Google’s $800 Million Bet on Sidewalk Internet Is Still a Wild Card
It seemed like a great idea at the time: replace thousands of aging pay phones on city streets with sidewalk Wi-Fi stations that include free iPod-style tablets. But in New York City, where dozens of the new stations are now popping up every month, there are serious doubts.
Residents of the Big Apple are fretting over stories about homeless people misusing the terminals. Some are worried about privacy. And many others are simply puzzled what the lumbering metal slabs, which stand where phone booths once stood, are doing on their sidewalks in the first place.
Does this spell trouble for the Google-backed group googl that has invested hundreds of millions to replace the phone booths? To learn how the project is actually unfolding, Fortune spoke to officials and people on the streets of New York, where the Internet stations have been live for more than half a year. The picture that emerged is of a technology that could transform urban life and provide a financial windfall for cities—or be an expensive cautionary tale in misguided Internet ambition.
Trading Phone Booths for Fiber
Pay phones have a long and storied role in popular culture (think of Superman using them to change clothes or the Colin Farrell movie Phone Booth), but they’re also a business. Across the country, towns lease out slices of their sidewalks in return for a share of the profits pulled in by companies that run the pay phones.
In New York, this arrangement earned the city $17 million in 2015. According to city official Stanley Shor, the city gets 10% of the total coin revenue from every phone booth plus 36% of the money from selling advertising on the booths. But in an era where 90% of Americans have a cell phone, no one will be surprised to learn pay phones are a dying business.
That’s what led to New York’s bold plan to rip out out its phones and replace them with Wi-Fi stations equipped with Internet-connected tablets. The project is being carried out by a consortium, backed by Google and Qualcommqcom that has already installed hundreds of the stations in the boroughs of Manhattan and the Bronx since February. The group continues to add more at the rate of 15 to 20 per week.
This is no small undertaking: It involves not just removing the pay phones, but laying miles of fiber optic cable beneath busy city streets. The installations began on the far west side of the island of Manhattan, which is where Internet cables enter the city, and then stretched across a new east-west fiber corridor across the island. Two other major fiber lines now stretch north for miles up two of the city’s main avenues.
Today, you can see the fruits of this labor on main thoroughfares like Broadway on the city’s Upper West Side, a residential neighborhood where the Internet kiosks sit on every block. Each kiosk emits a Wi-Fi signal that ranges from 150 to 400 feet, offers a charging dock, and—in a nod to the departed phone booths—the stations let anyone make a free voice call to anywhere in the United States. Lastly, the kiosks house an iPod-like screen offering a handful of Internet resources such as Google Maps, local services hotline 311, and—until recently—an option to browse the web.
The stations are slim, 10-feet high, and not unattractive. They are also simple to operate: As the Fortune video (embedded above) depicts, the Internet services are fast and intuitive, and do offer phone calls free of charge.
But considering that most people have the very same services right in their pockets, is anyone actually using them?
An Awkward Debut, Loyal Fans
When the new Internet stations began popping up in New York early this year, they didn’t get much attention. Local media and the tech press wrote a handful of positive articles, some extolling the devices as “the future,” but there was no buzz among city residents.
That changed early in the summer following reports of perverts and vagrants using the kiosks. The city’s tabloids offered lurid accounts of homeless men watching pornography on the tablet screens, or simply pulling up a box and treating them as part of an outdoor living room.
In response to the controversy, New York City responded in September by disabling the web surfing feature of the kiosks, leading many to chide city officials for not anticipating a very foreseeable PR problem. The episode also led Benjamin Dean, a security researcher who has criticized Google’s role in the project, to question the city’s motivations for installing the terminals.
“These things have been sold as free Internet for the disadvantaged. Then, the city just shut off it because the disadvantaged were using them in a way we didn’t want them to. It turns out the disadvantaged want to use the Internet the same way as everyone else—to watch YouTube and pornography,” Dean tells Fortune.
The controversy over hobos hogging the terminals may be overblown, however. According to Shor, the city official, the web-surfing feature on the kiosk was added late in the design process and was never supposed to be one of the core functions.
Instead, Shor says the stations’ primary purpose has always been to deliver tools like maps, 311 services, and, especially, to blanket the city with free and powerful Wi-Fi.
“The working poor rely heavily on smartphones to connect with their families and to connect to the Internet,” says Shor, adding the kiosks can benefit people like deli staff or sidewalk flower sellers, who can can obtain free data while they work.
It’s hard, however, to verify the actual popularity of the Wi-Fi offering because, unlike a pay phone, you can’t observe people using it. (Indeed, Fortune saw only a single person touch a kiosk in the span of 90 minutes—though many other people nearby may have logged on to the Wi-Fi signal).
But according to Jen Hensley, general manager of a Google-tied company called Intersection that runs the kiosks, the sidewalks stations are a big success. She says more than 500,000 people have signed onto the free Wi-Fi sign-ons since February, and 20,000 voice calls are made from the stations each week.
Meanwhile, the stations have proved a boon to the couriers, messengers, and swelling number of delivery people who make up the swelling service economy.
“Oh boy, are we familiar with them. They are the best thing New York has done for a long time,” says Charles Prophet, who is from the Bronx and makes deliveries in Manhattan. “Trust me, every messenger in this city uses them at least once a day either to charge your phone or Google an address. When your battery runs low and you need to call your boss, they’re always there.” He adds that a typical session is around three minutes.
Outside of this courier niche, however, who exactly is using the kiosks? In interviews on the sidewalks of New York, some people told Fortune they wanted nothing to do with them, saying they associated them with homeless people. Most people, however, expressed support for the stations—but also admitted they had yet to use one, and were not quite sure how they worked.
And so after six months, New York’s phone-booths-of-the-future appear to be just that: An exciting technological idea, but one that has yet to become part of daily life. The question is: what happens if the kiosks never catch on?
A $800 Million Bet
If the plan proves a flop, someone is going to lose a lot of money. The cost of replacing New York’s phone booth fleet with fiber will be around $300 million, according to Sidewalk Labs, a Google subsidiary backing the project. And then there’s the contract obliging the consortium to pay New York a minimum of $500 million through 2026.
If the $800 million gambit doesn’t pay off, the investors (including Google) will take a bath, but the failure could also ripple to other cites. Sidewalk Labs has held talks to bring Wi-Fi kiosks to places like Kansas City and Columbus, but has announced no new contracts like the one it signed with New York. Meanwhile, the big installation comes at a time when Google is confronting high costs and regulatory headaches over different fiber projects in other cities.
So what will it take to make the phone booth experiment economically viable? Success will almost certainly turn on the kiosks’ appeal as an advertising vehicle and on public perception of the ads.
Critics have already portrayed the entire initiative as a tentacle of Google’s advertising machine, warning the kiosks’ Wi-Fi will serve as a trojan horse to gather data for hyper-targeted ads. A Village Voiceheadline this summer referred to the kiosks as a “personalized propaganda engine,” citing a remark by Sidewalk Labs CEO Dan Doctoroff about their marketing potential.
“By having access to the browsing activity of people using the Wi-Fi—all anonymized and aggregated—we can actually then target ads to people in proximity and then obviously over time track them through lots of different things, like beacons and location services, as well as their browsing activity,” Doctoroff told the Yale Club in April.
A Sidewalk Labs spokesperson tells Fortune that Doctoroff misspoke, clarifying that the kiosks “do not track users’ browsing activity, nor does it use such information to target ads.” Meanwhile, the company that operates the kiosks says it is attracting “a very high caliber of advertisers,” such as Delta Air Lines dal and The Metropolitan Museum of Art, but did not offer specifics about revenue.
All of this suggests high-flown visions of the kiosks transforming city life are at best a long way off. While Doctoroff has described the stations as part of a fourth urban revolution based on sensors and big data, the fancy phone booth replacements have yet to prove they have long-term value—socially or economically.
But Mitchell Moss, an urban studies professor at New York University, urges caution when it came to deciding if the terminals succeeded or failed.
“You can’t put a new technology on sidewalks and expect it to be used as planned. No one thought cell phones would be such a powerful means for exchanging texts and pictures,” says Moss. “We never appreciate how people use tech in a way that surprises those who developed it.”