Dollars and sense on muni wireless.

• Author: Daggett, Becca Vargo

Some 350 cities across the country are in some stage of implementing citywide Wi-Fi (short-range wireless Internet access). Hundreds more are exploring the idea. An important step in the decision-making process falls to the financial officer: calculating the potential risks and rewards.

A complete analysis requires that the city examine different implementation/ownership structures, and it is essential to analyze the financial costs and benefits of a publicly owned system. If the city opts for public ownership, such an analysis would be a deciding factor. If the city opts for private ownership, this analysis would help it negotiate the best contract with a private company

Investing in an information network is similar to investing in traditional infrastructure. Cities commonly own the physical distribution system of roads or water or sewer pipes. A wireless system, which will also have a wired component, is also a physical distribution system and therefore lends itself to a similar approach. One significant difference is that traditional infrastructure investments do not generate revenue directly. An information network can pay for itself, and possibly become a significant net revenue generator.

The potential profitability of these networks has led a number of vendors to offer to build a network at no upfront cost to the city. There often is a substantial public investment as a customer of the network, however. The city agrees to purchase millions of dollars in services over the contract term, and that becomes the key to the private company obtaining debt financing and establishing enough of a guaranteed revenue stream in order to make the project profitable for them to undertake.

A key objective for the prudent financial officer is to evaluate whether an agreement that requires no capital investment by the city will cost the city and its households and businesses more or less in the long run than a direct public investment and public ownership of the physical infrastructure.

CALCULATING RETURN ON INVESTMENT

Capital expenditures. Capital expenditures include wireless hardware and software, backhaul (the connection from wireless access points to the larger local network, which in turn connects to the global Internet network), network engineering, and deployment. It also includes core network equipment (e.g., servers and routers).

Both implementation and operating costs depend on the service model chosen. Wi-Fi hot spots, like those found in cafes or homes, are inexpensive. However, they will probably have to be upgraded every five years or so. And their ongoing costs may be substantial, since each hot spot must be connected to a wired connection in the existing last-mile infrastructure. In Austin, Texas, some hot spots are connected to a city-owned fiber optic network, but most use business connections from the incumbent cable and phone companies. Ongoing fees for the wired connection mean annual operating expenses may be 10 times the capital investment.

More typical is the use of Wi-Fi mesh that reduces the number of wired connections in the network by allowing information to hop from one access point to another before reaching a wired connection.

Wi-Fi mesh networks for municipal use only (public safe-meter reading, mobile municipal workforce) can be deployed for $100,000 or less per square mile. Residential service networks, typically designed to reach 90 to 95 percent of homes and businesses, require a much higher capital expenditure, on the order of $250,000 per square mile. The difference is attributable to the need for more radios and greater backhaul capacity to support more users, as well as bridging devices that are often needed to bring the outdoor signal inside.

Finance officers are not likely to be responsible for conducting an asset inventory;, but the results of such an inventory can affect significantly the cost of a network. For example, does the city own streetlights, electric poles, or other mounting infrastructure that will allow the placement of roughly 30 access points per...