Welcome to Wi-Fi-Ville

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The telcos, including Verizon in New York, argue that city-owned systems have an unfair advantage over privately run ones--which could stifle competition. "Wi-fi as a public service has serious issues like network congestion and security," says Eric Rabe, Verizon's senior vice president for media relations. "Do you really want your government handling your e-mail?" Public outrage caused the telco fight to fizzle, with many bills getting killed or modified. City wireless is set to become a $1.2 billion market by 2010, according to analyst firm ABI Research; AT&T, Verizon and Sprint Nextel spin-off Embarq are looking to cash in, snapping up their own municipal deals in places like Springfield, Ill., and Riverside, Calif. And Comcast Ventures has invested in BelAir Networks, a Canadian vendor of wireless equipment.

Going head to head with the telcos is EarthLink, a big player in dial-up but a company that was falling behind in broadband because of the high prices cable companies charged for access to the network. EarthLink (projected 2006 revenues: $1.3 billion) is banking on muni wi-fi to grow sales, closing deals with seven cities in public-private partnerships. EarthLink owns and operates the network while the city contributes money or light poles to nest radios for connectivity. The company will cut costs by selling access to wholesale providers like DirecTV. Philadelphia created a government-supported nonprofit to oversee EarthLink's 135-sq.-mi. system, which should be ready next October and will emphasize digital inclusion programs like half-price accounts for low-income residents. Subscriptions will be $21.95, about half the cost of DSL and cable (a bit pricier), with some free access downtown.

Is cheap wi-fi a bargain? It depends on your needs. Wi-fi networks are on unlicensed spectrums, and towns like St. Cloud, Fla., initially suffered from spotty performance. "I don't think many broadband users will switch to muni networks unless they're less expensive and sure to work," says Ina Sebastian, an analyst at Jupiter Research, whose survey of online consumers found that only 12% would pay for a citywide service. Some places are waiting for WiMAX, a technology similar to wi-fi but faster and longer range, with fewer interference issues, but it's not yet certified for mobility. Nevertheless, Grand Rapids, Mich., chose a WiMAX network last month.

Then how about free? It worked for Yahoo! and Google. Companies like MetroFi, which is committed to 13 cities, including Portland, Ore., are betting that complimentary, ad-supported access will attract enough users to turn a profit. San Francisco made a splash when EarthLink partnered with Internet ad king Google for gratis services, but they're still debating what will be free, and this model is far from proven. "Relying solely on ads is a misplaced dream to fund a multimillion-dollar network," says Craig Settles, author of Fighting the Good Fight for Municipal Wireless. MobilePro Corp. pulled out of its Sacramento, Calif., deal when the city insisted that the company offer a free service, believing ads wouldn't generate enough money. But Annapolis Wireless Internet says switching to a free model made its product viable. Its two-mile network, which is expanding, has over 5,000 subscribers.