Aug. 18, 2007, 11:47AM
Earthlink's Wi-Fi delays put project in question
By ALEXIS GRANT and MATT STILES
Houston Chronicle
http://www.chron.com/disp/story.mpl/tech/news/5064518.html
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CITYWIDE WI-FI SERVICE BEHIND SCHEDULE
The city's plans to have EarthLink Inc. build a wireless network across the
city's 640-square miles have stalled.
Contract approved: In mid-April, the City Council approved the contract
and agreed to pay $2.5 million over five years to use the network.
Build-out: The initial timeline called for EarthLink to begin the
build-out this summer by installing wireless nodes on light poles around
the city and larger transmitters on top of buildings. That hasn't happened.
Deadlines: The contract's deadlines are ambiguous, but the company is
expected to complete half the network within one year and the second half
within the following year. Failure to do so could result in financial
penalties.
Expected completion: Mid- to late 2009
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Months after the City Council approved a contract to allow EarthLink Inc.
to blanket Houston with a wireless network, the build-out still has not begun.
The delay is prompting concern that the company, which publicly has said it
is rethinking its business model, may be having doubts about whether to
proceed in Houston as planned.
Mayor Bill White acknowledged Friday that the company is two or three
months behind schedule. But he said EarthLink is obligated under contract
to build the network within a certain time, so if there are significant
delays Houston would receive compensation.
"I would intend to either wrap something up within a fairly short period of
time probably a matter of weeks, not months or proceed with our legal
remedies against the company," White said.
He said he has been working with EarthLink officials to find a mutually
beneficial solution.
The company has yet to sign an agreement with CenterPoint Energy to lease
its light poles for the project, according to CenterPoint spokeswoman
Leticia Lowe. City officials expected that to happen soon after the council
approved the city's contract in mid-April.
Lowe said CenterPoint sent the contract to EarthLink last month. She
declined to speculate about why EarthLink may be holding off on signing the
agreement.
"We are waiting to execute on it, but we're waiting for EarthLink's
signature," she said.
City to pay $2.5 million
The city contract allows EarthLink to build a wireless network over
Houston's 640 square miles. Residents, city employees and visitors then
would be able to access the network for a fee through an Internet service
provider.
The city agreed to pay the company $2.5 million during the next five years
to serve as the anchor tenant.
But EarthLink officials, who declined to comment for this story, have
expressed unease recently about the financial viability of wireless
projects, which have yet to prove on a scale as large as Houston's that
they will draw enough customers to make a profit.
The project here is expected to require an investment of about $50 million,
according to EarthLink and city officials.
EarthLink officials have not publicly discussed Houston's network in
particular in recent months. New CEO Rolla Huff said in late July the
company is reviewing its business model and will not accept new projects
until officials are confident they will get their money's worth.
"The Wi-Fi business that's currently constituted will not provide an
acceptable return. We're actively exploring ways to scale this business
more economically," Huff said during a conference call with analysts. "You
can expect that we'll scale back both new-build capital as well as ongoing
operating expense structure."
Because Houston's network would be the largest in North America, some
municipalities and industry experts are looking to the city and EarthLink
as an indicator of what lies ahead for Wi-Fi.
Glenn Fleishman, editor of Wi-Fi Net News, who follows municipal wireless
projects around the country, predicted the company may try to negotiate a
new agreement, one that is less risky financially.
"I think the deal goes south," Fleishman said. "I expect that they
(EarthLink) are going to try to go back to the well."
Under its contract with the city, EarthLink must build at least half of the
network within a year of the start date and the rest in the following year.
If it defaults, it could owe the city up to $5 million.
Officials' last estimate for a completion date was mid- to late 2009. But
the clock has not started ticking because the contract defines the start
date as 30 days after EarthLink signs the CenterPoint agreement.
The municipal wireless industry is facing obstacles throughout the country.
While hundreds of municipalities are building or planning to build
networks, some of the larger projects are encountering delays, wireless
signals that are not as reliable as expected and a lack of customers.
"All of the numbers are pointing toward the consumer being a weak part of
the financial foundation," said Craig Settles, a municipal Wi-Fi
consultant. Profit is more likely to come from businesses that buy services
or the city's commitment to being an anchor tenant.
'A bump in the road'
EarthLink recently completed a network in Corpus Christi, much of which was
built by the city and then sold to the company.
In Philadelphia, EarthLink is in the midst of building a 135-square-mile
network. That project is on schedule and should be completed by the end of
this year, said Greg Goldman, CEO of Wireless Philadelphia, the nonprofit
group that has partnered with EarthLink.
Umesh Verma, chairman of the Greater Houston Partnership's technology
infrastructure committee that helped White develop a vision for the
network, said delays do not bode well but may be necessary to proceed properly.
"Delays are costly, and it means that what you're going to get is maybe
different than what you started out with," Verma said. But, he added, he
thinks this delay is just "a bump in the road."
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George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
