Editorial Note: The following summarizes a report just published by the Reason Foundation, a think tank which promotes a "free market" agenda and is reportedly partially funded by telecom companies. This report is starting to receive some attention and is presented here because it illustrates the arguments still being made to undercut the municipal wireless movement. What is interesting is how slanted this report is toward a corporate perspective. It certainly neglects issues such as the value of using taxpayer dollars to invest in important infrastructure that fosters broader economic development and community vitality. We never hear these kind of arguments being made against taxpayer money being used to build physical roads, for instance. Nor are issues such as digital inclusion and global competitiveness addressed. Also, see Earthlink's comments below. -- Blake Harris

Los Angeles, December 5, 2006 -- With hundreds of local governments considering getting into the broadband business, a new report warns that cities shouldn't fool themselves into believing that their experience running water, gas and electricity systems has prepared them for the fast moving Internet world.

The Reason Foundation study written by Jerry Ellig, former deputy director and acting director of the Federal Trade Commission's Office of Policy Planning, outlines seven key factors that municipal officials should fully address before moving forward with plans for municipal broadband and Wi-Fi to ensure that the projects are technologically and financially viable.

The study also cautions city officials to beware of "geeks bearing gifts," suggesting that companies like EarthLink and Google are interested in providing free Wi-Fi because the deals will give them rights-of-way and valuable access to public infrastructure like light and telephone poles.

"Proposals for free or privately subsidized Wi-Fi are obviously attractive at face value," said Jerry Ellig, the report's author and a senior research fellow at the Mercatus Center at George Mason University. "Exclusive access to rights-of-way and poles would bestow a significant competitive advantage on any firm selected to use them. Local governments should beware of granting one Wi-Fi provider exclusive access to public assets, even if the Wi-Fi service itself is free of charge to users. Local governments should not let the sizzle of free Wi-Fi obscure the consumer's stake in competition."

The Reason Foundation report details seven critical issues for governments to tackle before jumping into the broadband market:

1. Competition: At the end of 2005, 67 percent of U.S. zip codes already had at least four high-speed Internet providers; 93 percent had two or more high-speed competitors; and just 1 percent had no competitors. Thus, municipal cable and Internet offerings face stiff competition and are unlikely to grab a large market share unless they are willing to lose a lot of taxpayer money doing so.

2. Performance Competition: New government systems will have to offer higher speeds or lower prices to compete with private companies. Existing government systems will need to consistently upgrade their speeds or drop their prices to compete with private sector improvements.

3. Continuous Improvements: The real consumer price index for Internet services has fallen by 23 percent since the Bureau of Labor Statistics started tracking it in 1997. Unlike traditional government-owned utilities, the lightning pace at which broadband technology improves and prices fall is difficult for municipalities to match.

4. Technological Change and "Lock-in": The market can get locked in to an inferior technology if government decides to subsidize the inferior technology, thus blocking out better or less expensive technologies. For example, ISDN was short-lived method for sending data over phone lines. Today we don't know how Evolution Data Optimized (EV-DO) technology and cell phone companies will change the market; if we'll see broadband over power lines; or what fiber optic service by cable or phone companies will mean to consumers and the Internet.

5. Obsolescence: Because wireless technology improves so rapidly, capital investment quickly becomes