A new report warns that cities considering municipal Wi-Fi shouldn’t fool themselves into believing that the experience will be as routine as running water, gas and electricity systems.

The study, conducted by the Reason Foundation and written by a former deputy director and acting director of the Federal Trade Commission’s Office of Policy Planning, outlines seven factors that municipal officials should address before moving forward with plans for municipal broadband and Wi-Fi to ensure that the projects are technologically and financially viable. Those issues include:

1. Competition: At the end of 2005, 67% of U.S. ZIP codes already had at least four high-speed Internet providers, 93% had two or more high-speed competitors and just 1% had no competitors, Reason states. So 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, the firm asserts.

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% 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, according to Reason.

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.

5. Obsolescence: Because wireless technology improves so rapidly, capital investment quickly becomes obsolete. Plans for government broadband need to assume faster depreciation rates than have been used for traditional government utilities. A workable plan for municipal Wi-Fi needs to cover operating costs and recover initial capital outlay in three to five years, Reason says.

6. Risk: Broadband is a risky endeavor, and governments must not finance it as though it is a low-risk infrastructure investment.

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