Business Models for Wireless City

Networks in the EU and the US

Leo Van Audenhove IBBT-SMITPieter Ballon IBBT-SMIT

Martijn Poel TNO

The Centre for Studies on Media, Information and Telecommunications (SMIT) is part of the Free University of Brussels (VUB) and the Interdisciplinary Institute for BroadBand Technology (IBBT)

Structure of the presentation

• Introduction

• Selection and introduction of 15 cases

• Goals

• Technology, topology and coverage

• Six business model configurations

• Public inputs and returns

• Conclusion

Introduction: about the project

• Assignor is the Brussels region

• Wireless city networks in the EU and the US, in urban areas

• Explorative study:

– What are the goals (objectives) of cities?

– What business models (PPPs) are possible?

– What is (can be) the role of government, with a focus on the public inputs and returns (“the deal”)

– First indications of results and problems

Introduction: comparative case study analysis

1. Basic data, e.g. coverage, technological set up

2. Goals / policy objectives

3. Relation to broader policy objectives

4. Target groups, prices, access services offered

5. Applications, for public and private use

6. Business model: public inputs and returns

7. Results and problems

Selection of 15 cases

• Initiatives in urban areas with government participation

• Pragmatic: availability of information (US cases were/are further in

their development, with more information available)

• Initiative must be in operation (7 cases) or in preparatory phase,

with business models being announced (8 cases)

• Nearly all initiatives were driven by the city (“public driven”) with the

exception of Leiden, NL (community driven), Turku, FI (private /

community driven) and Cardiff, UK (private)

Introduction to the 15 cases

City Short description Phase Key driver

Bologna (IT) Iperbole Wireless Network: Experimental WiFi network providing wireless internet access to selected groups

Pilot Public: City of Bologna

Boston (US) Gradual expansion of Boston Main Streets WiFi project providing wireless internet access to entire city

Request for proposal

Public: Boston Main Street

Bristol (UK) Bristol Hot Zone: WiFi hotspot zone providing wireless internet access and walled garden services

Operational Public: City of Bristol

Cardiff (UK) BT Openzone: WiFi hotspots and zones providing wireless internet access

Operational Private: British Telecom

Leiden (NL) Wireless Leiden: community network of wireless nodes sharing internet connections

Operational Local Community

Paris a (FR) Establishment of 400 WiFi access points Information phase

Public: City of Paris

Paris b (FR) Site provisioning to private operators with the objective of full WiFi coverage of Paris

Information phase

Public: City of Paris

Philadelphia (US)

Wireless Philadelphia: large-scale WiFi network providing wireless internet access

Roll-out Public: City of Philadelphia

Introduction to the 15 cases

Portland (US) WiFi/WiMAX network providing wireless internet access to citizens, companies and city workers

Tendering phase

Public: City of Portland

Sacramento (US)

Large-scale WiFi network for wireless internet access and additional services

Tendering phase

Public: City of Sacramento

San Francisco (US)

WiFi network covering the entire city for wireless internet access

Request for proposal

Public: City of San Francisco

Saint Cloud (US)

Cyber Spot: Full coverage of city with WiFi/WiMAX network providing wireless internet access

Operational Public: City of Saint Cloud

Stockholm (SW) Stockholm Mobile Connect: WiMAX network providing wireless internet access

Roll-out Public: City of Stockholm

Turku (FI) OpenSpark: WiFi community network providing wireless internet access

Operational Private / Local Community: Sparknet

Westminster (UK)

WiFi network for closed circuit television and other services

Operational Public: City of Westminster

City Short description Phase Key driver

State aid considerations: wireless is ‘fibre revisited’

• Criteria used by the European Commission– White or grey areas (rather than areas with no clear market failure)– Basic facilities and open infrastructures (rather than retail services)– Open tender– Technology neutrality– Open access– Use of existing infrastructure– Short duration, small aid amount and intensity– Reverse payment mechanism– Cost allocation transparency and monitoring– Minimization of price distortion

• Ook criteria voor alternatieven zoals “invest on market terms”

Discourse on goals

Multiple goals

• Most cities pursue multiple goals

– Digital divide prominent (e.g. Philadelphia)

– BUT other goals often underlying driver

• E-gov applications (security, metering, etc.)

• Saving on government communication costs

• Innovation and economic city development

GoalsIntegration in broader policy

• Integration in broader policy– Supporting attractiveness of specific zones or whole city– Platform for developing new services/applications– Security policy– Modernisation of government service delivery– No specific connection to poverty reduction policies

• Bridging digital divide by giving people free access

• NOT by specifically focusing on disadvantaged groups

• Some cities introduced additional measures or programs

Technology, topology and coverage

Technology, topology and coverage

• Technology– Mostly based on WiFi– Often in combination with WiMAX

• Backhaul and backbone, only seldom access • In certain cases upgrade to WiMAX access network foreseen• Düsseldorf case with WiMAX stopped

– Uncertainty about frequencies– Other communication infrastructures available

• Most cases (especially those in early phases) use mesh• Coverage

– 3 main types: Hotspots, Hotzones and Clouds– Often ambition to arrive at Wireless Clouds– In half of cases, indoor connectivity is one of the objectives

Technology, topology and coverage

• Coverage

– Difficult to cover whole area

– Difficulty with quality of service

• City centres with tall buildings and bad coverage

• Remote areas bad coverage

This questions Digital Divide goals

• Indoor coverage

– Indoor coverage not optimal (lowers speed considerably)

– Individual investment in repeaters/antennas

• Roaming and VoIP

– Possible but not optimal

Business models

• The business model and “the deal” between public and private players are influenced by several factors

– How the wireless city network fits the overall policy objectives of a city (e.g. business climate, social, eGov)

– Fit with strategy of the firms and (research) organisations involved (e.g. type of sectors, location of R&D)

– Coverage and quality of existing broadband infrastructures (fixed, mobile, wireless)

– Tariffs of existing access services and applications

– State aid considerations and case law

Business model: roles / activities

Main factors to differentiatebetween business models

Network ownership / operation

Private concession: one private player

Private concession: one private player

Public / Non-profit: one or several public players

Public / Non-profit:one public player, e.g. the city itself

Wholesale: several private players build on a wholesale access offer

Open site model: several players

No specific ISP, e.g. “using” existing ISPsCommunity model: communities of individuals or organisations

Service provisioning

1. Private concession

2. Public / Non-profit

3. Open site model

4. Community model

A. Private concession

B. Public / Non-profit

C. Wholesale

D. No specific ISP

Network ownership / operation Service provisioning

Six business model configurations

1

2

1: Private-Private model: Bristol, Cardiff, Paris (a) and Westminster: either small area

or municipal employees, due to state-aid considerations

2: Private-Wholesale model: Philadelphia, Portland, Sacramento, SF: large areas

1. Private concession

2. Public / Non-profit

3. Open site model

4. Community model

A. Private concession

B. Public / Non-profit

C. Wholesale

D. No specific ISP

Six business model configurations

3

4

3: Public-Public model: St. Cloud: small city, full coverage, outdoors and indoors

4: Public-Wholesale model: Stockholm and Boston: large areas

Network ownership / operation Service provisioning

1. Private concession

2. Public / Non-profit

3. Open site model

4. Community model

A. Private concession

B. Public / Non-profit

C. Wholesale

D. No specific ISP

Six business model configurations

5

5: Open site model: Paris (b) and Bologna, with one private service provider

(possibly more) with a concession (e.g. with restrictions on tariffs).

The service provider may decide to provide wholesale access services to resellers

Network ownership / operation Service provisioning

1. Private concession

2. Public / Non-profit

3. Open site model

4. Community model

A. Private concession

B. Public / Non-profit

C. Wholesale

D. No specific ISP

Six business model configurations

6

6: Community model: Leiden and Turku: often facilitated by cities, the model is

possible with no specific ISP or with a community driven ISP (OpenSpark in Turku)

Network ownership / operation Service provisioning

Public inputs and returns

Public inputs Public returns

Site provisioning / rental Influence on prices

Number of ISPsSubsidies

Coverage, e.g. specific areasLicenses, e.g. exclusive, special

Financial returnPublic backbone (backhaul)

Type of applicationsProcurement, city as anchor tenant

OtherOther

Public inputs and returns

City Input Description Influence Description

1. Private-Private Model

Bristol Low - Site provision- Co-financing of pilot

Low / Medium

- City has the right to offer municipal services within walled garden environment - Limited period of free Internet, financed by advert.

Cardiff Low - Site rental Low / Medium

- Limited number of free accounts for city employees - City collects rental fee

Paris (a) Very High

- Full network financing- Site provision- Outsourcing of network operation and service prov.

Very high - Outsourcing contract- Free access to hotspots for all citizens

Westminster Very High

- Full network financing- Site provision- Outsourcing of network operation and site provision

Very high - Outsourcing contract- Only dedicated services for municipality are offered

Public inputs and returns

City Input Description Influence Description

2. Private-Wholesale Model (two examples)

Philadelphia

Low - Site rental- Exclusive license for 10 years- City as ‘anchor tenant’

Medium / High

- Wholesale offering- License and rental fees- Limited coverage requirements - Price cap on wholesale tariff- Low subscription rate for socially disadvantaged- “Free hotspots” at limited number of strategic locations- Free accounts for city empl.

Sacramento Low / Medium

- Site provision- Access to City backbone network for backhaul- License for 5 years- City as ‘anchor tenant’

Medium / High

- Initially, free subscriptions for all were demanded by city; this is being re-examined- Plans involve limited basic free service and subsidies for socially disadvantaged- Free access for schools- Preferential service for municipal services

Public inputs and returns

City Input Description Influence Description

3. Public-Public model

St Cloud Full - Fully public financing , ownership and operation of the network

Full - Full control over coverage, services- Completely free access

4. Public-Wholesale model

Boston Medium - Site provision- Set-up of Non-profit organization for building network and making wholesale offering to service providers- Limited co-financing by city

Medium? - Not known as project is still in information phase

Stockholm High - Site provision- Building network and making wholesale offering to service providers through non-profit organization

Medium? - Not known as project is still in information phase

Public inputs and returns

City Input Description Influence Description

5. Open site model

Bologna Low - Site provision to multiple actors

Low? - In the pilot phase, a limited free access service was demanded by the city. It is recognized that this requirement is probably ‘untenable’ after the pilot, within the open site model

Paris (b) Low - Site provision to multiple actors

Low - Stimulus for competition

6. Community model

Leiden Low - Site provision- Subsidy of one specific application

Low - Some influence on topology by integration of city’s own nodes

Turku Low - Site provision- Provision of additional access points

Low - Some influence on topology by integration of city’s own nodes and additional access points

Business Model Problems

• Recent evolutions– San Francisco, Milwaukee: halting or delaying plans– Philadelphia: slower implementation– New initiatives cities: difficult to attract interest– Operators: MetroFi, Earthlink (withdrawel), AT&T stop bidding

• Reasons: flawed forecast– Expected market penetration of 15-30%– Actual market penetration of 1-2%

• Reasons:– Incumbents drop prices for fixed broadband– Fixed broadband often higher bandwidth– So Wifi often not a substitution for fixed

• Result: Cities become important as anchor tenant

Conclusion

• Roll-out in large areas: private-private and public-public models may be effective, with public-wholesale creating less state aid concerns

• If other goals are leading (e.g. eGov, competition), and if financial resources are limited: open site or community model

• Need to disentangle and prioritise the policy goals

• One of the main inputs: city as anchor tenant

• The assumptions and calculations had to be updated, e.g. take-up by users (access and services), interest by operators, commercial tariffs

• State aid cases will influence the choice between support for roll-out and/or alternatives with a focus on innovation and services

ConclusionsImportance of contextual factors

• US market fundamentally different– Government mobile networks older

• After 9/11 drive to invest in networks for security

– Mobile networks in general weaker• Limited coverage and problems of interoperability

– Broadband penetration relatively low• Operators do not have full coverage

• Do not provide BB in certain city areas

– Factors might explain why so many initiatives in US• Focus on BOTH e-government, e-securty

• AND bridging digital divide

Contact

• Leo Van Audenhove IBBT-SMIT– Leo.Van.Audenhove@vub.ac.be