How Free Wi-Fi Hurts the Poor

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The City of Houston plans to spend $3.5 million to build 10 “bubbles” of free wireless in poor neighborhoods. The goal is to bridge the “digital divide” between rich and poor. Unfortunately, the result of free Wi-Fi will be to widen that divide.

Years ago, we imagined the construction of citywide Wi-Fi in major cities across the country. The idea was that everyone would be able to log on from anywhere — the park, the bus, even apartments and houses in poorer neighborhoods. That dream is quickly fading as it becomes clear that building costly wireless network infrastructure where nobody uses it is a lousy idea.

Private companies who provide Wi-Fi hotspots tend to do so in locations that maximize “bang for the buck” — airports, coffee houses and other places where existing Wi-Fi users with money tend to congregate. These companies have zero motivation to build hotspots in low-income housing complexes and other places where costs are high and customer revenue is low.

The trouble with this state of affairs is that the poor are left out. Internet access is a resource with the potential to enhance educational and job opportunities, and the poor shouldn’t be priced out of these opportunities.

So to score political points, cities like Houston plan to build Wi-Fi zones in poor areas. If the goal is to help get the mayor re-elected, free Wi-Fi might succeed. But if the goal is to get poor people to use Wi-Fi, the plan will fail. Here’s why.

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The Trouble with Free Wi-Fi

The Wi-Fi industry is still in its infancy, and the best combination of technologies and revenue generation will be decided over the next ten years. In the airports and coffee houses, various infrastructure and service companies are slugging it out for dominance, and ultimately customers will decide which is the magic combination as they reward better service and lower cost with more business.

Meanwhile, in cities like Houston, the poor are getting shafted. The government there will pick some solution for everybody based on some unknown criteria. Private companies are given yet another incentive to stay clear from these poor neighborhoods. A private company would have to compete with a similar service that’s being given away by the city.

Also: By locking the poor into a single provider, they put those customers at risk. Companies that provide Wi-Fi can fail, or back out of the deal. Houston itself is getting the $3.5 million from Earthlink as a result of that company backing out of a plan to provide city Wi-Fi. Municipal Wi-Fi schemes are being cancelled all over America for a wide variety of reasons, but mainly because the costs don’t justify the benefits. If some single mother in a housing project uses the city’s free Wi-Fi to start a small home business, and comes to rely on it, the broadband spigot could be shut off with no alternative available for months

Although Wi-Fi uptake is low in poor areas, cell phone usage is relatively high. As we enter the Golden Age of Mobile Broadband, cell phone companies might be incented to provide wireless data service at low cost, which would let those customers hook up their laptops and even PCs to the mobile broadband connection. But free Wi-Fi provided by the city kills the incentive to work on such mobile broadband services, so the cell carriers won’t even think about it.

The City of Houston and others working on such schemes will most likely squander a lot of public money on Wi-Fi infrastructure that few people will use. People won’t start using Wi-Fi just because it’s free. Too many poor families don’t have the knowledge, motivation or even the computers they need to start using Wi-Fi. Is the city going to provide all that, too?

The Solution

If cities want to motivate poor people to use Wi-Fi, they need to merely subsidize its use. Pay people to subscribe to Wi-Fi or mobile broadband plans. By all means, make it free for low-income users by refunding or making direct payments to the service providers. But don’t cut private companies out of the deal. Don’t kill competition and block innovation.

By subsidizing Wi-Fi, cities can put the private companies who provide wireless broadband on notice that there’s a market in low-income areas for their services. Providers will scramble to compete with each other. They’ll advertise to target customers, and thereby educate them on what they can use Wi-Fi for. They’ll probably even provide free computers, if that’s the barrier to uptake.

If the subsidy is set, but providers are allowed to charge any price, the companies will also have an incentive to drive down costs. For example, if the subsidy is $15 per month, that exact amount will be the sweet spot target for companies to hit, and they will.

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Like business travelers and coffee drinkers, low-income people will have consumer choice, and they’ll choose the best combination of service, price and performance. If they get bad service, they can switch, rather than having to simply endure abuse by the provider.

Subsidizing is better for taxpayers, too. Instead of wasting money on infrastructure nobody will use, subsidizing wireless broadband means tax dollars are spent only when a family actually subscribes to broadband. It pays for use, not non-use.

Best of all, it leverages the market and puts the customer in charge — and drives innovation, quality and low cost.

Mayors of America, listen up: Great Wi-Fi exists wherever people with expense accounts congregate. If you want to replicate that success, just replicate the expense accounts – don’t build the service yourself. Doing so is a recipe for disaster.