EarthLink and Municipal Wireless Have a Really Bad Week

Carl Weinschenk

This has been a bad week for municipal Wi-Fi and a very bad week for EarthLink.

 

The ISP cut 900 jobs and closed several regional offices. This followed a poor second quarter. The piece says that the company is expected to continue to "bleed well into 2008" as it struggles to survive.

 

News reports this week detailed three hits EarthLink took to its municipal wireless business. If this in essence is the company's exit from the business, it is a painful one.

 

A project in Chicago was tabled after the city was unable to work out a deal with EarthLink and AT&T. The Motley Fool says the city, AT&T and EarthLink couldn't agree on the financial structure. Wired, quoting The Chicago Tribune, offered a bit more detail: The city initially only wanted to provide infrastructure. AT&T and EarthLink asked that the city become an "anchor tenant" and pay to use the network for city services. Negotiations along those lines fizzled.

 

EarthLink also this week dropped out of an agreement to participate in a municipal Wi-Fi project in San Francisco. CNET says that the project was approved in January, though it was awaiting final sign-off from the city's Board of Supervisors. The deal was structured differently than the Chicago plan. Google was to sell advertising on the free portion of the service. EarthLink, CNET says, wanted to ante up $2 million to join the project and be allowed to sell higher-speed subscriptions for $20 apiece.


 

EarthLink also is in trouble in Houston, according to the Houston Business Journal. There, it agreed to pay a $5 million penalty for missing an agreement deadline with the city. A restructured agreement gives EarthLink nine months to decide if and how it wants to participate in the two-year-old project. The initiative now is on hold, the story says.

 

A blog posting August 30 by Dave Coustan, who only is identified as an EarthLink employee, says that the company will continue operating existing municipal wireless networks, including one in Philadelphia. It's interesting that the blogger -- who writes as if he has a good take on management thinking -- says that the company is discussing anchor residency options with municipal officials in San Francisco and elsewhere, while the news reports suggest that the deal is dead. That point, the blogger said, was addressed by CEO Rolla Huff in a conference call about the restructuring held on August 29.

 

Regardless of how this hashes out, there is no doubt that municipal wireless projects are are in trouble. This piece at the Economist sums up the current situation well. Initially, the feel-good idea of providing free wireless service attracted many municipalities. Those that are in better shape today initially called for municipal involvement. The problems, the piece says, include poor coverage inside structures, the need for an unexpectedly high number of transmitters and a dearth of users.

 

Clearly, there are two issues at play. The first is that EarthLink is in serious trouble. The second and related issue is that the business model for municipal Wi-Fi projects is in flux. It may be that this week's news is more about the stability of EarthLink than the efficacy of municipal wireless.

 

Then again, maybe not. It could be that at least some of EarthLink's troubles are due to the disappointing results in this sector. In any case, it would be a mistake to conclude that municipal wireless isn't fighting for survival. It may be that commercial Wi-Fi and 3G connectivity -- which will soon be joined by WiMax -- is skimming enough off the universe of potential customers to make the business model inoperative. Perhaps the reality -- as consultant Craig Settles has argued -- simply is that the focus should be on municipal use, not fickle consumer demand.



Add Comment      Leave a comment on this blog post
Sep 10, 2007 1:09 AM Bob Panoff Bob Panoff  says:
I thought your comments in this issue were too negative and insufficiently balanced. Certainly, the hype pendulum naively swung too far over the ad-supported, provider subsidized model, and needs to swing closer to reality. Most people experienced in community broadband efforts never really expected this business model to work. However, there are many models that do work, and many community broadband efforts are successful. Because community broadband networks are important to expanding connectivity both in inner-cities and rural areas, helping to maintain US global competitiveness, I hope that you would revisit the topic with a more positive outlook. In that hope, I'd like to make a few points, that you might consider including. Think about substitutes the term "community" for municipal. This is a subtle, but important distinction when working on broadband projects. We have found that each community is quite different, with unique social, demographic, and political forces that drive overall requirements, and ultimately the selection of cost-effective technologies and the most appropriate business model. Successful projects usually require broad community support beyond local government support and leadership from a few key champions. Understanding the community and assessing its overall requirements, in the broadest sense, is the most important first step. It establishes a foundation of cooperation and support from across the entire community. The data collection process itself can be used to educate people, local institutions, and businesses about what is realistically possible and to build consensus around what network services the community actually needs, as well as identifying local providers that can participate. Ideally, the entire community becomes stakeholders, vested in the idea, supporting the community broadband project as if it were the "home town team", and making a broad public-private partnership possible. This is usually the key to marketing a successful community broadband network. Successful networks and network business models are also based upon applications and services that solve real problems and deliver real applications for people and organizations in the community. Sometimes these networks are appropriately focused tightly on specific applications, such as public safety or municipal services. For broader, community-wide projects, the assessment described above usually identifies many applications, and the potential to enable cross-sector collaboration that builds the application infrastructure that is so often needed for the community broadband network to deliver its full potential. This potential is fulfilled when community traffic is maximized and aggregated on the community network to insure significant revenue and cash flow. Local service providers are usually quite interested in such situations, enabling the "public" part of the partnership to focus its efforts and investments in incrementally expanding network infrastructure and services to specific portions of the community with special needs. Public support can come in the form of anchor tenancy for services used, low-cost capital, or subsidies to promote digital inclusion. There are lots of community broadband business models that are working, and will work in the future when they fit the communities need. I don't it's about "moving away" from the models that have been already tried, but expanding upon them, mixing and matching the best attributes from several to get the right one. I'll close with just one more point. Sometimes, people get hung up on a particular technology - WiFi - for instance. If the requirements assessment is done properly, most communities will probably require a mix of technologies to satisfy their needs. So, in addition to talking about "muni-WiFi", let's also start talking about "community broadband". Reply

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