The concept of smart cities, those that utilize the Internet of Things to improve quality of life for all residents, is one that is gaining more traction around the world. Last year, RAK analyzed different aspects of smart cities including one article in which some of the most innovative international destinations were highlighted. In late 2021, the city of San José, California became the first locale to enter into a public-private partnership with Helium Inc.

To be clear, San José is not the city where Helium first launched or piloted its network, that distinction belongs to Austin, Texas. What San José’s local government did was enter into a partnership for a pilot project in which twenty Helium-compatible hotspots will be purchased using funds from the California Emerging Technology Fund (CETF). Those hotspots will improve the city’s IoT mesh network and the rewards from these hotspots providing Proof of Coverage (PoC) will be used to provide cash payouts to low-income residents. It certainly sounds like a win-win proposal.

The Economics of the Pilot Program

Today, a Helium hotspot costs about $460. Purchasing 20 Helium hotspots is not something that a city the size of San José would struggle to do. However, formally partnering with Helium Inc and CETF helps mitigate some of the less obvious costs of implementing the program and seeing the program through to completion.

In terms of pure technology costs, the 20 hotspots would cost around $9200 depending on the supplier, taxes, and shipping fees. There also might be additional technology costs related to after-market antennas, ethernet cables, or anything related to deploying a hotspot outdoors. It’s fair to round up to $10,000.

There are costs related to paying employees to administer and monitor the program. Even if the hotspot hosts are volunteers, there is an economic cost to interacting with them–deciding who gets a hotspot, physically delivering the hotspot, and then following up if the hotspot isn’t turned on or isn’t functioning correctly. Though these costs are impossible to estimate, it doesn’t mean that they don’t exist.

Viewing the hotspots as an investment, it should be expected that after some amount of time, the initial investment amount has been recouped via PoC earnings. Viewed this way, some might ask why cities don’t just purchase bonds or pursue other schemes for revenue generation. Here, the motivation is twofold: to help foster usage of new technologies and to provide a better IoT network for the city.

The 1,300 low-income residents who opt into the program will receive $120 upfront cash payments which are intended to be used to pay their internet bills.

How Would Earnings Look Today?

It should come as no surprise that San José and the surrounding inhabitable area is blanketed by Helium hotspots.

As hotspot coverage becomes more saturated, IoT solutions are more easily deployed and more reliable, but rewards scale down for hotspot hosts.

If we pick one of the arbitrarily high-performing hotspots, Orbiting Mahogany Mantaray, we see that it earned 2.77 HNT over the last 30 days, which at the current exchange rate is about $36. The city or investment fund would reach a stage of pure profitability in less than two years. However, there’s no guarantee that these earnings will continue and the fact of the matter is that the average earnings in and around San José are closer to .5 HNT per month.

Assuming all else stays even, the average earnings per month across 20 hotspots arbitrarily placed around San José would be roughly 10 HNT. That’s $132 per month at today’s exchange rate.

While the goal seems to be to fully fund or subsidize 1,300 years of internet at $120 per family, the current estimated earnings in this Helium-dense are meager. The current earnings could fund 12-14 internet plans per year. Even scaling up to max earnings (3.0 HNT per month * 20) at HNT max prices ($55.22), that’s roughly 28 internet plans per year.

The justification of the 1,300 family goal is genuinely murky and impossible to substantiate given publicly available information.

Incentive Structure: Hotspot Hosts

The press release does not mention whether volunteer hotspot hosts will be given any reason to host the hotspots. Hosts should be incentivized to optimize hotspot coverage and guarantee uptime. If they have no incentive, the program’s hotspots will certainly lag in performance compared to a control group.

There is also no good legal framework that could be used to penalize hosts who “lose” or break their hotspots. Even though the hotspots are to remain linked to the CETF wallet, having to administer custodianship could be a brutal task that is not worth the effort.

Incentive Structure: Low-income participants

The participants in this program who will have their internet paid for likely have no downside. If the payments are misappropriated or budgets are inflated due to the upfront gifts, it is possible that if this benefit is not recurring, some beneficiaries might end up worse off at some point down the road.

Incentive Structure: CETF

CETF is committing to closing the Digital Divide. By fostering partnerships between governmental entities and private companies, the CETF is able to come closer to this goal. This organization isn’t strictly a charity, and has well-defined goals. Authorizing and funding an experiment with Helium seems to fit these goals, though observers will be disappointed to learn that there is not a direct connection between internet coverage obtained by low-income residents and the internet coverage provided by the Helium network.

Incentive Structure: City of San José

By pursuing a partnership with the private entity behind Helium and receiving a grant or funding through CETF, San José has a risk-free position. Increasing coverage and potentially attracting more IoT-forward companies who can benefit from the network is an upside. Providing benefits to low-income residents, however ancillary, also carries considerable upside.

Incentive Structure: Helium Inc. / Nova Labs

33% of all PoC rewards go to security token holders. Though the composition of this group is not public, it is mostly composed of investors and Helium Inc. employees. Does the Helium team receive a tangible benefit from each new hotspot deployed? Actually, no. The reward amount is fixed and only the distribution changes. The security token holders’ distribution presumably only changes when new security tokens are created. Helium Inc.’s incentive is to grow awareness and prevalence of the network; there is no hidden financial benefit underpinning this scheme.

What’s Confusing About How This News Has Been Reported

Much of the coverage surrounding this initiative has suggested that there is a direct link between Helium coverage and providing/subsidizing the cost of internet for low-income residents. In actuality, it’s the perpetual earnings from the Helium hotspot’s Proof-of-Coverage participation that is then converted to USD before being distributed as cash or cash-equivalent. Beneficiaries still must pay for their own internet and obtain it from a provider, which is likely Comcast’s Internet Essentials, which costs about $120 per year.

Again: the Helium network and blockchain is providing the funding. The Helium network is not the actual network that the low-income residents will use.

This is confusing because it is practically feasible to consider that low-bandwidth IoT networks could be used for things like texting, email, and basic internet browsing. Approached this way, the same volunteers helping to identify and encourage residents to apply for free money could instead be helping them integrate with yet-to-exist telecom hardware that allows phones or laptops to be used with the Helium network, thus providing internet connectivity for critical services at a lower price.

In other words, the primary beneficiaries of this program have no exposure to the Helium Network or IoT whatsoever.

Beyond the Pilot Program

The irony of finding city governments willing to partner with a cutting-edge IoT firm is that individual interest for innately incentivized technologies like Helium will always–always–outpace and cannibalize what any local government can piece together. Choosing a tech-centric locale makes sense for some campaigns, but not those which penalize hosts as coverage densifies. One of the incentives stated in the press release is actually a disincentive. Why would someone volunteer to host a hotspot if they received no share of the rewards while directly impacting their earnings for future hotspots at the same location?

Altogether, the purpose of this project–if seen as a genuine pilot program for the public good and not a PR play–is admirable. However, there is very little room to scale in dense urban areas at this point of maturity in the network where over 775,000 hotspots are deployed. The city government of San José is making strides in driving forward IoT and smart city technology and it is likely that there are other municipalities around the world who are patiently waiting for a report on the efficacy of this pilot program.