Grandmothers have long advised that when life gives you lemons, you should make lemonade. That's been EarthLink's approach to dramatically changing industry conditions and the advent of municipally sponsored wireless networks.
EarthLink Inc. has long been a leading nationwide vendor of dial-up Internet access but, with users migrating to broadband connections such as DSL and cable, it needed to find new lines of business. EarthLink resells broadband provided by other vendors, most notably large telecom operators, but that isn't a sound basis for its future, said Cole Reinwand, vice president for EarthLink's municipal networks business unit.
"Our heritage is dial-up," Reinwand said. "We've built a significant base of broadband users, but ultimately, we're beholden to the incumbent [telecommunications] carriers, and it's hard to get our prices down to where we can make a compelling offer."
Reinwand said that just when EarthLink began exploring new ways to provide connectivity, U.S. city governments started looking seriously at providing wireless broadband access to their citizens.
"We looked at a number of [connectivity] options, and it was a happy coincidence that cities were thinking about the same thing," Reinwand said.
Now, EarthLink has entered the business of installing and running citywide wireless networks for municipalities. It currently is contracted to do that in Philadelphia, New Orleans, and Milpitas and Anaheim, Calif., and news reports have it bidding in many other municipalities.
Helping and competing
While municipal wireless networks open new avenues for EarthLink, they also put the company in direct competition with well-entrenched cable and telecom companies that already provide broadband access, Reinwand acknowledged. But adding competitors is a good thing, he said.
"There isn't enough choice and competition in the marketplace," Reinwand said. "Based on the lack of competition, [broadband] prices aren't coming down. If we're relying on market forces, what we need to do is introduce more competition."
Besides benefiting EarthLink, Reinwand said, the company's new line of business helps cities and their citizens.
"There's a significant population that's economically disadvantaged," Reinwand said. "In our society today, we can't afford to let people get left behind just because they don't have access to information on the Internet." But he noted that municipal Wi-Fi networks help all taxpayers.
"City IT organizations recognized the value that could be provided through mobile access to help their workers in the field achieve significant efficiency," Reinwand said. "Today they have to go out to inspect a building or whatever, then come back to the central office. That travel time is wasted. So they think they can achieve one or two hours a day in increased productivity."
Win-win
Reinwand is very familiar with the strong opposition to municipal networking projects from both the telecom operators and others who believe that government should not compete with private enterprise and that such networks put taxpayers at risk. But he disagreed with those arguments, noting that EarthLink is taking the financial risk, not the cities and taxpayers.
"We're willing to finance building the network and, if we provide benefit to the cities, it's win-win," Reinwand said. "EarthLink brings its expertise as an Internet service provider, and we understand how to build out these networks. The cities get the services they want."
Reinwand noted that one reason why telecom operators have fought municipal networks so hard is that vendors like EarthLink will not only be competing for Internet access, but also for voice dollars.
"We have some emerging products that I'm sure they're worried about," Reinwand said. "One is voice. We can offer [voice-over-IP] instead of using a cellular network. With our superior cost structure, we can get aggressive about pricing. It won't be national, but it will be from anywhere in the city. There's also mobile data -- we'll have a significant cost advantage over 3G."
In particular, Reinwand maintained that it costs cellular operators about 25 cents to deliver a megabyte of data over the 3G network, while the citywide Wi-Fi network can deliver a megabyte of data for half a cent.
"We think we'll have a very compelling offering and we'll make a decent amount of money in that space," he said.
EarthLink will also make money by wholesaling wireless network access to other access providers, a provision most cities are requiring, Reinwand said. That, in turn, will further spur competition, he said. He acknowledged that EarthLink is negotiating with a large player that wants to sell service through the Philadelphia network. He wouldn't name the company, but numerous reports have indicated that it's AOL LLC.
"The city has the right to allow as many wireless operators as they want into the marketplace," Reinwand said.
Still, he acknowledged that there are significant advantages to EarthLink's getting the government contracts.
"The big advantage we get is a market mechanism -- it's the first-mover advantage," Reinwand said. In other words, EarthLink will benefit from the visibility it gains because it is installing the network, an advantage it will have over others that may also want to provide access over citywide networks.
Given these potential advantages, Reinwand said he is optimistic that EarthLink has found a new line of business to replace its diminishing dial-up business. And, at the same time, he added, the company can help cities and the people who live in them.