Asymmetrical Information: Here's what I don't understand . . .

October 25, 2005

From the desk of Jane Galt:

Here's what I don't understand . . .

Slate says that Earthlink is building Philadelphia's much-touted new wireless network at no cost to the city. Yet it is expecting to charge only a fraction of what, say, T-Mobile charges me at Starbucks--just $20 a month for regular folks, $10 a month for low-income people. How is this affordable? Is T-Mobile ripping me off? Or is there some hidden subsidy I don't know about?

And while we're on the topic, what is up with this Ensign character introducing a bill to forbid cities to build wireless networks?

Posted by Jane Galt at October 25, 2005 11:52 AM | TrackBack | Technorati inbound links

Comments

The evil, monopolistic RBOCs are trying to prevent inexpensive WiFi everywhere, and they are introducing these bills under the guise of preventing government competition with 'free' trade. RBOCs concerned about marketplace freedom is amazingly ironic too.

The biggest threat to RBOCs will be WiMax, so they are busy crushing that wherever and however possible too.

Posted by: anonymous on October 25, 2005 12:01 PM

Jane,

Like Google in San Francisco, Earthlink is probably going to make up differences between the fee they charge and the cost with advertising. Local advertising online is expected to be one of the fastest growing segments of the online advertsing world, which in turn is growing faster than most portions of the offline advertising world.

With some clever software, Earthlink should be able to advertise for local area businesses, like shoe stores or coffee houses, that are located near wherever you are using their Wifi service. And if they have other data about you, they could target you not just for stores near you, but for the kinds of stores near you that you might actually visit. Local businesses should be willing to pay, and pay well, for advertising that well tailored to their potential customers.

Posted by: Jared on October 25, 2005 12:05 PM

My perception of WiMax is that, if it is not strangled in the crib, it could truly revolutionize the communications and entertainment industry. Does anybody who actually knows something about the technology concur, or have I been fed a bunch of hooey?

Posted by: Will Allen on October 25, 2005 12:14 PM

Possible explanation(s):

A big cost of WIFI is backhaul. As in cellular wireless networks, only the very last portion of WIFI traffic is over the air (most of it is over wired networks). Backhaul is the name for the connection of the wireless Access Point to the wired network (its pretty expensive). If you have an exisiting wired network in a city, adding WIFI access points can be done fairly cheaply. If you do not have a wired network, then you must either build one or lease capacity from someone else. My guess is that Earthlink already has a land network in Philly and therefore can add WIFI on the cheap (relatively). T-Mobile probably had to make new arragements for backhaul, which are probably more expensive.

This leads to another point: T-Mobile may have priced the offer smartly. First, people who spent $4.00 on a Latte ought to be willing/able to spend $20 on WIFI. Second, WIFI capacity is not impressive and to keep backhaul cost cheap, T-Mobile probably uses a DSL connection (This further limits capacity). In order to avoid network congestion and the resulting poor performance and thus low customer satisfaction, T-Mobile keeps the access price High to limit usage.

These are just guesses, but I like them.

Philippe

Posted by: Philippe on October 25, 2005 12:19 PM

"Yet it is expecting to charge only a fraction of what, say, T-Mobile charges me at Starbucks--just $20 a month for regular folks, $10 a month for low-income people. How is this affordable? Is T-Mobile ripping me off? Or is there some hidden subsidy I don't know about?"

Hm, dunno what T-Mobile is charging you, but I'm paying $19.95/month for T-Mobile WiFi now. I think they charge more if you aren't already a customer (I'm on their wireless network), but that's the going rate with the cheapest provider that I'm aware of, other than the occasional free site.

Posted by: David Hecht on October 25, 2005 12:51 PM

It is naive to think that you can stick advertising on "internet access" (which people so often think is synonimous with "web pages"). Yes, they can force ads to be inserted into web pages, but that will break things and annoy people. Large amounts of data will travel without any ads: P2P file sharing networks , VPN access, etc.

I predict that these municipal networks ultimately be some combination of 1) crappy performance 2) costing taxpayer dollars. There is no reason on earth why municipalities need to get into this, except as progressive-sounding pork. It is not like roads or water or sewer or power where the infrastructure has to touch nearly every piece of public and private property to deliver the service.

The great thing about wireless internet is that since the FCC regulates it, and these municipalities cannot grant monopolies to these providers.

Posted by: Lab Rat on October 25, 2005 01:03 PM

I thought that article was interesting because the countries listed [Japan, Canada and Israel come to mind] have high population densities. You'd think that plays a role in broadband.

Posted by: Klug on October 25, 2005 03:10 PM

Canada has high population density?
Really?
Maybe in the Great Lakes area, and a few others (Montreal, Vancouver, maybe Winnipeg), but no more than other urban areas in the U.S.
Most of Canada is rural, and more Canadians live in rural areas (21% for the U.S., 30% for Canada).
Other than that, carry on.

Posted by: Half Canadian on October 25, 2005 06:32 PM

Is T-Mobile ripping me off?

Yes. There isn't enough competition yet to make them price-takers.

Posted by: fling93 on October 25, 2005 08:00 PM

Altho most of a cellular network is wireside (well, some backhaul is microwave), most of the investment is where you go wireless. Total soft and hard cost of a new cell site, from defining the search ring to the final testing as it goes live (my gig) can total a quarter million. This is the environment in which T-Mobile built its business model. Investment allocation is very different for wifi. Cable companies could cover a city for next to nothing if they dared.

Posted by: triticale on October 25, 2005 09:34 PM

The Port Authority offers high-speed WiFi to the much of Fells Point and the harbor for $24.95 a month.

I hope other cities can see triticale's point and hook up their own networks. Perhaps it is this much lower barrier to entry that has private telecom spooked, as the conversion of internet access to a regular utility (which I think it should be, btw) would obviously drastically alter the competitive landscape. There would certainly still be a market for private WiFi, too, just not the current monopolies.

As government intrusion into hardware and software heightens, companies and individuals will find it useul to get high speed, advertising free content, sans monitoring, even at premium costs.

Posted by: Democrublican on October 26, 2005 09:52 AM

Regarding consumer broadband costs: IIRC, you can typically figure that about half is going to the infrastructure provider (cableco, phoneco, etc.) and about half is going to the ISP itself (MSN, etc.).

Some colleges and unversities, which of course have their own ISP capabilities, have figured out that they can give their off-campus students a substantial discount on Internet access by, e.g., making special contract arrangements with the local cable company. So instead of $40 or $50 per month in addition to normal technology fees et al at the university, the student pays $20 or $25 per month, and (at the university's discretion) may have direct access to on-campus-only Internet resources.

First, people who spent $4.00 on a Latte ought to be willing/able to spend $20 on WIFI.

Nope...if I spend $4 for a latte, I expect that to subsidize the bloody WiFi. Many local coffeehouses have this figured out -- you spend $50/month for the broadband connection, ~$100 capital investment in consumer-grade WiFi gear and a couple cables, write that off your taxes as a business expense, and then set up basic WEP security so that non-customers outside of the immediate business cannot leach your bandwidth. For the twenty or so connections you will ever see simultaneously, few or none of which will be making significant bandwidth demands, this is quite suitable.

Posted by: anony-mouse on October 26, 2005 02:32 PM

Jane, How the heck can you get a hotspot account at 20 a month? I signed up for the yearly contract thing, and I still pay 30 for it a month. I see nothing in their pricing plans about this...

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