Wi-Fi mania: When whole cities are public hot spots
By Andy Serwer

(FORTUNE Magazine) – WHAT IS A CITY OBLIGATED TO PROVIDE for its citizens? Well-maintained streets, traffic lights, sewer and water, police and fire--okay, sure. As for taverns, gas stations, and peep shows, most folks seem to agree that the government should have a more limited role, even though one could argue that some of them are economic necessities (and I won't say which ones).

The question of where exactly government ends and the private sector begins is one we've wrestled with throughout our nation's history. (What would Ben Franklin think about privatizing the post office?) But at certain moments--like 1971, when Amtrak sprang from the wreckage of the old Penn Central--this dilemma comes to the fore. Welcome to another of those moments. The issue: municipally backed Wi-Fi.

Two major cities, San Francisco and Philadelphia, are on the verge of powering up public hot spots. Some smaller burgs--such as Chaska, Minn., and Tempe, Ariz.--are already up and wired. The plans all differ on the level of involvement by city government and the cost to consumers, but one constant has been resistance by telcos and cable companies.

Philadelphia recently inked a deal with EarthLink, an ISP, to build a Wi-Fi network covering 135 square miles of the city. The network, which could cost up to $10 million and is expected to be completed in 2006, will offer free wireless in public spaces like parks and will charge a monthly subscription of $10 (for lower-income families) or $20 a month. Verizon and Comcast are not pleased. In fact, the telco and cable lobbies worked the state legislature to pass a bill blocking the plans. But a compromise was worked out exempting the City of Brotherly Love and delaying the bill until 2006, possibly allowing other municipalities to be grandfathered in. "We're not looking to take business away from Comcast and Verizon," says Dianah Neff, Philadelphia's chief information officer. "They have bundled services that cost between $50 and $200. We were looking to provide a low-cost, high-speed alternative to the population they have not gone after."

San Francisco has issued an open call for proposals to make the City by the Bay into one big hot spot. Mayor Gavin Newsom calls wireless Internet a "fundamental right" akin to water, power, and libraries. Citywide Wi-Fi, Newsom suggests, would also give Frisco a competitive advantage and could be an invaluable means of communication during an earthquake. Newsom has received plans from 26 companies, including Cingular, EarthLink, and most notably Google, which is offering to build a network that would be free to consumers and supported by advertising. How have cable and telco responded? No direct salvos yet, but the mayor said he is sure they'll come. He's probably right. Walter McCormick, head of the United States Telecom Association, a trade group, says government-owned networks could be considered "un-American" if the public sector gives itself advantages over private-sector competitors, and he argues that they are "questionable at a time when essential services, police, and firefighters are subject to budget restraints."

Former FCC commissioner Harold Furchgott-Roth says he, too, is scratching his head over the notion of municipal Wi-Fi. "Lots and lots of different services that might be nice for low-income Americans, you don't see municipal governments stepping in," he says. True, but if kids from poor families have to rely on cable and telco companies or the federal government to hook 'em up to low-cost broadband, they'll be waiting a long, long time. Philly and Frisco are on to something. Telco and cable should lead or get out of the way.

ANDY SERWER, editor at large of FORTUNE, can be reached at aserwer@fortunemail.com. Read him online in Street Life on fortune.com and watch him on CNN's American Morning and In the Money.