Houston's Wi-Fi Plan in Serious Doubt: EarthLink Will Pay $5 Million Penalty to the City for the Del

Aug 30, 05:05 AM

Current Headlines: By Carolyn Feibel, Houston Chronicle

Aug. 30--Following months of delay, an ambitious plan to blanket Houston with wireless Internet signals now is in serious jeopardy.

The city's partner in the project, EarthLink, will pay a $5 million penalty to the city for not meeting its deadlines, Mayor Bill White said Wednesday.

"They're either going to do a graceful exit," White said, "or they're really going to figure out whether they can get other industry participants."

The payment will give EarthLink an additional nine months to find investment partners for the Houston project, White said. The company also could decline to do the project altogether without paying additional penalties, he said.

EarthLink announced Tuesday it was laying off 900 employees, nearly half its work force in a company restructuring. A spokesman declined to comment on its agreement with Houston.

If built as planned, the municipal wireless project here would be the largest in North America and require a $50 million investment. Residents would have to pay for access to the mobile network, but rates were expected to be competitive or cheaper than other providers.

White said he was hopeful EarthLink would find new partners to finish the job in Houston, and he did not consider the project to be over.

"They would like to get other sources of project financing, and they can't do it before the deadline," the mayor said.

Glenn Fleishman, a Seattle-based technology blogger who has been analyzing the city's deal with EarthLink, was less optimistic, saying the company would probably walk away for $5 million, rather than build at a cost of $50 million.

"I can't see EarthLink investing the necessary money, with a negative balance with the city before even breaking ground," Fleishman said in an e-mail.

EarthLink will sign a settlement and pay the $5 million in one or two weeks, City Attorney Arturo Michel said.

In the meantime, Houston is free to consider offers from other companies to build a wireless network for the 640-square-mile city, White said.

Although the city will not restart the bid process just yet, "I would respond to proposals," White said. He said other interested companies should "sharpen their pencils."

Change in business model Whatever happens, the city will keep the $5 million, and should use it to bridge the digital divide, White said, perhaps by building smaller "Wi-Fi bubbles" over public spaces or in libraries.

City officials expected installation of the wireless equipment to begin this summer, but EarthLink never completed the first step: signing an agreement with CenterPoint to place equipment on its utility poles.

EarthLink is reconsidering its business model for building municipal wireless networks. Rolla P. Huff, EarthLink's President and CEO, spoke to investors during a Wednesday morning conference call on the company's restructuring.

"We will not devote any new capital to the old municipal Wi-Fi model that has us taking all of the risk by fronting all the capital, then paying to buy our customers one by one," Huff said.

Wi-Fi in other cities The municipal wireless model EarthLink wants to emphasize involves the local government being a primary customer. That provision already is part of the contract here. The city of Houston has agreed to pay $2.5 million over five years to use the network.

EarthLink has built wireless networks in New Orleans, Corpus Christi and Milpitas, Calif. It currently is expanding networks in Philadelphia and Anaheim, Calif., Jerry Grasso, spokesman for EarthLink, said.

Councilwoman Ada Edwards expressed disappointment at the project's delay. Residents in certain parts of the city, especially her district, lack access to technology, she said.

"It will help us close the digital divide," Edwards said.

"It was a very creative approach to getting wireless in our city," Councilwoman Anne Clutterbuck said. "I still want it to happen, but if the market can't sustain something like this, I'm just delighted the taxpayer didn't pay anything."

Chronicle reporter Alexis Grant contributed to this report.

carolyn.feibel@chron.com

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