Wireless Pittsburgh
Policy Paper
Jan. 31, 2008
Abstract
Many cities are considering the deployment of a wireless metropolitan-area network (WiMAN) based on Wi-Fi technology. Some hope to find the “right” WiMAN policy, but in reality, different policies are appropriate for different cities. City leaders must often balance competing goals, including the desire to maximize the area in which wireless services will be available, to maximize competition among providers, to minimize subsidies from government agencies and non-profit organizations, and to ensure financial sustainability. This paper investigates the extent to which these goals can be met with four basic models: (1) a single citywide monopoly WiMAN provider; (2) facilities-based competition from multiple citywide WiMAN providers; (3) a citywide WiMAN offering wholesale services to competing retail service providers; (4) open competition where multiple providers are free to serve only the more profitable neighborhoods. We estimate costs for constructing and operating a WiMAN in Pittsburgh using a sample architecture.
We develop a regression model to roughly predict subscription rates and revenues based on city demographics, and apply that model to Pittsburgh, Philadelphia, and Minneapolis. Using these rough estimates, we analyze the extent to which competition can be sustained and service can be provided citywide under different models, and with different forms of intervention, such as providing one-time or annual subsidies (from government or non-profit foundations), guaranteeing that city government will be a large customer, advertising wireless services, and facilitating access to locations that are suitable for antenna placement.
For Pittsburgh, we conclude that citywide facilities-based competition is not financially sustainable. Citywide monopoly operation and citywide competition at the retail level are almost equally viable financially, and both appear sustainable, but financial failure is well within our margin of error. Moreover, we show that retail competition can only survive if the City has leverage to prevent the monopoly wholesaler from raising prices to the level that maximizes the wholesaler’s profit, as this will end competition. In addition, the City or a powerful third party must provide some form of inducement such as becoming an anchor customer to motivate providers to serve all parts of the city. Otherwise, commercial providers maximize profit by focusing on high-income neighborhoods, leaving much of the city unserved. Finally, we argue that substantial involvement from local government is helpful in some cities but not others. Each city must carefully consider local needs and resources, and state legislatures should refrain from interference.
For the full working paper, please see the attached PDF below.
Related link: The Future of Municipal Wireless