June 29, 2005
Is Urban Wireless like Urban Roads?
Andrew Rasiej is running for NYC Public Advocate on a campaign to make "WiFi" available to everyone in New York. The actual plan on his website is a terrible plan, but the idea is really interesting.
I'm a pretty hard core free marketer, but there are some coordination problems that are really difficult for the market to solve. Roads are the standard example. You don't want to have to pay a toll every time you turn a corner. You don't want to have to figure out exactly which car licensing entity you have to join to be entitle to drive without stopping and paying a toll. There is an increasing returns to scale problem that leads eventually to a monopoly road licensor. On the buyer side, the consumers then eventually organize into bulk buying cooperatives to negotiate prices on their behalf. Since the buyers at that scale are also voters, effectively roads are government goods.
Urban wireless looks a lot like roads. We want the ability for any device to be able to get on the Internet wirelessly anywhere and anytime. We don't want to have a new registration procedure every time we change position. We don't want to have to program our refrigerator to use a particular wireless service. We don't want to think about which wireless service works in which subways.
Another major commonality is that a really large fraction of the costs are fixed rather than per user. In the case of wireless, the unit costs are primarily marketing and administrative. The price carriers charge has to be higher than the cost of closing a sale with a customer. And this creates an inefficient equilibrium because the higher the price, the more expensive it is to acquire the customer thus a much narrower base of customers/users if the marketing/acquisition costs were lower.
Now, it should be obvious that the benefits of a pervasive and free high speed wireless data network in New York would be HUGE. It would mean a rapid shift away from legacy cellular and cable to IP telephony and IPTV. It would mean that New York becomes a center of gadget innovation . It would also be a massive subsidy to one of New York's top industries, content.
Right now Verizon is offering 3mbps wireless data for $80/month. I don't know their cost structure but I would bet that at scale they could bid to provide all of NYC with EVDO for under $1b/year (4m actual users * $20 actual monthly operating cost * 12 = $960m).
I don't have the numbers handy but I have no doubt that right now New Yorkers are spending substantially more than that on mobile phones, land lines, internet connections, cable television, etc. And this doesn't count the price New Yorkers pay because getting the marginal unit of anyone of these is just too expensive. It also doens't count the value lost because hardware gets bundles with wireless. Just as a data point, basically most of the 917 and 646 area codes are mobile phones. Assume that each area code has 1m users and each of those users pays $40/month for their phone service, we capture $1b of value there alone!
My proposal is that New York city put out an RFP for carriersto supply all New Yorkers with zipless free mobile wireless for 5 years.
I worry that this proposal will be mangled beyond recognition by the political process, but I think if we pay attention we can make something likes this happen!
Posted by Alex at 01:11 PM | Comments (2) | TrackBack (1)
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Comments
A key difference between urban roads and wireless access is that making roads is a primitive technology that requires very little in the way of research and development. Should the government take over wifi access, I would expect that the performance advances we expect in bandwidth, latency, and encryption would disappear overnight. Without competition, there will be no more dollars for development. I don't want to be using 802.11b technology with the reliability of the New York City subway system 50 years from now.
Posted by: Scott Dubler at June 30, 2005 02:28 PM
Another key difference is that multiple carriers can operate simultaneously. If the urban wireless is sufficiently bad, private carriers can offer better service (and attempt to sell that service to the city).
Another key difference is that the capital costs of these new technologies are much smaller so we can replace the entire installed based every 5 years if it is worthwhile to do so.
Finally, my proposal involves competition. We put the service out for comepetitive bidding every few years. There is no obvious reason to assume that the bidders won't compete to provide the best service to the city at the best price.
Posted by: Alex at June 30, 2005 03:17 PM
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