The BBC has an article asking what happened to public WiFi. The big WiFi projects that attracted so much attention in the U.S. five and six years ago (e.g. Philadelphia, San Francisco) failed miserably and were shut down or dramatically restructured. Some smaller municipal WiFi projects, like the one in St. Cloud, Florida, had some early rough spots but are still active. But local governments, by and large, found that free WiFi was expensive to support and often very lightly used.
The BBC wonders if the new smartphones (e.g. the iPhone, Google's Android) will create a new surge of communitywide wireless demand. The answer is, "Probably." But looking five to seven years down the road, wireless Internet access will probably have shifted by then to WiMax or the recently opened 700 Mhz spectrum. And if I had to bet, the 700 Mhz could be the winner because it has sufficient bandwidth, the signal travels farther (fewer access points and less cost), and it penetrates trees and buildings better. WiMax, for all the hype, still has many of the shortcomings of WiFi because it operates in the same general frequency ranges.
While rural areas will rely heavily on wireless for primary Internet access until fiber reaches most rural homes, fiber will replace wireless over the long term for fixed point access. But we all want mobile access, and so wireless services are here to stay. But it is an expensive technology, and communities would be served best by investing in open access basic wireless infrastructure (tower sites, towers, rooftop access on public buildings and water towers) and simply leasing out that basic infrastructure to private sector wireless firms. On the fiber sides, communities should build open access fiber networks and lease out the capacity to the private sector--for both wireless and fiber, these are public/private partnership solutions that keep government out of the business of selling telecom services but ensure that communities have some control over their economic future.