Blog Post

Gigabit lesson No. 1: Partner in haste, repent at leisure

First Google offers to build a lucky city a gigabit network. Now new companies are arriving with similar offers. As these offers excite communities nationwide, many may not realize they are on the verge of repeating errors that doomed cities’ muni Wi-Fi dreams in 2007.

There is little doubt Kansas City has reaped many rewards from its deal with Google, and 34 cities are potentially Google Fiber beneficiaries. International investment bank Macquarie Capital is in deep negotiations for a partnership deal with 11 cities in Utah. Ridgeland, Miss.-based C-Spire, a private communications company, just announced a fiber partnership with four Mississippi communities.

This recent spate of high-profile deals may look too good to pass up, but there is an eerie similarity to events leading to the muni Wi-Fi fiasco.

Muni Wi-Fi wasn’t about municipalities

Image 1 for post Only 6,000 WiFi subscribers in municipal Philly network( 2008-05-14 13:56:52) In 2004, Philadelphia announced it was building a citywide Wi-Fi network. It began planning but couldn’t determine how to pay for the network. Earthlink stepped up and offered to build it for Philly at no charge to the city, which kicked off a media frenzy rivaling that surrounding the Kansas City-Google deal. Cities fell all over themselves screaming for “free” muni Wi-Fi too.

Sensing a gold rush, several other companies such as MetroFi and Kite Networks rushed in to offer free networks. Cities, not understanding wireless technology or the particulars of the Earthlink-Philly deal, saw an opportunity to get something for nothing. Hype fueled hope. Dozens of projects launched, only to crash-and-burn dramatically. These networks were not owned by municipalities, but by private-sector companies with poor business plans, unsustainable business models and low capitalization.

As current media coverage drives hype about angels swooping in to bring gigabit networks to cities in need, communities need to heed a lesson from the muni Wi-Fi days. Wireless technology consultant Tim Sanders wrote, “The biggest problem is that companies like EarthLink and MetroFi so badly managed cities expectations early on in the process, with promises of no cost to the city and worst of all, no monies paid to the cities in some cases.” The reality, as the Charlotte Observer recently editorialized, is that cities can end up giving away access to extremely valuable assets. There is no free lunch.

Reaching broadband’s promise, avoiding muni Wi-Fi’s pitfalls

Fortunately, the companies offering deals now are well capitalized. But to maximize the benefits these investors bring, individuals, local companies and community leaders must think smarter, plan better and negotiate more effectively than their predecessors in 2006. They also need a far better understanding of the technologies involved.

Communities must know what they want. “Cities often don’t know how to go about learning what they need,” states Debra Acosta, Chief Innovation Officer for San Leandro, Calif. “They get bogged down in the technology, the glory of a gigabit. You have to know what problems you’re solving or opportunities you’re creating. Then look at these partners to understand how their technology helps and is the business partnership sustainable.”

As the number of partnership options increase, cities must shop around for a relationship that best meets their constituents’ needs and negotiate better terms. Google offers to build a network, but extracts a number of benefits from cities for itself. It only connect residences initially and it owns the infrastructure. Macquarie appears to favor revenue sharing with cities, plus cities get to keep the infrastructure at the end of the deal. C-Spire is a mix of these two. It is less interested in extracting a lot of concessions from cities, but C-Spire too retains ownership of the network.

Communities should not be afraid to probe the business operations of their benefactors, particularly with smaller companies. Just as enterprise customers do when buying the latest technology, peel back the covers. At one point, MetroFi had committed to building and operating seven citywide networks simultaneously. Reviewing publicly available information would have revealed the company was unable to accomplish this feat before cities found this out the hard way.

Gary Evans, CEO of Hiawatha Broadband Communications, has built several networks in partnership with municipalities such as Monticello, Minn. He developed a top-10 list of partnership do’s and don’ts. No. 1 for cities is, “Don’t make a deal until you are convinced that you have found exactly the right partner. And when you find that right partner, get the hell out of the way and let them run. No micro-management.” Evans describes the rest of his list in this interview.

Cities have to realize they have options. They can own the broadband infrastructure the same as hundreds of communities successfully do now. They can pursue partnerships, but don’t be so desperate for broadband that they pursue the wrong companies or negotiate bad deals. Remember that they bring valuable assets to the partnership. A big reason broadband monopolies exist in so many communities is that leaders gave up too much in bad deals executed for the wrong goals.

Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.

4 Responses to “Gigabit lesson No. 1: Partner in haste, repent at leisure”

  1. 25% of American families process their own sewage in septic systems because municipalities are so busy doing other things they can’t be bothered to run competent utility systems. Seems to me like gigabit broadband is fairly low on their priority list.

  2. slfisher

    This article fails to mention that, in too many states, legislators partnering with ALEC have made it *illegal* for municipalities to do their own broadband Internet, even when local providers are refusing to provide it themselves.

    • Craig Settles

      This is a valid point and not one I usually miss. There are 19 states with varying levels of restrictions. In Utah where Macquarie is working to close a deal, they have some heavy restrictions, but the Macquarie deal legally works around them. Furthermore, Macquarie and UTOPIA help beat back two attempts to add additional restrictions,

      In most if not all of those 19 states, there are ways for communities to own the network through nonprofits, co-ops, groups of local businesses creating an entity and the like. In those work-around situations, the points in my article still apply.