Earthlink sees municipal opportunity
From Wall Street Journal, June 15, 2005
By Riva Richmond
[ re: low-income families mentioned in the Philly part of this story: Is it the price of Internet access that keeps them unattached? and once access is within monthly reach, how does that ameliorate the burdens associated with purchasing end gear such as computers and PDAs? Also, I think it's a bit nitty to differentiate between $10 for low-income and under-$20-for-everyone-else ... one would think that a set price somewhere between those two points for basic access would eliminate the added financial burden of means testing and the ongoing administration (and other, more-demeaning effects) of class distinctions... ]
freepress.net
NEW YORK — EarthLink Inc.’s search for growth is leading to the steps of America’s city halls.
After several years of stagnant revenue and subscriber numbers, the Atlanta-based Internet-service provider is hungry for new markets. Now, municipal governments, eager to advance high-speed Internet access in their cities to both spur economic development and close the digital divide, are emerging as an important new opportunity for the company.
EarthLink has struggled with consumers’ move away from dial-up access for faster broadband services. The trend has caused a slow, painful decline in the company’s core “premium” dial-up business. While it has largely been able to offset that with a growing broadband business, EarthLink’s success there has been mostly confined to digital-subscriber-line, or DSL, service. Most cable providers’ have been unwilling to grant EarthLink access to their Internet pipes, something phone companies by law grudgingly provide.
To return to growth, EarthLink has zeroed in on new technologies, including high-end services for mobile devices and Internet telephony. It has also studied alternative Internet-access technologies, such as service over wireless networks and power lines, that could help get it out from under the thumbs of phone and cable companies.
City governments have become EarthLink’s first and best chance to offer Internet services over large-scale alternative networks. Encouraged by a bold effort in Philadelphia to build a citywide Wi-Fi network, and despite opposition from broadband providers that see a threat to their business, an increasing number of large cities are considering similar plans, suggesting that Internet access could one day become a kind of modern urban utility.
“We think we can play a vital role in helping these cities,” Garry Betty, chief executive of EarthLink, said. “It would be a way for us to augment our offerings for consumers and not be so beholden” to broadband network operators.
Last week, the city of Philadelphia received 12 bids, including one from EarthLink, for a $10 million contract to build, run and maintain a citywide wireless network for residents, visitors, businesses and mobile government workers. The winner will be able to use city assets like municipal buildings, light posts and traffic signals to blanket this city of 1.5 million people and 600,000 households with wireless base stations.
Dianah Neff, Philadelphia’s chief information officer, says the city wants a high-speed wireless network that can serve 300,000 subscribers and expects it will attract 200,000 subscribers by the fifth year of operations. The winning bidder should be able to offer service to qualifying low-income users in the $10-a-month range and to other home users for less than $20 a month, she says.
Ms. Neff declined to identify other bidders but said the city’s telephone and cable service providers, Verizon Communications Inc. and Comcast Corp. didn’t participate. Verizon said it didn’t oppose the city’s plan, but has concerns about government’s competitive advantages over private businesses and questions whether municipal networks are a good use of taxpayer money. It considered bidding, but after an early technology trial decided not to, a spokesman said. Comcast wasn’t available for comment, but Ms. Neff said it didn’t lobby against the plan.
“We need an educated population and need to have a work force that’s connected,” Ms. Neff says. Some 58% of Philadelphians are online, but the city wants to raise that number to 80%. Since 90% of affluent Philadelphians are already online, that means reaching out to low-income families, only 10% to 25% of whom are connected, she said. According to a survey, price is the No. 1 reason they don’t have Internet access.
EarthLink says it has bid to both build, run and serve users of the network, and has lined up partners to help. The company has 5.4 million Internet-access subscribers, including 1.5 million broadband subscribers, but to date hasn’t operated a network. If EarthLink builds this one, other ISPs will be able to offer services on it as well, says Kevin Brand, vice president of product management. EarthLink doesn’t intend to be a “monopolistic carrier,” he says.
Mr. Brand declined to further detail EarthLink’s bid, but said the network it envisions “can be cost competitive, affordable, robust, reliable, supportable.” He expects the cost of acquiring subscribers to be low because of the publicity the project is apt to attract and the nature of wireless networks. Users will register themselves when their computers detect the network and they try to sign on.
“We think [the municipal market is] going to help us expand our footprint and bring broadband to people that don’t have it today — and be a win for the cities and the citizens of the cities,” Mr. Brand says. “Philly is the tip of the iceberg. There’s going to be a good measure of other cities going through this process.”
In fact, Philadelphia’s plan has emboldened major cities like Chicago, Boston, Minneapolis, Houston, Los Angeles and San Francisco to consider wireless initiatives. EarthLink says it has been talking to a number of other cities and intends to bid for more projects.
“We think this is a natural kind of thing” for EarthLink, says Alan R. Shark, executive director of Public Technology Institute, a Washington, D.C., nonprofit that advises local governments on their technology projects, including municipal networks. Serving even one large city “would be very profitable for them.”
Being a large independent ISP and a neutral choice “makes them kind of a neat choice for a city that needs to partner with somebody,” he says. “They’re a hungry company, and they want this to work more than anyone.”
That could be an asset, considering the opposition cities face from alarmed phone and cable incumbents. City governments are increasingly willing to take them on because of political pressure to deal with still low broadband penetration, particularly among less affluent citizens and small or disadvantaged businesses. U.S. cities fear that the status quo will hurt their ability to compete in the global digital economy, particularly as cities around the world work to boost their citizens’ Internet access.
In many U.S. cities, people have a choice of no more than two broadband providers: their regional phone and cable companies. Often, providers either don’t serve poor neighborhoods adequately or sell services that are unaffordable to people with low incomes, advocates of city networks say.
“What you are seeing is market forces failing at providing local service,” says Daniel Aghion, executive director of the Wireless Internet Institute, an independent think tank in Boston. “Essentially you have local government jumping in trying to make up for market shortfalls.”
Thousands of communities around the country, including cities like Dayton, Ohio, and Spokane, Wash., have begun to offer public Internet services of some kind, he says.
Local governments also see city networks as offering a way to bring online city services to more citizens and to cut technology costs for mobile city workers, such as police, firefighters and social workers, and improve their efficiency. Philadelphia expects to save $2 million a year in leased-line costs and cellphone bills by the third year of network operations.
Broadband industry representatives dispute the notion that there is market failure. “Anybody who says there’s a lack of competition in Internet access just isn’t paying attention at all,” says Paul Rodriguez, spokesman for the National Cable & Telecommunications Association in Washington, D.C. He notes that prices are coming down considerably, particularly for DSL service.
To fight the trend, the industry has rushed state houses around the country, successfully lobbying for laws in 13 states, including Pennsylvania, that restrict local governments’ ability to build such networks. (Philadelphia, backed by strong grass-roots support, was able to win a waiver from its state lawmakers.) In a sign the fight could soon move to Capitol Hill, Rep. Pete Sessions (R., Texas), a former Southwestern Bell executive, has proposed federal legislation banning most future municipal networks. |
