AT&T today announced it has turned up its first Metro Wi-Fi service, taking the first segments of the Riverside, Calif., network live with both free and fee-based service.

AT&T, along with companies such as Clearwire, Earthlink and MetroFi, are teaming with dozens of cities around the country to build municipal Wi-Fi networks, and increasingly using business plans that combine service types and revenue sources.

One key aspect of AT&T’s first deployment is its business model, which includes providing a municipal public safety network to the city of Riverside as an anchor tenant on 4.9 GHz band, as well as commercial Internet access service on the 2.4 GHz band. The commercial service includes ad-supported free access at 512 kb/s and 1 Mb/s access for $7.99 daily or $15.99 a week.

“We think this is a business model that has legs,” said Susan Johnson, senior vice president of business development for AT&T. “Muni Wi-Fi can’t just be about free, free, free.”

What AT&T is announcing today is the availability of the first three-square-mile segment of what will be a 55-square-mile mesh Wi-Fi deployment, Johnson said. And while AT&T has deployed 47,000 Wi-Fi hotspots globally, this will be its largest mesh Wi-Fi network, in which all those hotspots are linked. Initially, the areas served include downtown Riverside, Hunter Technology Park and the Adams Auto Center.

The city will use its wireless public safety network for high-speed communications including video to police squad cars, and for video monitoring of areas where grafitti, illegal dumping or other activity is suspected, and for real-time traffic monitoring, Johnson said.

“They are exploring other applications as well,” she said. “They will take all these access points and decide how to use them intelligently.”

The city government of Riverside, which has a population of about 300,000, has been a good partner in the project, which has given AT&T many opportunities to learn the muni Wi-Fi business that it expects to grow, Johnson said.

“We faced the standard engineering challenges – making sure you have the right coverage, the right engineering, the right applications,” she said. “One thing we learned was to let the applications drive the engineering.”

There is also a conscious effort to manage expectations of what a mesh Wi-Fi network will do – for example, it won’t provide in-building coverage for residences or office buildings, Johnson said. That can be accomplished with additional customer premises equipment, but the in-building part of AT&T’s Wi-Fi business remains a separate commercial operation.

“We wanted to be very clear on what the objectives of the network and clear about challenges and limitations as well as what it can do,” she said. “We are looking at applications that drive real value.”

Another thing AT&T is looking at is how to tie muni Wi-Fi service into its existing broadband offerings, much as it recently tied its WiFi hotspot business to its DSL offering by giving higher-speed DSL customers free WiFi access globally. The launch of the iPhone, which is WiFi equipped, also ties into AT&T’s plans.

“We are seeing a transition in the way that people are viewing Muni Wi-Fi,” Johnson said. “We are seeing another wave of interest after iPhone and more discussion about how people are going to use Muni Wi-Fi. We are still exploring what business models are workable, which ones are sustainable and what we see things evolve.”