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Born Free: the Wild Hotspot Business Models

WSJ reports that leaders of municipal governments in the U.S. are finally realizing that broadband access infrastructure is an integral part of their economic development strategy for the 21st century. Like railways, highways and airports -- the more capability that you offer, the better your chances are of maintaining commercial sustainability within the very competitive global networked economy.

When MobilePro Corp., a provider of wireless networks for municipalities, won a contract from the city of Sacramento, California, last year to build and operate a citywide wireless network, the firm thought it had landed its biggest deal ever.

Under the agreement, Sacramento residents would pay monthly subscription fees of about $20 to use MobilePro's wireless service, local businesses would pay $90 to $250, and Sacramento's city agencies would be able to use the service at no cost. The agreement resembled that of many other municipal wireless deals across the country. For MobilePro, based in Bethesda, Maryland, a full year of service would bring in $2 million to $4 million in revenue, analysts estimate.

But earlier this month, the deal fell apart. The reason: Sacramento city officials had noticed new municipal wireless deals inked in San Francisco and Portland, Oregon. The Portland rollout, sponsored by Silicon Valley startup MetroFi Inc., and the San Francisco deployment from Google Inc. and Earthlink Inc., both offered wireless service to those cities with expanded free access for some businesses and residents.

Instead of relying on user subscription fees, MetroFi, Google and Earthlink planned to make money off local advertising that would be embedded in their wireless service.

Sacramento, California's capital, wanted to pursue an even more aggressive model: a completely free wireless service supported solely by Internet advertising. "What the city wanted was out of the question," says Jay Wright, MobilePro's chief executive officer.

The breakup between Sacramento and MobilePro presages a shake-up in the nascent municipal wireless market. While municipal wireless services are just a few years old, providers of the networks -- which often use a wireless technology dubbed Wi-Fi -- have mostly relied on subscription fees from users for revenue. Now the rise of a new municipal Wi-Fi business model dependent on Web advertising is putting the first wave of municipal wireless providers -- such as MobilePro, Tropos Networks Inc. and Strix Systems Inc. -- at risk.

I wrote about this phenomenon, back in June of 2004, in a column entitled "Born Free: Wild Hotspot Business Models" where I wondered why broadband service providers hadn't already acknowledged the emerging trend, and acted upon it. IMHO, the loss of landline phone revenue for telcos is marginal when compared to this bypass threat.

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