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The Milpitas Model

With the midday ribbon-cutting ceremony at City Hall in Milpitas, Calif. yesterday, EarthLink Inc. (Nasdaq: ELNK) officially lit up its second municipal WiFi network of the year in the Golden State, following Anaheim. It may have also provided a bit of clarity in a market that has been red-hot for all of 2006 but has grown increasingly muddled as the year progressed.

Using gear from Tropos Networks Inc. and Motorola Inc. (NYSE: MOT)'s Canopy backhaul and mesh equipment, EarthLink has deployed around 300 nodes covering 10 square miles of the city of 63,000, which lies about 6 miles north of San Jose at the southern end of San Francisco Bay. The company is offering a 30-day free trial for residents and visitors to Milpitas, starting yesterday; after that the cost will be $21.95 for one month, $3.95 for an hourly pass, and $15.95 for a three-day pass. Access will be resold by a variety of partners in the Milpitas market including PeoplePC, an EarthLink subsidiary.

The network will offer outdoor coverage with speeds of up to 1 Mbit/s. Customers who want indoor coverage can purchase customer-premises equipment to bring the signal inside, or get it free with a one-year contract.

Tropos nodes are deployed on city-owned lampposts across the town. The network is being built at no cost to the taxpayers, and Milpitas will get 50 free government accounts in return for access to the poles.

Interestingly, as WiFi authority Glenn Fleishmann pointed out yesterday, Milpitas could eventually be covered by three separate WiFi networks: a MetroFi system, the EarthLink network, and the Wireless Silicon Valley Project. (See Cisco & Pals to Unwire Silicon Valley.)

The Milpitas deployment, which got under way last June, comes as negotiations between the EarthLink/Google (Nasdaq: GOOG) joint venture and the city of San Francisco over that city's WiFi network continue to drag on. Sources close to the talks say a final agreement between the parties could come as early as this week. (See SF Muni Deal 'Near'.)

"[The talks with] Philadelphia took us seven months, and we've been negotiating with the city of San Francisco for six months," says EarthLink spokesman Jerry Grasso. "With these bigger cities there's just more to talk about, and there are more disparate parties interested in looking at contract and being part of the negotiations. The process with San Francisco, from our experience, has been what we expected going in."

That's not to say that all municipal build-outs have been as smooth as the Milpitas one has apparently been. Municipalities from Sacramento to St. Cloud, Fla. have found the going much rougher than expected in establishing functional citywide WiFi networks that offer the advertised coverage. That's one reason networks in relatively small towns like Milpitas have, to date, been significantly more successful than the more ballyhooed efforts in places like San Francisco and Philadelphia. (See New Muni Models.)

One question that remains even for smaller deployments, though, is, "Will they make money?" EarthLink says it expects to be comfortably profitable under the pricing structure it has in place in Anaheim and Milpitas. Craig Settles, president of wireless consultancy Successful.com and the author of Fighting the Good Fight for Municipal Wireless, says that making money selling (or reselling) Internet service to consumers is an iffy business, the real value of early rollouts like Milpitas may be as proving grounds for government and enterprise applications.

"I think if you look at local businesses, government services, and healthcare applications, those three areas could lead to if not a hugely profitable result, at least to a good break-even result," says Settles. "And more importantly to a model that you can take and replicate in other places."

"On the consumer side," he adds, "people want to get a bunch of stuff for nothing, and they beat the crap out of your network cause they're downloading every video known to humanity. Then you've got high costs per subscriber acquisition and churn issues. The whole consumer market base is just very difficult."

— Richard Martin, Senior Editor, Unstrung

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