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EarthLink to pay City of Houston $5 million

by on30 August 2007


For Wi-Fi delay

We reported
earlier this week that EarthLink had announced that it will eliminate up to 900 jobs, almost half its workforce, and to also close down several of its offices.  EarthLink has now reached an agreement with the City of Houston, Texas to pay a penalty fee of $5 million for its failure to meet the deadline for implementation of their Wi-Fi contract with the City. 

EarthLink’s original contract with the City of Houston reportedly was to cover almost 640 square miles of Houston with its Wi-Fi service. EarthLink, however, missed its initial project deadline due to its failure to enter into a leasing agreement with CenterPoint Energy, the company who owns the utility poles needed for the Wi-Fi project.

Upon EarthLink’s signature of the new agreement with the City, EarthLink will have only a two-year period to construct and complete the entire Wi-Fi network and service project. That includes a 9-month term to negotiate the leasing contract that is still required with CenterPoint Energy and the construction required under that contract.

The total project with the City of Houston is estimated to be worth $40-$50 million. The City also left itself an “out” during this 9-month term in the event that if it appears that EarthLink is not on track, or if the City gets an unsolicited proposal that is more attractive from another vendor to build the Wi-Fi.

EarthLink's former CEO, Garry Betty, died unexpectedly in January this year, and this has apparently left the company in some disarray as to its direction. Betty was a proponent of Wi-Fi, but the new CEO who took office in June has chosen to focus instead on shareholder return.

Meanwhile, it appears that EarthLink is stalling for time while it tries to decide whether to continue with the planned Wi-Fi installations in cities across the U.S. and also how it can shift some of the financial burden for implementing these networks onto the cities that will benefit from them.

The City of Houston Wi-Fi network is reportedly going to cost EarthLink nearly three times the cost of building a similar network with the same number of residents in the City of Philadelphia, Pennsylvania.  The City of Houston, however, has agreed to pay EarthLink almost $500,000/year for its Wi-Fi services for the first five years, something that Philadelphia has not committed to. It reminds us of that song by The Clash “Should I stay or should I go?”  The lyrics are in part, “If I go there will be trouble…if I stay it will be double.”

EarthLink has some tough business decisions ahead of it; including whether and when they want the business to expand or to grow smaller. They have “bought” themselves nine months with negotiation of the $5 million penalty to decide whether to continue the Houston Wi-Fi project or to ditch it.
Last modified on 30 August 2007
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