In August, Los Angeles, began research on a program that would make it the largest city in the country to blanket the city in free Wi-Fi. Currently, over 57 U.S. cities are providing “muni Wi-Fi” on some level. These cities hope “muni-Wi-Fi” will provide job opportunities to their underserved populations, facilitate waves of innovation, and brand the city as tech-friendly.
But a single-minded focus on municipal Wi-Fi is misplaced. To maximize investments in digital infrastructure, local governments should look beyond cosmetic solutions such as municipal Wi-Fi, install a fiber-optic network, and implement a public-private model to finance the construction.
The actual benefits of municipal Wi-Fi are limited. First, a large majority of Americans already have access to the internet, creating a dynamic in which municipal Wi-Fi will only marginally expand the use of the internet. Right now, 85% of Americans over the age of 18 have access to the internet and 70% of adults have high-speed internet in their homes. Of the portion of the population that does not have internet in their home, nearly half claim that they simply don’t want or need it. Thus, for the vast majority of the population, municipal Wi-Fi plans will only provide a supplement to household connections, possibly explaining why established municipal Wi-Fi programs have generally targeted 10-25% of the population, but have only achieved a 1-2% signup rate.
Furthermore, Wi-Fi services offered by municipalities tend to be inferior to what’s already on the market. The average broadband download speed in the United States is 8.6 Mbps (megabits per second) and the average smartphone download speed can range from 1-5 Mbps for 3G services and 5-17 Mbps for LTE services. In contrast, although exceptions exist (see San Jose, Calif.), municipal internet speeds are typically only 1 Mbps. For example, city-provided Wi-Fi in Raleigh, N.C., Santa Clara, Calif., Albany, N.Y., and El Paso, Texas all provide speeds around 1 Mbps. By comparison, your local Starbucks used to offer speeds of 1.5 Mbps, before it partnered with Google last month to provide speeds of up to 15 Mbps.
Rather than relying on free Wi-Fi as the sole cyber-solution, local governments should focus on increasing the speed of their broadband networks. A 2011 study demonstrated that doubling the broadband speed for an economy increases GDP by 0.3%. Furthermore, businesses are enticed to locate to a city based on internet speed, not the mere presence of Wi-Fi. In a 2012 survey 90% of professionals in economic development organizations agreed that a broadband speed of at least 25-50 Mbps is needed to attract new business to a city, with over a quarter concurring that 1,000 Mbps would be needed.
Fiber optic cables can provide these speeds and the corresponding benefits. First, high-speed fiber optic networks are a demonstrated boon to economic growth. Since first offering its fiber optic service in 2012, Chattanooga, Tenn. has generated $400 million in new business investments and 6,000 new jobs. Additionally, fiber optic networks generate significant revenue, allowing cities to cover operating expenses and pay down initial costs. In 2014, Chattanooga is expected to bring in $93.6 million in revenue from its more than 50,000 fiber optic subscribers.
Moreover, fiber optic networks can serve as competition to the de-facto monopolies in the broadband industry, who typically make a 97% profit margin on internet services. Since Google Fiber’s entrance into Kansas City, Time Warner Cable has boosted its “turbo” service by 33% and doubled its fastest available service to 100 Mbps. After Google announced plans to come to Austin, Texas, Time Warner announced it would match Google’s 1 GB service and provide free Wi-Fi in public areas to existing customers.
Despite the benefits, gigabit services are extremely limited in the United States. The deficiency in fiber optic options is primarily an infrastructure issue — there is a scarcity of cities wired for fiber optic networks.
To be sure, providing a fiber optic network is not cheap. In 2012, the Chattanooga-owned utility company, Electric Power Board, installed a fiber optic smart grid, connecting each home’s electricity meter with fiber optic cables and allowing Chattanooga residents to purchase a gigabit service for $299 per month. The total cost of the project, however, totaled $320 million ($112 million of which came from the Federal Recovery Act).
However, Susan Crawford has identified a public-private model in New Zealand that could work in the U.S. to reduce overall taxpayer costs. Under this plan, the government would build the network and provide price schemes incentivizing internet service providers to invest in fiber optic networks. Internet service providers would then develop the final connections to homes and buy back the basic network connected to those homes. Such a model reduces the upfront cost to an investor, allows the government to recover on its costs, and makes fiber optic projects more feasible.
Fiber optics are the way of the future. Rather than offering a service that anyone can get at a neighborhood coffee shop, local governments should focus their efforts on truly giving their cities an edge.