By Gerry Blackwell

November 08, 2006

It could be the next generation of urban wireless networks.

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In the me-too world of muni Wi-Fi ISPs, one company stands out with a well differentiated and original offering. Mountain View, Calif.-based MetroFi Inc., an ISP co-founded by Chuck Haas, one of the founders of Covad Communications Group, is building citywide Wi-Fi networks in communities across the U.S. and offering free, advertising-supported service. MetroFi, formed in 2002, turned on its first city, Cupertino, CA, in May 2005. Today, it has six communities up and running and another seven in the pipeline.

Offering free, ad-supported service was not part of the original concept. MetroFi launched in Cupertino, its pilot site, with a $19.95-a-month service. Haas says the company had three initial objectives: to prove the technology, prove the economics, and to “fill” the network.

“The first two we completed with virtually little change in the original business model,” he says. “But when we’d proven the technology and economics, we realized that the ad-supported, free model was going to be the fastest way to fill the network—as well as generally giving us a healthy return on investment.”Haas won’t disclose network traffic levels. “But it doesn’t take a rocket scientist to figure out that people love ‘free,'” he says. “The number of subscribers on our free networks is significantly higher than on paid networks.”

The price of free

When users connect to the service, a DSL-like 1 megabit per second (Mbps) down and 256 Kbps up, they come first to a splash screen that includes display and word ads. During the session, a one-inch banner carrying ads is visible at all times across the top of the page. Ads change in response to the pages the user visits. “If they’re at a travel page, it’s a travel ad; if it’s a golf page, it’s a golf ad,” Haas says. “Our objective is to make the advertising as relevant to users as possible so they view it as a value add.”

Periodically during a session, full-screen, rich-media ads of the type used at many publishing sites will pop up on the screen. They last only 15 seconds unless the user engages with them, and there is an option to clear the screen immediately and continue to the requested page. Regular users who don’t want to see any ads can pay $20 a month to subscribe to an ad-free version of the service.

MetroFi is attracting a mix of local and national advertisers. They pay per impression for display ads, or per click-through for word ads. The local advertisers run the gamut from one-man personal accounting firms to major auto dealers, and also include real estate agents and restaurants. “The advertisers that would usually be in a local paper or doing direct mail in the city are attracted to MetroFi,” Haas says. The user demographic is dominated by mobile professionals, which is also attracting national advertisers such as Citrix, the remote access software company, and notebook makers Toshiba and Sony.

Advertising is one of three revenue streams. The company also wholesales network capacity to other ISPs who target business customers. (MetroFi is focused on residential and mobile customers in its retail operations.) And it sells services to the municipalities in which it operates.

MetroFi typically enters into an agreement with the municipality, which provides rights of way—light poles and rooftops—for network infrastructure, and contracts to buy network services. The cities use the network to connect field workers—including police and fire in some cases—and for applications such as linking traffic cameras and traffic lights back to a central control center.

“In most cases, the city uses a lot more MetroFi service [than we do rights of way],” Haas says. “We don’t use a whole lot of light poles, and they’re pretty cheap, so typically [the city gets] a credit for services.”

Municipal partner/clients get much higher-speed service—from 1.5 to 10 Mbps symmetrical. They will contribute significant chunks of revenue. For example, Portland, Oregon, which was signed recently, will spend up to $15 million on network services over the next few years. Riverside, California is committed to spending $4 million on a just-announced service to be jointly offered by MetroFi and AT&T in that city.

Haas won’t say which revenue source is the most important. “It’s too early to say which will be the dominant [stream],” he says.

The six cities already in operation are all in California—Foster City, the latest to be turned on, Cupertino, Santa Clara, Sunnyvale, downtown Concord and downtown San Jose. MetroFi also has hotspots in San Francisco. The seven communities that have already signed and are in the process of being built include Riverside, two other southern California towns: Ontario and Corona; Portland, Ore.; Plano, Tex., a suburb of Dallas; and Aurora and Naperville, Ill., two Chicago suburbs.

Haas also won’t go out on a limb and predict how many communities the company will be up and running in by the end of this year or the end of next year. “We’ll just continue to roll out in fairly rapid fashion,” is all he’ll say. The company has bids in on three other community network projects, all in California, some with AT&T: Long Beach, Santa Monica and Sacramento.