Wi-Fi With Its Own Zip Code

As more municipalities set up wireless networks, a fast-moving business emerges

Addison, Tex., joined the nation's tech elite on Aug. 23. With the flick of a switch, Mayor Joe Chow turned on a city Wi-Fi network that covers all 4.5 square miles of the Dallas suburb. Now, Addison's 100,000 residents can buy fast wireless Web access from startup RedMoon Inc. for just $16.95 a month -- a far better deal than most phone or cable broadband offerings.

As towns across the country launch wireless broadband networks to bring affordable Web access to their residents, companies from tiny RedMoon to heavyweights such as Hewlett-Packard Co. (HPQ ) are jockeying to become their partners. Their motivation: Getting in on the ground floor of a potentially fast-growing business while creating an alternative to the Bells and cable outfits that control most of the country's broadband pipes.

On Aug. 18, Wireless Philadelphia, the nonprofit running that city's Wi-Fi network, chose HP and EarthLink Inc. (ELNK ) as finalists to build and manage its $18 million system. Minneapolis is now reviewing proposals from EchoStar Communications Corp. (DISH ) and Sprint Nextel Corp. (S ), among others, to build and run a $15 million to $35 million citywide network. Google Inc. (GOOG ) sponsors a wireless hot zone in San Francisco's Union Square, and analysts wonder if the Internet giant will bid for the city's new Wi-Fi project.


The muni wireless business is still in its infancy. But with 300 cities launching or soon to launch Wi-Fi networks, the market could yield roughly $200 million in revenues a year, according to market tracker Yankee Research Inc. Although Wireless Philadelphia has yet to negotiate a final price with its winning bidder, its business plan calls for spending $50 million over five years. Many cities and their corporate partners haven't yet set prices. But Philadelphia for now envisions selling Wi-Fi at less than $20 a month and just $10 a month to low-income residents.

Cities may want Wi-Fi to bridge the digital divide. But many of their potential partners -- such as Sprint, MCI (MCIP ), and satellite TV provider EchoStar -- are old rivals to the Bell and cable companies and see wireless as a way to compete with their enemies. While Internet service providers such as Earthlink can still make deals with the Bells and cable outfits for delivery of services, "it's essential now for [such] companies to figure out an alternative way to get into people's homes," says Ronald A. Sege, chief executive of Tropos Networks, a wireless-broadband equipment vendor in Sunnyvale, Calif.

Equipment makers also want to get a toe in the door. Hewlett-Packard, which long has provided technology infrastructure for telecom companies, views wireless broadband as the communications system of the future. "It's a natural evolution for HP to move into this space," says William J. Mutell, senior vice-president of worldwide public-sector solutions. The Palo Alto (Calif.) company is bidding to build Wi-Fi networks in six cities and currently operates systems in St. Cloud, Fla., and Franklin, Tenn.

The rush to build muni wireless zones has got the Bell and cable companies plenty worried. They have mounted lobbying campaigns in 14 states to bar local jurisdictions from creating their own networks, but have failed in all but one. In Congress, the issue will likely get ironed out as part of an impending overhaul of the 1996 telecom law. To fend off the Bell and cable lobbies, many cities are opting for outsiders to own their Wi-Fi network.

The new competition already may be having an effect: Verizon Communication Inc. just dropped its DSL pricing to $14.95 a month. Cities, meantime, see these networks as a necessity of the Information Age. "Just as with the roads of old, if broadband bypasses you, you become a ghost town," says Dianah L. Neff, Philadelphia's chief information officer. As more and more burgs rush to get connected, Techdom senses a potentially lucrative business in the making.

By Catherine Yang in Washington, with Ben Elgin in San Mateo, Calif.

— With assistance by Benjamin Elgin

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