I previously heard about Shanghai's plan for wireless internet access around the city by the Olympics and didn't have a lot of confidence in the idea. In the US, many major cities discussed the idea of wifi, some even proposed citywide free wifi, but most of those programs turned out to be failures.
One of the advantages of Communism is central planning, the government and thus the government run telecom company isn't so concerned with making profits and so the idea has potential, however the one thing the article doesn't mention is whether the service will be fee based or free (I have a feeling it will be the former).
My biggest concern is about how slow the network will be, China's internet is already infamously slow, but when the entire city can get on it, what will that do to speed? Also, unless they're really throwing money at this program, signal strength in buildings and apartments is unlikely to be very strong and could make for a very maddening experience.
For all those concerns, it will be interesting to see how this experiment turns out and if its adopted more widely. I've been saying for awhile that I think, with relatively minimal investment, much of China's rural areas and smaller towns can be turned into places with full internet connectivity and give the masses new found access to information. This is definitely a step in the right direction.