Court awards Tempe $1.8M, ownership of citywide WiFi network

A US District Court judge has awarded the city of Tempe, Arizona ownership of the citywide Wi-Fi network and a $1.8 million judgement against Commonwealth Capital Corporation.

In 2006, Tempe issued an RFP seeking bids for the creation of a municipal Wi-Fi network. The RFP was sent to 113 potential vendors, but in the end, only four (one of which was AOL) bid for the project. The winner was MobilePro. For details on the original winning bid and the scope of the Tempe muni WiFi project, read:

Tempe announces winner of citywide wireless broadband bid

Gobility took over the network from Kite Networks (which was spun out of MobilePro and was running the Tempe network), however, it also ran into financial difficulty. The municipality took over the network in accordance with a clause in the contract.

Here is an excerpt from the city’s website about the details of the Tempe case against Commonwealth Capital Corp:

In 2007, MobilePro sold the system to Gobility Inc, which abandoned the network shortly thereafter. Part of Tempe’s contract with Gobility provided that if the company abandoned the system, Tempe would own all of the Wi-Fi nodes installed on Tempe’s street light poles. When Tempe tried to assert its ownership, CCC informed Tempe that it was, in fact, the owner of 667 of the 906 nodes. The company requested Tempe keep the nodes on the poles while it tried to sell the system. The City attempted to work with CCC to determine fair compensation for the use of the poles but the company refused to recognize its obligation to pay any rent.

Several buyers were interested in the Wi-Fi system, but CCC wanted nearly $1 million for its interest in the network. This made the sale of the system impossible since CCC really only owned the salvage value of the nodes, which was estimated to be less than $1,000.

In Feb. 2009, CCC sued Tempe for the return of the nodes it claimed to own, but the company dismissed its lawsuit in March 2011 right after the case was set for trial. As part of its answer to Commonwealth’s complaint, Tempe sued CCC for the rent due. It was Tempe’s claim for rent that resulted in yesterday’s verdict.

Tempe asked the jury to award rent at the rate of $450 per pole per month – or $300,000 per month for the six month period that CCC was actively trying to sell the Wi-Fi equipment installed on Tempe’s poles. The jury verdict awarded Tempe 100 percent of the rent requested in addition to ownership of the system. Sedwick accepted the jury’s advisory verdict and entered the judgment in Tempe’s favor. The City of Tempe now will explore potential uses for this network.

So you ask: what exactly is the value of the network, meaning, the Wi-Fi nodes on the lampposts? Very little, as it is older wireless mesh equipment that many claim did not deliver adequate performance (not enough density of access points per square mile). In addition, at the time that the network was deployed, there were no iPhones and other smartphones.

What should Tempe do now?

Tempe is a city that is spread out over a large area, therefore, a successful public Wi-Fi deployment should focus on: (1) downtown or other locations where a lot of smartphone users will log on; or (2) municipal use (for wireless video surveillance or public utilities, traffic management, and so on). Either way, the city will need to pay someone to continue running the network or spend money to run the network itself. They will need to upgrade the equipment and get subscribers (if they go with option 1).

Unlike the Minneapolis citywide Wi-Fi network which was deployed and is in use, Tempe did not want to pay the provider, MobilePro, any money for the network, so MobilePro had to rely on subscriptions and advertising, both of which did not generate enough revenue to let it remain in business.

It will be difficult for a wireless ISP to make money off the network unless the ISP already has some kind of existing base of customers (i.e. if it is a telco or cable provider) and WiFi access in Tempe is an add-on that will either generate more cash from those customers or keep them from migrating to a competitor. I don’t believe that Tempe has a dense enough user base of people with smartphones to make a self-standing Wi-Fi network in that city a profitable operation.

Towerstream in NYC has deployed a wholesale Wi-Fi network designed for mobile operators who want to offload data traffic from 3G to Wi-Fi. But it is in NYC, which has a greater density of smartphones users, and even that network is not in every corner of NYC, just in the areas where it is most needed.

 

Comments

  1. And this was why we got out of the municipal industry several years ago until these type of ridiculous business models failed. Let’s see, 2 hours free use for anyone in the city, 3000 free passwords for city use, and oh did I mention having to pay for use of the poles. I think whoever came up with this business plan is probably a graduate of the fry-making school at McDonalds. Even worse is the investors who back this and every project Earthlink and Metro-Fi were involved with.

  2. To continue this thought, this is basically about starting. The backhaul structure was too expensive and too slow to support 802.11n. It’s also on a lot of assets that the city doesn’t own. Hypothetically, by my estimates, it would take about $1,250,,000 to upgrade the existing network and make it functional using the vertical assets that are already in place and upgrade the backhaul structure. Then it would cost about $250K per year to keep running. It would be difficult if not impossible to find that revenue in today’s free-market in Arizona. If that has value to the city through either savings in some department or drawing more tourists, then by all means go for it. If not, let it go and use the money to remove the eye sore we are all driving past. Based on needing 3000 free passwords though, I have to imagine the city uses a whole lot of data cards.

  3. I need to clarify one thing. I would not reuse the radios, I would replace them with a Gorilla WiFi model. Read these articles about guerilla WiFi:
    http://www.muniwireless.com/2010/09/21/how-to-make-money-as-a-wireless-isp/

    http://www.muniwireless.com/2010/11/29/tales-from-the-towers-19-catch-a-waveguide/

  4. Neoreach basically let Tempe write the business plan which was a huge mistake.

  5. CCC Employee says:

    CCC fired several employees as a result of this action. Good to know that their employees were worth less than $1,000 bucks.

Trackbacks

  1. [...] Ah, this brings back memories: Cast your mind way way back to 2006, when Tempe, Ariz., was on the cutting edge of municipal wireless systems. The city, which already had its own wireless ring for city backhaul, put out a tender for a firm to provide a combination of public and private services. Neoreach won the bid, and built some of the network out as it shifted through names and subsidiaries, winding up with Gobility as the ultimate owner when the network failed. (Gobility had oceans of issues unrelated to this network.) [...]