks without necessarily tapping into taxes or turning it over to a private provider.
In Fighting the Good Fight for Municipal Wireless, I tell readers there are three ways to cost justify the expense of building a municipal network. 1) You can use the network for mobile workforce applications for government employees (this includes public safety workers), as well as for asset management and maintenance. 2) Use the network for digital inclusion applications. 3) Use the network for economic development goals.
Municipal broadband improves business operations
City and county governments (except the legislative side) operate similarly to commercial entities. They collect taxes and fees to hire and manage employees who produce and deliver a product (services) to customers who are the residents, business owners, tourists and other people traveling into town for various reasons. The "profit" of a city is its ability to deliver the most effective services to the greatest numbers of customers as quickly and efficiently as possible.
Governments, therefore, should think like a business. Many cities can justify the investment in deploying broadband wireless just with the increase in profitability from improving the efficiency and productivity of its mobile workers. Ask any business with a successful mobile workforce application and they'll tell you about hundreds of thousands of dollars in benefits they receive in return for their investment.
A sizeable percentage of cities' workers are mobile a great deal of the time, both within and between offices and on the street. For example, over 2000 employees work the streets of Philadelphia - parking meter readers, building inspectors, public safety personnel, social service workers, etc. Beyond City Hall there are several hundred offices and facilities, including fire and police stations, scattered around the city with office and mobile workers who need to stay connected to the city's operations.
Run the numbers. What's the measurable impact of having mobile workers accomplish more in the field with few or no trips back to the office? How much can you improve government operations overall if people in the field can instant upload vital data to servers in the office? What if field workers at all levels can make better decisions faster because of a muni network. How much money can you save if you're not buying workers expensive cellular network data services?
I think many of you understand these are benefits, but have you sat down and put hard numbers to them? But don't stop here. Look at asset management.
Local governments are starting to see the value in doing video surveillance of assets to make sure they're safe, or remotely monitoring asset operations so managers are alerted if something is malfunctioning. They understand the value of having sensors on vehicles to detect problems before they happen, or to ensure that they're not burning too much gas. But some haven't deployed these applications because of the cost of cellular network data services.
Put pen to paper and see what kind of realistic dollars these applications can save. How much additional revenue can the municipality generate?
Houston plans to have 4,000 new "smart" parking meters. Drivers will be able to walk up to an electronic station on the block, push the number for their respective parking spaces and make a payment in any form - coins, dollar bills, credit/debit cards. All of the meter stations wirelessly communicate payment and time data via the Internet back to the main office.
The city will streamline meter management and increase revenue. The number of tickets issued will increase because the stations tells meter readers on their PDAs where the spaces are that people haven't paid for, significantly speeding up workers' efforts. In addition, every meter doesn't have to be checked as often because there's less change to begin with given the multi-payment option, and the electronic system tells workers exactly which ones have coins.
Rather than buying cellular wireless access to make smart meters work, which would cost $80,000 each month, the city builds a WiFi network and eliminates those recurring costs. The city estimates that with all of these benefits collectively, they will make their money back for the entire build out in eight months. The money that is saved beyond the 8th month can underwrite the cost of using the network for other purposes.
Again, get your pens and calculators out and figure out what kinds of savings you can get. Once you identify all of these applications which the city can run and how much money you can save, doesn't it make sense to own the network so you have control over the capacity and quality of what will be a valuable asset?
What about finding the money to pay for this, you ask. Bear with me for a few paragraphs and I'll explain where the money can come from besides tax money.
Addressing the digital divide and other social issues
Elected officials and city government managers who are driven to improve the standard of living for the less fortunate citizens of their communities are pushing for broadband wireless. They believe having access to the technology is necessary for these citizens to stay in the game of a digital economy, and using it effectively is necessary if underserved communities are to have a chance of winning any advances.
Whether you call it the digital divide, lack of digital inclusion or some other polite phrase, the stark reality is the same. The Internet and access to it are resources that require money to build and deliver. The economics of our world dictate that those who have more money can buy more and better resources. Those with little money have little or no access to these resources.
While businesses do make efforts to close the gap between the fortunate and less fortunate, it is government that has taken the lead in addressing major social or economic divide issues. This is a major reason why many city services started and why we have government mandated access to inexpensive "lifeline" telephone services and other vital utilities. Increasingly more financial responsibility for providing services is falling on the cities, yet they have to do more with the same financial and human resources.
Governments can deliver a number of services faster and more cost effectively if people access them over the Net. Also, residents can better help themselves if they can access the Net's other resources. Wireless broadband will give the people in need the Net access that is vital to their advancement at a price they can afford if the cities take action to ensure low-cost delivery.
It is important to note that, if city governments are really serious about making elimination of the digital divide one of their main objectives, then they must be ready to do more than just make the technology available to underserved communities. Without receiving technology training and content or services that are relevant to their needs, these communities will fail to reap the potential benefits.
To meet these needs, cities must have a network of guaranteed capacity, quality and reliability. But as I mentioned earlier, how can you do this if you give ownership over to a vendor? And given the financial pressure on the vendor since they have build the network and make their money back, how much priority are they going to give digital inclusion if the provider can't make ends meet. It's hard to have a social conscience when your P & L is going haywire. What happens to all of these social goals if the vendor goes out of business?
This is all well and good, you say, but where's the money coming from for the network if the city doesn't have it? Bear with me just a little bit longer and I'll tell you. Seeing the big picture with all three options that cost justify the network helps you fully appreciate the funding options I'm going to present.
Municipal broadband boosts economic development
As great as the need is for individual economic improvement, so too is the need to address local businesses' economic issues. Several trends are working against small and large companies. For some time our national economy has been moving away from manufacturing and traditional "blue collar" industries to "white collar" knowledge and service industries. But even certain white collar jobs such as programming, telemarketing and customer service are being sent offshore.
The U.S. economy is increasingly becoming wrapped into the global economy. Communications in general, and communication over the Net in particular, are key factors in businesses' ability to adapt to these changes.
How well companies of all sizes can remain in business and grow, and where companies decide to locate, is influenced by the quality of a community's communication infrastructure. Small operations are hard pressed to survive if they depend solely on struggling inner city economies, and are challenged to be able to expand into national or international markets. Affordable broadband wireless access to the Internet is a definite lifeline for businesses to pull themselves into the global marketplace.
But while people are advocating the use of muni networks to tackle these issues, they miss a critical area in which the networks can impact businesses unless a city is running fiber to office buildings. I have mixed feelings about how well current WiFi mesh technology can substitute for DSL and cable within the office IF pricing is similar and IF you can actually get incumbents to deliver these services to an area.
Where muni WiFi is a hands down winner for economic development is in facilitating mobile workforce applications. Small and medium size businesses (SMEs) are at a disadvantage against larger companies when it comes to mobile workforce applications, largely due to costs.
A small delivery company, for example, is hard pressed to provide wireless access to workers at $60/person every month. Drop that price to $20 or $30 with a muni network and these companies likely can afford to jump on board. An increasing number of SMEs are interested in mobile workforce applications because they've done the math and determined that these applications can help them save money, make money and run a better business.
The big thing is that commercial entities, unlike consumers, are willing to pay for services and pay higher rates for better services. I just completed a national survey of business and a sizeable number of them are interested in using muni networks for mobile workforce, voice over the Internet (VoIP), Internet video and other applications (www.successful.com/abstract-7-06.html).
The size of your business community and their willingness to pay for services gives them the potential to be one of the primary financial pillars upon which you can build a viable muni network. However, the network must have guaranteed levels of service and speeds that come with a hefty price tag that has to be paid before vendors can start making money. It may be more than what some vendors are capable of building when they have to do everything on their own nickel.
Now, let's look at where the money is going to come from for a city or county to fund this network of dreams.
Opening the doors to different funding options
Someone in your steering committee or project group for the network initiative needs to be in charge of challenging the whole group's thinking on funding options. Here are some options to show you what I mean taken from my June Municipal Wireless Snapshot report (www.successful.com/abstract-6-06.html).
First option
As you look at using the network for government workers and assets, consider that the city or county can own the network and have someone else operate it. As you do your needs analysis within the various departments, look at the hard numbers you can save from their budgets by using the network to increase mobile workforce productivity and improve asset management. There can be hundreds of thousands, if not millions, of dollars saved each year. Use these savings as a down payment on the network.
Here's a quick math quiz using San Francisco as an example. A recent newspaper article said EarthLink could build a network there and maintain it for 10 years for $15 million. That's works out to a one-time charge of $20 for each of the city's 750,000 residents. Total up the potential savings in your government operations for 10 years and divide by the number of residents. If it equals $10 or more, consider buying the network as capital equipment, hiring a service provider to run the public access and business services and splitting the revenue.
Second option
Get someone to pay the city to build the network. That's called grant money. Homeland Security grants for public safety use of the network, which is what New Orleans did for their initial network. Education grants to fund the educational, training and digital inclusion portion of the network. Federal grants for the economic development role of the network. Take the money and pay the vendors to build a top-class network. They're guarantee a profit, so they're happy. You're guaranteed a better network, so your constituents are happy.
Leave no stone unturned at the state or federal levels. How many hundreds of millions of dollars go un-used every year because no one comes calling for that money? Extend you search to corporate and philanthropic grant sources. Economic development and digital inclusion are popular topics with a range of institutions.
Don't leave out grant sources for medical and healthcare purposes. A municipal network offers the potential to dramatically change emergency medical response and care, general home healthcare and healthcare for the elderly. Look for ways to structure your network build out to ride this wave, and money could come pouring in before you know it.
Third option
Find corporate sponsors. Nokia is showing that this is a viable funding option in New York. WiFi Salon will own and manage a WiFi network infrastructure in many of the parks within Manhattan and the other boroughs through a contract it has with the city. The Wi-Fi hotspots will act as local portals that feature content specific to that location and enable users to share content with each other.
Nokia is sponsoring the network, using it to promote the company's wireless devices and informing people about its services at retail outlets such as one it's opening soon in New York. Nokia sees this as a great opportunity to showcase rich multimedia services as well. Users who log on to the network will see a splash page demonstrating Nokia's devices. They also can download streaming audio and video files at high speeds.
Here's a quick marketing quiz, using San Francisco's neighbor Oakland as an example. Can the Oakland Raiders football or Oakland A's baseball franchises achieve $1 million in benefits from being in people's face - subtly for maximum impact - day in and day out to promote ticket sales, merchandise sales, trivia quizzes and heaven knows how many other brand loyalty-building gimmicks? Can Office Depot reap similar benefits for being the 24/7 Office Depot Business-Owners Wireless Network?
Fourth option
I was having a discussion with the person coordinating a series of forums in Michigan for cities and townships to explore muni wireless issues. In the middle of my describing business models, she asked "what about assessments?" What? It took me a minute to realize she meant creating a tax or issuing a bond. In an interview for my latest report (www.successful.com/abstract-7-06.html), Rhoonda Hooper, a member of Oklahoma City Chamber of Commerce Executive Committee said "Our local people have done some big things such as authorizing a $300 million bond for a new building, and $800 million for schools, so it's possible for the city to decide to pay for a citywide network itself."
This is an area in which supporters of muni network have let incumbents dictate the discussion. This has to change. Cities support sports stadiums and arenas to the tune of several hundred million dollars, and no one accuses them of getting into the sports team management business. Geez, in Philadelphia the city council gave Comcast a $30 million tax break on the company's new office building and Comcast didn't complain that the city was getting into its business.
Stop letting the incumbent foes of muni wireless govern your cities and counties. Put all funding options on the table.
Resist the propaganda of foes
I mentioned earlier that decision making often falls victim to the propaganda of foes. Early on in the muni wireless movement, supporters were stymied by the ferocity with which telcos and cable companies fought against even the concept of city-owned networks. Their millions in lobbying money made the question "should cities be in these companies' business?" a political red herring to protect incumbents' interests.
Local government needs to smack down these bully-tactics with the basic argument that governments, as major consumers of technology, and their various constituents ARE the market. And as such, telcos need to practice their own mantra of "let market forces decide." If governments decide that municipal wireless is a better solution to meet their needs and the needs of their constituents, then the market has spoken. If the best way for governments to meet those needs is through ownership or partial ownership of the networks, then let the market force be with them.
With this thinking firmly entrenched, you need to conduct thorough needs analysis of your various constituents, and do so in more depth than appears to be happening now. As you do that analysis, keep top of mind these questions. If we meet "z" needs, does the hard dollar value justify us owning the network? If we meet "x" or "y" need, is there a way to package this solution so we can tap into grants and other funding sources? Are the needs so critical that only through government ownership can we guarantee meeting those needs?
Ownership doesn't mean you have to own all of the network, but enough of it to control what happens to it. Or create a non-profit to own it and make sure city officials sit on the Board of Directors. Ownership definitely doesn't mean you need to operate the network. Do like many commercial entities and outsource the operations.
There are funding and partnership options that creative minds haven't even thought of yet. Do not start the due diligence process with the mindset "we're limited because we have no money." Rather begin by saying "let's determine the best technology option for our city because we're creative enough to find ways to fund it." In the end you will produce a more viable network, both technologically and financially.