A key Minneapolis City Council committee on Monday voted to enter into negotiations with Minnetonka-based U.S. Internet on a 10-year contract to build and operate a citywide wireless Internet system.
The deal capped a two-year effort to find a company to build the system, designed to serve the city’s public safety and regulatory service departments as well as to provide the kind of Wi-Fi access now available only at coffee shops and other Internet “hot spots” around the city. U.S. Internet and Atlanta-based Earthlink were the two finalists vying for the opportunity to build the $25 million network.
The Wi-Fi network would provide residents with high-speed broadband wireless Internet access anywhere in the city for $19.95 a month. Businesses would pay $29.95 month. U.S. Internet projects that it will persuade about 18 percent of city households to subscribe to the service.
“It’s an outstanding value and benefit for the city of Minneapolis,” said Karl Kaiser, the city’s chief information officer. “We believe what we’ve accomplished here is significant.”
As part of the deal, the city would advance the company $2.2 million to help leverage financing and guarantee a minimum of $1.25 million in wireless service fees each year for the duration of the contract. U.S. Internet would dedicate 5 percent of its annual wireless revenues to a digital inclusion fund. The estimated $11.5 million that fund would collect during the 10-year contact would finance community technology centers and other digital access activities for low-income communities.
City officials estimate they will reap savings of 40-60 percent on Internet service fees with the new network. Currently the city pays more than $2 million a year to Sprint and Qwest for broadband Internet service. “The technology is not only viable,” said Bill Beck, who heads the city’s Business Information Services department. “But it’s better than we thought.”
The network also will allow neighborhood groups to create their own portal pages on the Minneapolis Wireless Web site, posting news, resources, and announcements. Money from the digital inclusion fund will pay for ongoing training programs to teach residents how to post items on the pages. “It’s a great win for residents,” said Catherine Settani of the Digital Access Center.
Any subscriber whose computer has a wireless card will be able to gain access to the new network with a password, though some may need a booster modem to get the signal inside their home. Settani said U.S. Internet may provide some vouchers for free modems.
Council Member Sandra Colvin Roy compared the building of the wireless network to the wiring of the city for cable television more than 20 years ago. “It’s at least as big a change as that,” she said.
Not everyone was in a celebratory mood, however. John Stanoch of Qwest Communications argued that his company was shut out of the bidding and that the city’s prepayment agreement amounted to a public subsidy. “We were told there would be no public money for this project,” he said. “There is a direct appropriation of $2.2 million.”
Stanoch also challenged the claim made by city officials that the new system would be faster and more affordable than current systems, noting that Qwest already offers a 1.5 megabyte per second Internet connection for just $21.95 a month. The U.S. Internet system’s speed would range from 1 to 3 megabytes per second.
Qwest was one of nine companies that submitted bids to build the system, but Stanoch claimed the company “was not warmly received by city staff.” Many of their questions went unanswered, he added.
Members of the Communications Workers of America local union also voiced their opposition to the deal, claiming that U.S. Internet would be paying lower wages and benefits than does Qwest, whose maintenance workers are represented by the union.
Colvin Roy voiced her own concerns about a lack of contract details, noting that she needed to know more about specific remedies available to the city if U.S. Internet failed to build the system. She suggested that the committee send the matter to the City Council without recommendation, a motion that was rejected on a 4-2 vote.
The committee then voted 4–2 to move ahead with U.S. Internet, with council members Paul Ostrow, Gary Schiff, Betsy Hodges, and Elizabeth Glidden in favor and Colvin Roy and Diane Hofstede opposed.
In an interview, U.S. Internet vice-president of operations Kurt Lange said he was pleased with the outcome, but was bracing for more detailed negotiations in the weeks ahead. The city, he said, “asked for a lot and we gave a lot” in developing a basis for the agreement. The pre-payment deal from the city, he claimed, was one of the areas the city was willing to compromise on.
“This was the balance we got from the negotiations,” he said.
The pre-payment deal was not vital to the company’s financing plan, he added, but it was the preferred option. The key was to have the city as an anchor subscriber to the service.
On Stanoch’s complaints about the bidding process, Lang argued that Qwest actually had an advantage over his company. “We went in blind; they went in prepared.”
If U.S. Internet had an advantage over the other bidders, said Settani, it was that the company understood the city’s public safety needs and committed itself to the community’s digital access dreams. “They had a better grasp of community needs and institutional needs,” she said.
The full City Council is expected to ratify the committee’s decision at its Friday meeting. The company could begin construction as early as February 2007 and be completed by the end of the year.