Welcome to Wi-Fi-Ville

Citizens of Corpus Christi, Texas, can thank a snapping dog for the free wireless Internet they enjoy around town. After the pooch took a piece out of a utility meter reader, officials decided they needed a Fido-free system. The city built a small wireless-fidelity (wi-fi) network that transmits meter data from homes via the Web. The pilot worked so well that Corpus Christi dreamed big, using tax dollars to fund a $7.1 million, 147-sq.-mi. network that went live last month. Now park sunbathers can Web surf and this town of 300,000 is home to one of the largest wireless systems in the world.

But it won't be the largest for long. Municipal wi-fi will be coming soon to a city near you, from tiny towns like Adel, Ga., to sprawling locales like Boston and San Francisco. Municipalities are promoting competition to drive down broadband prices and bring high-speed access to rural areas stuck with dial-up. Big telcos such as Verizon and AT&T, having first tried to fend off wi-fi in state legislatures, have also joined the battle to own and operate these systems. More than 300 communities nationwide plan to have wireless ventures in the next year, according to MuniWireless.com a portal on city projects. Several dozen small cities--including Corpus Christi; Tempe, Ariz.; and Chaska, Minn.-- already have full-blown systems in use. If 2006 was the year of making deals, 2007 promises to be the year of going live.

It's also judgment year. Although cities are embracing wi-fi to make government more efficient and to stay competitive, the financing appears shaky, and it's uncertain whether the plans will be cost-effective. Big questions remain: What will consumers pay for citywide access? Will advertising sustain free models? And will users really be attracted to a network that lacks speed, security and privacy? The risks are considerable--up to $25 million in capital costs per system plus operating funds. "Half the cities run into funding barriers," says Peter Orne, Wireless Internet Institute's editorial director. "We're still waiting for an unqualified big-city success."

Communities are nonetheless welcoming wireless--public or private--because building a wi-fi network is a steal compared with laying cable, which can cost 10 times as much. Over the next three years, U.S. towns will pony up nearly $700 million to build municipal networks, predicts MuniWireless.com. As a public utility, wi-fi has undeniable benefits. City workers can use low-cost VOIP (voice-over-Internet protocol), and police and firefighters have a high-speed bandwidth for on-the-go access to data like criminal records and building plans or live shots from security cameras.

Low-cost or no-cost wi-fi is a potent competitive threat to cable companies and telcos, which spent billions building out systems. That's why these industries mounted a furious lobbying attack, pushing through restrictive legislation in 14 states, including Pennsylvania and Louisiana, to stop towns from constructing their own networks and charging a fee.

The telcos, including Verizon in New York, argue that city-owned systems have an unfair advantage over privately run ones--which could stifle competition. "Wi-fi as a public service has serious issues like network congestion and security," says Eric Rabe, Verizon's senior vice president for media relations. "Do you really want your government handling your e-mail?" Public outrage caused the telco fight to fizzle, with many bills getting killed or modified. City wireless is set to become a $1.2 billion market by 2010, according to analyst firm ABI Research; AT&T, Verizon and Sprint Nextel spin-off Embarq are looking to cash in, snapping up their own municipal deals in places like Springfield, Ill., and Riverside, Calif. And Comcast Ventures has invested in BelAir Networks, a Canadian vendor of wireless equipment.

Going head to head with the telcos is EarthLink, a big player in dial-up but a company that was falling behind in broadband because of the high prices cable companies charged for access to the network. EarthLink (projected 2006 revenues: $1.3 billion) is banking on muni wi-fi to grow sales, closing deals with seven cities in public-private partnerships. EarthLink owns and operates the network while the city contributes money or light poles to nest radios for connectivity. The company will cut costs by selling access to wholesale providers like DirecTV. Philadelphia created a government-supported nonprofit to oversee EarthLink's 135-sq.-mi. system, which should be ready next October and will emphasize digital inclusion programs like half-price accounts for low-income residents. Subscriptions will be $21.95, about half the cost of DSL and cable (a bit pricier), with some free access downtown.

Is cheap wi-fi a bargain? It depends on your needs. Wi-fi networks are on unlicensed spectrums, and towns like St. Cloud, Fla., initially suffered from spotty performance. "I don't think many broadband users will switch to muni networks unless they're less expensive and sure to work," says Ina Sebastian, an analyst at Jupiter Research, whose survey of online consumers found that only 12% would pay for a citywide service. Some places are waiting for WiMAX, a technology similar to wi-fi but faster and longer range, with fewer interference issues, but it's not yet certified for mobility. Nevertheless, Grand Rapids, Mich., chose a WiMAX network last month.

Then how about free? It worked for Yahoo! and Google. Companies like MetroFi, which is committed to 13 cities, including Portland, Ore., are betting that complimentary, ad-supported access will attract enough users to turn a profit. San Francisco made a splash when EarthLink partnered with Internet ad king Google for gratis services, but they're still debating what will be free, and this model is far from proven. "Relying solely on ads is a misplaced dream to fund a multimillion-dollar network," says Craig Settles, author of Fighting the Good Fight for Municipal Wireless. MobilePro Corp. pulled out of its Sacramento, Calif., deal when the city insisted that the company offer a free service, believing ads wouldn't generate enough money. But Annapolis Wireless Internet says switching to a free model made its product viable. Its two-mile network, which is expanding, has over 5,000 subscribers.

Even free municipal wi-fi has one price that some find too steep: loss of privacy. Users aren't always comfortable knowing a government-run operation can track their searches for advertising or limit their access to websites. Culver City, Calif., and Adel, Ga., use software to prevent people from surfing porn and downloading copyrighted material. "I made a decision we shouldn't be spending taxpayer dollars on this," says John Richo, Culver City's information-technology director. Users must agree to "limited" Internet access and waive First Amendment claims arising from the city's decision to block sites. Civil-liberties groups are worried that governments may still be practicing content-based discrimination, a First Amendment violation, since filters often overreach and block perfectly legal material. "I think the Supreme Court would look skeptically at this approach," says John Morris, staff counsel at the Center for Democracy and Technology.

But like other questions that municipal wi-fi raises, it will be money, politics and even dog bites that ultimately will determine the answers.