Cities can apply (http://pc.mtld.mobi/switched/reserved.html) for a free ".mobi" top level domain, assuming they're prepared to spend €2K a year promoting their site, and the domain name.

DotMobi manages the ".mobi" top level domain where content built for mobile phones can be hosted; and the organisation provides various tools for verifying and testing content to ensure it's suitable for mobile-phone viewing.

Their problem is that specialist-mobile web sites are under attack from three sides: mobile phones are getting much better at displaying proper HTML, operators such as Vodafone are optimising proper HTML for mobile-phone use, and users are starting to realise that HTML isn't the best use of a mobile phone screen anyway.

DotMobi announced back in May they had 500,000 domains registered, though a quick trawl through the registering companies reveals a suspicious number in Russia, and/or hosted from Gmail addresses, which suggests a bit of domain-name speculation is going on.

Increasing the visibility of the ".mobi" domain is essential if it's going to have any success at all, so giving domains away to cities in exchange for some mutual promotion makes sense, assuming cities feel the need for their own mobile domain.

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Dot-mobi domains go to highest bidders (11 October 2007)
http://www.theregister.co.uk/2007/10/11/dotmobi_domain_auction/
Wireless gadget maker to offer on-the-move internet for free (3 July 2007)
http://www.reghardware.co.uk/2007/07/03/datawind_to_offe_brits_free_mobile_internet/
Nokia restructuring from strength for mobile internet (28 June 2007)
http://www.theregister.co.uk/2007/06/28/nokia_restructures_again/
Opera tries to out-do the iPhone (19 June 2007)
http://www.theregister.co.uk/2007/06/19/opera_mini_beta/
Mobile internet set for take-off? (18 June 2007)
http://www.theregister.co.uk/2007/06/18/mobile_internet/
Buy your piece of the .mobi internet today (26 September 2006)
http://www.theregister.co.uk/2006/09/26/mobi_launches/