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When Free Isn’t Cheap Enough
EarthLink abandons its efforts to give its Philadelphia Municipal Wireless network back to the city.
There have been
several reports
this week about EarthLink deciding to abandon its efforts to give its
Philadelphia Wi-Fi network to a non-profit or to the city---all for free. In
fact, EarthLink apparently offered to give either the city or the non-profit
some cash and additional Wi-Fi gear as well. And it was a pretty big gift with
EarthLink's wireless network in Philadelphia having cost around $17 million
dollars.
EarthLink has notified its approximately 6,000 Philadelphia customers that it
will cease service on June 12, 2008. So what happened here? The
LA Times reported that despite EarthLink's offer to give the city $1
million in cash to exit, the city apparently balked at assuming an estimated
$3.6 million per year cost to operate the network.
So EarthLink is in the process of suing the city to terminate its contract and
remove its radio equipment from the city and to cap its liability. For its part
EarthLink said that its customer base, which had been expected to reach as many
as 100,000, fell far short of its needs and that it was losing $200,000 per
month maintaining the network.
Some feel that EarthLink rushed the negotiations in its haste to exit this
unprofitable venture and that the city had complex issues it needed to address
in order to evaluate the deal EarthLink offered.
In either case, it seems clear that the network cost more than expected, that
there were some technical difficulties and last but certainly not least that the
business plan was unsound. EarthLink had agreed to pay for the entire network,
sell service at $21.95 per month (half that to low-income residents), and to pay
the city rent for vertical assets. A classic build it and they will come
scenario in my opinion. I think municipal wireless could work if the city was a
primary anchor tenant. Building a network without a clear and nearly certain
revenue stream to break even on costs is always dicey.
In my old Broadband ISP days that was a central tenant for us---to not put up a
relay with a recurring cost unless we had customers lined up to break even on
that. We were a very small company granted, but maybe small company thinking is
not such a bad idea sometimes.
Tim Sanders
The Final Mile
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