The High-Tech Texan Blog

Wednesday, August 29, 2007


Mayor White announced during City Council Wednesday that EarthLink will pay the city $5 million for not meeting its first deadline for building a wireless network across the city.

A Chron story spells most of it out but the reader comments are pretty harsh. Some are pissed at EarthLink; others are ticked at the mayor and the city. Both sides make good points but here are my thoughts after talking with my contacts close to the project between Houston and Atlanta, where EarthLink is based:
  • Houston, as of now, comes out smelling pretty good. The City is $5 million richer than it was when the RFP began last year and it has learned valuable lessons. They know what issues in the process need improvement and thus have the knowledge to rectify those if they enter another contract.
  • Why did EL pay the whole $5 million penalty fee when they were only the line for $2.5 million if they missed their Year 1 (of 2 years) goals? According to my sources, EL put up a $5 million letter of credit when they signed the contract with City Council. The money was sitting in a fund so they will soon release it all to the city.
  • Apparently EL still has the right to build out the network, at least for the next 9 months. EL will look at many ways to see if it is possible for them to complete the project alone or with a partner (i.e. Google). To recoup their money, EL may want to find a company to buy those rights to build a network. Though I believe the city has the right to refuse any company that comes in. At the end of the day, EarthLink's primary goal is to raise its stock price - not just build a wireless network. Since August 8, their stock price has risen 20% probably on speculation they may be pulling out of the municipal wireless business.
  • As of now the whole project is in a holding pattern. The Digital Houston website which is hosted by the city is not being updated regularly. Mayor White and his city IT department are weighing options of building out the network themselves - starting downtown - and opening it up for other city services (they now have a well-funded coffer to use). Some speculate the entire project be put off until better technology catches up such as WiMAX.

Any way you slice it Houston will not have a citywide wireless network in the very near future. So the debates continue - public or private operated system, free or subscription, ad-supported or sponsor-free. I'm all for Internet access everywhere and I'm relatively happy with my wireless laptop cards now.

Let's just hope Mayor White doesn't push this issue too far and too fast for the wrong reasons like leaving a lasting legacy. We know where Lee Brown's legacy is today.

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  • Mayor White and his city IT department are weighing options of building out the network themselves - starting downtown - and opening it up for other city services (they now have a well-funded coffer to use).

    $5 million is a drop in the bucket.

    Let's keep in mind this info from the Chicago Tribune about the system that Mayor Daley's staff decided was WAY too expensive for the windy city:

    A Wi-Fi network intrigued Chicago as a low-cost method of blasting an Internet signal across the city. The system would deploy radio equipment mounted on light poles and would cover 220 square miles of territory. Industry sources have estimated that it could cost as much as $50 million to install the infrastructure and perhaps an additional $150 million to operate the system for six years.

    Since Houston does not have Chicago's density, I would guess our costs would exceed their estimated costs. $5 million is not even much of a down payment on those costs.

    And if the network eventually is built, you can bet that a renegotiated anchor tenant fee will wind up costing the city a lot more than the original $500k per year.

    The notion that this could be done as cheaply as some proponents suggested was always pie in the sky. The good news is, a private company discovered as much and put the brakes on. Government entities tend to just plow ahead in such instances, since they don't have to answer to stockholders or owners.

    By Blogger Kevin Whited, at 9:17 PM  

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