EarthLink to evaluate performance of muni Wi-Fi business
EarthLink will be looking closely at the performance of its municipal wireless broadband business in Philadelphia, Milpitas, Anaheim and New Orleans before plunging ahead with new projects elsewhere. But what would make a city attractive to EarthLink?EarthLink will be looking closely at the performance of its municipal wireless broadband business in Philadelphia, Milpitas, Anaheim and New Orleans before plunging ahead with new projects elsewhere. But they won’t be pulling out of projects they’ve already committed to, such as Houston and Atlanta.
EarthLink’s CFO says that a lot of cities have asked them to deploy muni Wi-Fi networks, but they can’t be everywhere so they have to determine what type of city would be profitable for them and if there are alternative revenue sources there.
I think EarthLink will be looking into:
(1) Demographics and lifestyle: Are a lot of people hanging out in the city with laptops and Wi-Fi enabled mobile phones? Or it is a suburban environment where people are always in their cars? Are there a lot of business visitors?
If you go by these traditional factors alone, then dense urban areas like Boston and Philadelphia will rank high on EarthLink’s list, but Houston and Atlanta will not.
I would question EarthLink’s Milpitas project — not exactly a dense urban area. Sure there are a lot of tech companies there, but people who work in these firms are inside their buildings using their existing broadband provider’s network.
If EarthLink chooses cities where there are a lot of early adopters, i.e. people who have the latest gadgets such as Nokia’s wireless tablets and Wi-Fi enabled mobile phones, the company would probably concentrate its investments in cities and regions that have affluent users.
Cities that do not have these appealing demographic features but demand that wireless providers spend money on digital inclusion projects, would not be interesting for EarthLink, unless the city allocates public funds and hires EarthLink to build and run the network (this model is an “alternative source of revenue” together with the ad model, described below).
(2) Alternative revenue sources; lowering cost of investment
The most obvious alternative revenue source is advertising (banner ads, location-based and context-based ads). MetroFi offers free access but you have to look at ads. In San Francisco, EarthLink has partnered with Google to deliver free access, also funded by advertising. But again, here you need a densely populated area with the type of audience that advertisers love.
The second alternative revenue source is the city paying EarthLink money for municipal use of the network. Houston will be paying a minimum of $500,000 per year; Minneapolis is paying US Internet, their partner, $1.25 million over ten years. It makes sense for the city to pay for its own use and access. After all, they don’t ask IT companies to supply them with free computers and tech support. Cities that have detailed plans to use the municipal Wi-Fi network to cut costs, improve the efficiency of city workers and deliver better service are much more attractive to providers such as EarthLink.
Cities that can lease out a fiber network to EarthLink at low rates would also rank higher on the list. By giving EarthLink access to cheap backhaul, they lower the company’s cost of running the network, making it easier for EarthLink to recoup its investment.
As mentioned in (1) above, the city could also allocate public funds for the network, and hire EarthLink to build and run it. The city would own the network and EarthLink would get a part of the revenues or receive a management fee.
Today, most cities don’t want to spend public funds on critical broadband infrastructure – wired or wireless – even if they claim it is necessary for economic development. They may have to, if companies like EarthLink hold off on responding to their RFPs.
If EarthLink and similar providers look solely at the factors I’ve just mentioned above before choosing to respond to a public tender, then a lot of cities and counties will have to find alternative partners for their networks, or will have to fund all or a part of it themselves. The days of demanding freebies may be over.
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[Note: In another survey, the US is ranked 25th, not 15th, in broadband penetration.]
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Wow. I am surprised it has taken this long for reality to set in. Muni wi-fi projects are dying quickly across the country, not because it is a bad concept, but because it is technically and financially infeasible. This is the first back step of many in this “industry”.
This move by EarthLink reflects a rational approach to business finance realities that local governments now have to face.
As a major player in this space Earthlink is smart enough to realize this. They have generated lots of good press, they have driven a nationwide movement and thus created a great market demand, and they are an established leader in the industry. But it’s time to look at changing up the approach.
Cities’ reluctance to hold a financial stake in these networks is going to be met with vendor resistance to do business with them. Municipalities that continue to make general public access a main pillar of their business case will be disappointed. The winners will be local governments that build the case on paid government and business use of the network.
I just finished a workshop with a city in southern Calif. and it was invigorating to listen as city department managers and reps from various constituencies came up with idea after idea on alternative – but fiscally sound – avenues for funding their potential network. And yes, several of those options involved the city’s financial involvement in some way. The key for every local government is its willingness to aggressively think outside the box.
First, to address the brief but highly inaccurate note above from RickT – those with closed minds and tightly-held opinions are bound to see any news or setbacks in this industry as confirmation of their opinions. But it’s a far stretch to get from the Earthlink announcement to Rick’s “muni Wi Fi projects are dying quickly across the country.” Give me a break!
What I see is one more sign of an industry that is evolving fairly rapidly. From the surprise offer of Earthlink to fund the Philadelphia network a few short years ago to any number of city projects that sought to negotiate a similar free lunch, we all knew this was a phase in the birth of a new industry, a phase not meant to last for long. How long could one-sided deals last, after all?
A more balanced read of the situation is that these networks are tools that can accomplish a lot, but projects have to be fiscally sound and widely demanded in a community, just like with any other major capital project. They’re not for everyone. But for those towns and cities with real interest, and there are a lot of them out there now, wireless mesh networks offer an alternative to speed up deployment of broadband. We’re in the middle of a paradigm shift, and we’re not sure what it looks like on the other end.
Projects will require more effort but I believe they will continue, because many projects make a lot of sense, and there is definite interest around, which I encounter daily. Earthlink, exciting as it has been and still is, is not the only game in town, and it has its limits. Cities are newly empowered and are open to new possibilities, and there’s no putting this toothpaste back in the tube.
I don’t agree with someone who say wi fi business is dying across
the country, obiously the city requiere the huge sum of money to
install the wi fi network,but no one understand the way the service provider or the city should deliver this proyect which
can bring a lot of benefit for the comunity specially lower income
resident who hardley can be connected to this wonderfull new era
technology.
The concept of this business is pretty much fresh and innovative
also techologicaly, financialy possible but we do not have the tool to make this service to be succesfull.
If the service provider would have proper business model specially focus on the strategy for advertisment which would deliver more
profit for the service provider, consecuently more coverage and
low cost to acces to wi fi network and more suscriber would enjoy
and feel happy because the cost of service and the area it could be covered.
But I concern about service provider do not find good business model soon which they can bring down the service fee, a lof of
user would be disapointed.
Perhaps it’s not a “paradigm shift” if you forget the technology aspect, and remember that it’s merely “transport” for the global networked economy.
From that point of view, would a government entity support a rail, road or airport project without appropriate demand and usage studies?
My point: many of the MuniWireless projects to date seem to have skipped over the key market assessment step within the validation process, in their apparent haste to attain a head-start on other local markets.
So, if you don’t understand the clusters of segmented users, and the most compelling needs of each cluster, then recognize that you have the makings for a leap-of-faith project. That’s the reality.