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November 16, 2007

EarthLink Says No More Money for Existing Muni Networks

EarthLink drops another bombshell: They hired Rolla Huff to sort out their future business, and his message from the start was steely eye, bottom line, get things on track for the future in an industry in turmoil. Then Huff cuts a huge percentage of the staff, lays off the municipal network head, and says no more investment in new networks without a change in model. Now the final piece is in place: No more "significant investments" for existing networks without some alternative model being in place, which isn't specified in the press release.

Many wondered if this were coming when the layoffs were announced. EarthLink was reassuring that it would continue to work on and finish projects it was committed to. But now, not so much. Philadelphia at last check was 65 percent complete. Update: The Associated Press has more detail (some of it added late in the day in an updated filing), including a statement from Philadelphia's current CIO who says EarthLink will complete the network--EarthLink also confirmed this--but has no commitment now to operate it. "Philadelphia could take the network over and find another company to operate it," the AP writes, which was precisely the worst-case scenario for public ownership that its detractors originally stated. (Although in this form, the city will be getting the infrastructure at perhaps zero cost.)

Other cities like Anaheim, New Orleans, and Corpus Christi were in various stages of completion or upgrade. The release values the muni business at $40m. That's useful to know when they shut it down entirely and write off the value. I expect there may be a company or two willing to buy the networks on the cheap if the engineering conforms to the buyers' expectations.

Further update: Greg Richardson of the consulting firm Civitium helped Philadelphia draft their agreement with EarthLink. He notes on his blog that EarthLink can't just walk away, but that the city can release EarthLink under circumstances it chooses, or EarthLink can sell the networks in a specific way that would get them off the hook for certain provisions (not all).


Glenn, I've talked to some others and I am confused.

I'm not exactly sure what you mean by saying the situation in Philly is the worst case scenario for a public-ownership model.

It seems to me that Philadelphia is showing some of the problems of private ownership - no one knows what will happen to the network. If the city were to become the owner, this would give it the power to decide how to run it and they would have the power to choose to sell it or lease it out or just sell it as scrap.

One of the benefits of public ownership is choice. The city can make decisions rather than requests.

In this case, you appear to be taking a failed private model and somehow finding fault with publicly owned models?

You're mistaking my opinion for those of publicly owned network detractors. What you're responding to is this statement:

"'Philadelphia could take the network over and find another company to operate it,' the AP writes, which was precisely the worst-case scenario for public ownership that its detractors originally stated."

The detractors, including sock puppets funded by telcos--those telcos are apparently not funding that research in any serious way any more--said that if a privately built network that was authorized by a city and upon which a city would grow dependent was financially unsustainable (the network or the company that built it), the city would be on the hook for paying for a network that they didn't want to pay for in the first place, thus avoiding obviating risk.

That was clearly one of the arguments against municipally authorized networks, as opposed to networks built without any municipal involvement.

There are few networks that are owned by municipalities, but it's a big leg up in making them work if you wind up not paying for the infrastructure, or paying a few cents on the dollar for it.

In some ways, that the best-case outcome for a city for a network that's not been built, but was started by a private firm.

Ahh, I was confused by the quotation marks. Thank you for clearing it up. The dangers of relying on outside party's for essential infrastructure is one we encourage everyone to evaluate when making these decisions.