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02/13/2007Why Minneapolis’s Model is a Good One
Broadband-wireless industry veteran Martin Levetin chairs the panel “Public-Private Partnerships: A Diversity of Models and Communities” at the Digital Cities Convention in Tempe, Feb. 13–14, 2007. He spoke with W2i at the Digital Cities Convention in Philadelphia (Dec. 5–6, 2006).
Q: Where do you place locally based service providers in the broader citywide wireless landscape? It seems like their role and opportunity and increasing.
A: From the municipalities I’ve spoken to, there’s a strong interesting in wanting a local service provider as a participant in this — whether they’re the dominant participant, or simply a participant in a broader wholesale model. I think they feel more comfortable with the local service. That point has been made to me on many occasions in dealing with municipalities, and I do think it’s a feeling of comfort for the municipalities to have somebody whose office is down the street that they can go to and sit down with, who is part of the community and has no only a business interest but the community’s interest at stake.
I will say that some of the challenges that face the smaller service providers have been access to capital. A number of these companies are good companies — they’ve been around for a number of years. They’re profitable. But they’re just not big enough to attract the kind of capital dollars it takes to deploy one of these networks. I think if a source of capital was found for them, I think the municipalities would find they could have their cake and eat it, too, if you will. They have a local service that is, at the same time, well funded.
Now, inevitably, as this market becomes more interesting, larger service providers are going to jump in and take a play in this business. At the moment, we’ve got EarthLink that’s been in it from pretty much the beginning. You’ve got AT&T as a national service provider, and I would venture to guess you’re likely to see some others jump in, too.
Q: Discussion about sustainable implementation models has never been more intensive, especially as we watch the debates at the Service-Provider Executives and Local-Government CIOs Roundtable here at the Convention. How do you view the business models out there?
A: The municipalities have a broad range of interest in this capability [wireless], and…one of the interests the municipalities must have is to ensure the long-term viability of the service provider and the network it is developing. The service provider is, in turn, dependent on the equipment vendor to provide the platform that they can basically grow the business on.
At the moment, if you look at the business models that are out there, RFP by RFP, you run the gamut from one extreme to another. At one extreme, you have what I would describe as a pure infrastructure model, by which the municipality itself purchases the equipment, operates the network, and then does whatever it sees fit with the service offerings it wants to provide, whether it be commercial, public safety, or what have you.
The other extreme is what I would describe as a pure market-based play. The service provider will evaluate the opportunity, pay for whatever assets are required, and build a business moidel. At the moment, you see a mix of these two models out there, in situations in which municipalities are encouraging service providers to come in, but then are requesting a number of free services from the service provider — perhaps free services from the service provider, perhaps free services for the municipality, low-income people and digital inclusion projects. At some point, the service provider has to conclude that he can’t make enough money to recover their investment.
And so, I think we’re at the beginning of potentially a reconsideration by the municipality of where to draw the lines. I think if they push too far, you’re going to see service providers either opting out or not taking up the opportunity, or taking a gamble that they can renegotiate later. I think that puts everyone at risk. And so I’m looking for a model that’s sort of a balance in the middle.
Q: Minneapolis is, at least for the time being, somewhat showcase agreement.
A: Minneapolis is quite a reasonable example. They brought in a service provider. They are asking for some benefits from the service provider, but on the other hand they are saying to the service provider, we’ll buy service from you and be an anchor tenant. That really does affect the playing field significantly and helps to give the service provider enough momentum so they can calculate how to make a return on investment…. So here’s the balance, between wanting a local service provider, for the reasons that I mentioned earlier, and finding a middle-of-the-road example where all parties benefit.
Q. What would you like to see happen in 2007?
A: What I would like to see happen is two things. I would like to see the range of business models that the municipalities are seeking narrowed a bit more toward the middle so that we don’t have quite the extremes of economic variability. I think that would be good for the industry. It would encourage more service providers to enter, and I think it would help the long-term stability of the networks that are already deployed….
Martin Levetin is Vice President of Carrier and Municpal Networks, Strix Systems.
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