(First in a series)

Even as U.S. municipalities, small and large, continue to plan and build out municipal Wi-Fi networks, new independent research is challenging the return on investment those cities will reap, as well as the wisdom of assumptions being made about economic development benefits.

This month, a Forrester Research report, “Muni Wi-Fi Networks’ Uncertain Customer ROI,” and another report, The Economic Development Impact of Municipal Wireless, by the International Economic Development Council, challenge some of the basic premises of muni Wi-Fi benefits. Neither report claims the networks should not be built, but both encourage municipalities to reconsider how these networks will pay for themselves and what their real benefits will be.

According to Forrester, 385 cities, communities and counties in the U.S. are involved in a wireless networking project as of June of this year. For some, however, those plans are already hitting a snag.

Both Corona, Calif., and Anchorage, Alaska, have cancelled plans to build out muni Wi-Fi networks, saying in both cases the plans were scuttled because their Wi-Fi vendor, MetroFi, had switched from offering free service to asking the municipality to pay for the deployment. Anchorage officials said MetroFi sought $3000 a month, while Corona officials said they were asked for $90,000 a year for five years.

Those two situations reflect a new market reality that muni Wi-Fi isn’t about “free, free, free,” said Craig Settles, president of Successful.com, and author of the report, which was sponsored by IEDC.

“The market shouldn’t have gone in that direction in the first place,” he said. “A lot of cities saw other cities getting a Wi-Fi network, seemingly for free, and thought ‘We have to have one, too.’ Rational planning took a back seat in a number of cities. And the ones that went down the path of having everything for free are having the moment when the hens come home to roost. You can’t make money with this business model.”

Not only that, Settles said, cities need to look at whether the economic development benefits cities expect to flow from muni Wi-Fi are real. His report profiles five cities, including three who have operating muni Wi-Fi networks and two who are in the early planning phases of building a network. It also surveys economic development professionals to find that many of those believe that wireline broadband networks will have a greater impact on economic development than wireless networks, and most don’t believe the local government should own or operate the local high-speed network.

The cities most likely to fail, Settles said, are those that put resources into building a network in the expectation that it will both attract new businesses, and generate income from consumer use.

The Forrester report supports the latter conclusion, pointing out that consumer use of public Wi-Fi networks at parks or other outdoor spaces – the locations that muni Wi-Fi networks will serve – remains very low at 5%. Most consumers using Wi-Fi are doing so at home, reported Forrester analyst Sally Cohen.

“Most of today’s consumer public Wi-Fi use happens indoors,” Cohen states in her report. “When using public Wi-Fi away from home, most consumers access the Net in public indoor spaces, such as hotels, office buildings, airports and train stations. Yet most municipal networks are designed to cover only public outdoor spaces, where most of today’s users don’t go online. In order for the wireless signal to reach the interiors of local businesses or homes, most muni networks require the purchase of additional equipment, a consideration that is likely not obvious – and thus potentially confusing – for potential consumer customers.”

Another misconception, which both reports address, is that muni Wi-Fi can close the digital divide by making broadband access available to lower-income residents. Instead, Cohen reports, the people using public Wi-Fi are early adopters, who tend to be young, tech-savvy men with higher-than-average incomes.

There is considerable confusion among consumers about Wi-Fi, Cohen adds, citing survey results that showed 28% of those who say they are using Wi-Fi don’t own laptop computers, and using cellphones, text-messaging devices and smartphones, all of which are more likely to be connected to a cellular network, not a Wi-Fi network.

“Municipalities – and their service provider and nonprofit partners -- targeting consumers with their networking projects must be prepared to educate their target subscribers about mobility and Wi-Fi,” she concludes.

Municipalities in general must do more up-front planning and careful examination of both their business models and their anticipated benefits, IEDC’s Settles adds. As he notes, there are many successes in the Wi-Fi realm, but they are typically in cities where a lot of heavy lifting was done up front.