Alot of subtleties in this situation have been missed - perhaps because of distance or lack of info.

EU competition policy forbids the use of public money to subsidize unfair competition.

What is unfair in this case is that one competitor - the city as ISP - gets state funds while others - the commercial ISPs who also operate in Dublin - don't get the same support.

Where there are NO commercial providers of Internet access - e.g. in poor rural areas - the European Commission has ruled that there is no problem giving as much state aid as anyone wants.

Where only the incumbent telco is offering access, state aid is probably OK, too, especially if used to create competition to the incumbent.

In other cases, it's either not allowed or is subject to review and approval by the EC on a case by case basis.

This is all explained in a 2007 powerpoint presentation by the head of the telecom section of the EU's competition directorate. Here is the link.

I haven't checked the EC website, but I would guess that Irish ISPs filed a complaint with the EC when the Dublin plan was announced, the EC looked at it and agreed that free WiFi would compete unfairly with the ISPs.

Dublin isn't the first case where this has happened. Prague was the first, last May. But the biggest controversy about this issue has been in Spain. I wrote about that in my "View from Europe" blog for the Wireless Internet Institute: "Spaniards Ask, Is Wireless Internet a Private Business or Universal Right?"

More recently, I moderated the mayors and CIOs panel on "Regulation and Funding" at the Wireless Digital Cities European Summit where state aid for municipal Wi-Fi was THE hot topic. Read about that discussion here.