Want to Raise Money? Just Say "Wireless"Sunday, June 22, 2008
One of the questions I am most asked is how I decide what to write about. Well, sometimes I receive a call or email that sparks my interest, sometimes I wake up in the middle of the night with a question and sometimes the articles are handed to me by everyday news reports and wireless happenings. This Commentary is a combination of all three. First, I have been a critic of Muni-Wi-Fi for a long time, second, I received a number of phone calls about failing systems and third, within two days of each other, articles have been published about the Philadelphia system acquiring new investors while systems in Concord, Cupertino, Foster City, San Jose and Santa Clara, California (the heart of Silicon Valley) and Portland, Oregon are being shut down. And over the past few months, a number of other systems have been shut down with or without fanfare, some simply going dark and disappearing.
In spite of this, a group of investors in Philadelphia has decided that keeping the systems installed by EarthLink up and running in the city is a good thing. The deal was put together by the mayor, several council members, Wireless Philadelphia, a not-for-profit entity established to run the network, and some investors. The investors will be taking over the network from EarthLink, which will, reportedly, get something for it. (EarthLink is said to have invested $17 million in the network so far, but no one is talking about the exact figure.) Of particular interest to me is the following statement in the press release:
"There is a transition period, during which the local investor group will assess the current state of the network and create a plan and timeline to bring the network up to specification. During this time, service will continue to the current digital inclusion customers subject to interruptions for network upgrades. The local investor group will fund citywide free wireless by providing integrated wire/wireless telecommunications services for large customers such as hospitals, universities, and wireless extensions as well as moving to an advertising-based model."
In an Associated Press article the next day, we learned more. "EarthLink's service didn't attract enough customers in Philadelphia to be financially viable because of connection problems, poor customer service and prices that weren't much cheaper than competitive DSL services." And further into the story, "Investors in the deal include Mark Rupp, a director at equity investment firm Boathouse Communications Partners who will be chief financial officer of the new company. Derek Pew, chief executive of Boathouse and former interim CEO of Wireless Philadelphia, a nonprofit that oversaw the city's Wi-Fi effort, will be CEO."
"The two other investors are David Hanna, chairman of wireless Internet equipment maker Tropos Networks, and former Philadelphia mayoral candidate and businessman Tom Knox."
These few paragraphs provide enough information for me to know that the investors never opened a spreadsheet and made assumptions about becoming a "wired and wireless" operator and selling services to major organizations and companies. Okay, are they going to run fiber around the city? Will they lease wired capacity from cable companies and the wireless incumbents? How, exactly, are they planning to convince the University of Pennsylvania, Temple University or the Philadelphia National Bank to do business with them? Just a thought here, most of the major companies and hospitals and other organizations I know of in Philadelphia have branches or offices outside the city in New Jersey, Delaware County, Bucks County and perhaps even Northern Delaware. How will these investors deal with that?
Next let's look at the statement, "The group will assess the current state of the network." I see two issues here. The first is that if I was thinking of investing in a network, I would want to know the current status of the network and how much more than the initial purchase price I would have to spend to "bring it up to specifications" before I put in any money. I would also want to know how well it penetrated into homes and offices-the Anaheim EarthLink network was built to cover "90% of outside walls of buildings in 90% of the City." I wonder if that was the criteria for Philadelphia as well. It sounds as though the cost of bring the network, which is only about a year old, up to specifications could prove to be expensive. I never attempted to put a Wi-Fi network in Philadelphia, but I did help design and install more than thirty two-way radio and paging networks while I worked there, including some of the major first responder networks. The Wi-Fi network supposedly covers 135 square miles and was designed back in 2005 to have 20-25 nodes per square mile. In reality, EarthLink ended up building out using an average of 42 nodes per square mile, which also increased the number of backhaul access points, thus driving up the cost of the system. (Note: In the Anaheim system, which we tested extensively, EarthLink started with 30 nodes per square mile for phase one and by the time it got to phase 3, it was installing as many as 70 nodes per square mile and back-filling the phase 1 and 2 build-outs.)
The services in Philadelphia were $21.95 per month from EarthLink or, if you qualified, $9.95 per month from the not-for-profit organization working with EarthLink. Free Wi-Fi was offered only in parks and other public outdoor areas of the city. Today, the new investors are talking about offering free Wi-Fi everywhere in the network in addition to a higher-speed paid access system. According to the press release, the investors plan to offset the "free" Wi-Fi costs by selling both wired and wireless access to major organizations and companies and through advertising. My bet is that none of these options will pay the bills for the day-to-day operation of the system, let alone the initial investment.
To existing customers, they say that the network will stay up "except for times when it won't be up because of the system upgrades." Remember here that existing customers are paying customers, and they will not tolerate downtime, regardless of the reason. And I don't think those putting this system together realize that even people who receive free service expect the service to be perfect-just because it is free does not mean it can work some of the time and not all of the time. The expectations will be that it will work, and work it had better!
The Internet site wirelessphiladelphia.org seems to be the focus point of the not-for-profit portion of this operation. It has posted a lot of information about what has transpired and what will happen. There is also a blog and one post is really telling to me. It says, "I hope that part of the new plan centers on fixing the awful system that earthlink had in place before expanding further. As a subscriber to the service for a period of 9 months, I can say it was truly the worst service I have ever utilized- or rather tried to utilize as it rarely worked and I was promised solutions and updates on a weekly basis for a 3 month period of time. Free service is a nice idea- but I'd rather pay for something that works and I can rely on." I hope the investors are hearing this message loud and clear.
I am very puzzled about why a group of investors would swoop in and buy up a dysfunctional Muni-Wi-Fi network and then claim they will make money on a free service by becoming both a wired and wireless provider. I guess I am naive. I was not aware that I could simply wake up one morning, decide I would offer wired services and begin selling them to major corporations. I wonder if they have heard of network reliability or 99.999% uptime.
As those who are investing in the Philadelphia network are congratulating themselves, I suggest they not read the newspapers or visit the Internet and search on Muni-Wi-Fi. It would probably change their mood. Most recently, MetroFi, whose business model for Muni-Wi-Fi was to give it away and pay for the services with advertising, just shut down networks in the cities in Silicon Valley mentioned in the first paragraph and in Portland Oregon.
The Portland network was only about one third completed and had already cost MetroFi (and its investors) $2 million, and this was on top of the study Portland contracted for. The city has said that its direct cost for this failed project was more than $250,000, most of it for a study about Muni-Wi-Fi and the advertising/free business model. Perhaps I should charge a city a quarter of a million dollars and give it the articles I have written over the past three years about the dangers of deploying a Muni-Wi-Fi system!
No matter what has gone before, it looks like there will always be some cities that think they can beat the odds with Muni-Wi-Fi. It appears Philadelphia is one, and in April of this year, the state of Georgia gave the city of Augusta $600,000 to be matched with the city's $281,000 to build out four square miles and there are a few more projects in the planning stages. As I have said before, the only ones making money on Muni-Wi-Fi are equipment vendors and consultants who are pro-Muni-Wi-Fi and seem to be able to provide reports and financial projections that "prove" Muni-Wi-Fi will work, or who are glib enough to convince city fathers that it is their duty to provide Internet access for all.
It seems to me that it would be less expensive and more productive for a city that really wanted to help its citizens who cannot afford Internet access to work at a more basic level. You would start with indentifying areas of the city where incomes are the lowest, which is not very difficult to do in these times. Then you would determine, within those areas, who really needed Internet access first-households with kids, for example-and set about providing them with service. Meanwhile, you would make sure your senior centers, boys and girls clubs, etc. have some computers and Internet access that could be shared-shared is better than nothing. It would certainly cost a whole lot less. Why provide wireless (Wi-Fi) to areas of the city where people who want Internet access and have a choice of at least DSL and cable can afford to pay for it? Since Wi-Fi is not a mobile service, and in my estimation should never be used to replace voice and data services in city vehicles, the idea of mobile (which is not truly possible) or outside coverage need not be considered in large areas of a city.
Light up a park with free Wi-Fi and watch to see how many people use it for what. Light up a recreation center and a library and let people know where they can go to get free service and see if they use it. Don't simply assume that if the network passes by their house they will run out and buy a computer and sign up for Internet services. In other words, committing to a citywide system when the city will not be a major tenant makes no sense. In today's world, cities need broader and more reliable coverage than can be provided by a bunch of hotspots put together to form a citywide system. Such systems have no back-up during power outages and are constantly in need of a "tune-up" as more private access points pop up. Even when it is running like clockwork, if it ever is, it will not reach indoors. And it will not provide enough money for the company or organization that paid for the network to realize a return on investment.
I have said this before and I will probably say it again. Having money to invest does not make you a genius or right about every business decision you make. In 1999 and 2000, the words "Internet business" were enough to make otherwise smart investors part with a lot of money, which most of them lost within a few years. The words "wireless business" seem to be having the same effect today.
I wish the new investors in the Philadelphia Muni-Wi-Fi system well, and I will repeat what I said the first time I wrote about the Philadelphia Wi-Fi system in 2005: The access points can always be used for filler for all of the potholes in Philadelphia's streets!
Andrew M. Seybold