MetroFi Looking for a Buyer

Posted by Sam Churchill on

MetroFi is trying to sell its citywide Wi-Fi networks in Portland (Oregon), Aurora and Naperville (Illinois) and Santa Clara, Cupertino, Sunnyvale, Foster City and Concord (California), reports Muniwireless and WiFiNetNews. MetroFi founder, Chuck Haas, says he is also exploring the sale of MetroFi itself to a third party.

If no buyers emerge, Haas says MetroFi will shut down service.

The Portland network was MetroFi’s largest, nearly identical in size to Philadelphia’s 135 square miles, the largest consumer-oriented municipal wireless network in the nation. MetroFi said they’d spend some $10 million on Portland’s 134 square mile WiFi network which was supposed to serve some 500,000 people by August, 2008.

It’s clear that won’t happen.

The Portland Wi-Fi network is generally thought to be somewhere between 15-25% built-out — the lower figure representing area, the higher by population. Earthlink’s $20 million Philadelphia network was about 75% completed when they made the announcement this week that the system would be shut down in June (see DW: Earthlink to Philly: We’re Outta Here).

MetroFi chief executive Chuck Haas offered to sell the network to the city for $894,000, in a letter to Portland officials dated May 13. If a deal with the city or a private company can’t be reached by next month, the company will shut down Portland’s network, says Haas.

Here’s that letter:

May 13, 2008
Mr. Logan Kleier
City of Portland
1120 SW Fifth Ave, Suite 450
Portland, Oregon 97204

I am writing today to request a call or meeting with you to discuss the City
of Portland network. MetroFi’s goal was to have the City of Portland network
producing enough revenue to cover expenses and even with the roll out of
Microsoft SideGuide, the best advertising platform we have for Wi-Fi revenue
generation, we are still not covering our costs for network operation and
maintenance. As I discussed on the phone, MetroFi has three options to
consider. The first is for the City to purchase the network from MetroFi;
the second is to sell the network to a 3rd party; the third is to shut the
network down.

The City of Portland network is comprised of 598 access points and is used
by approximately 16,000 residents and visitors per month. April had 306,000
hours of use. Our operating expenses include pole attachment fees and power,
the BAP locations, backhaul transport via microwave the Pittock Building and
Internet transit. These expenses are approximately $15,000 per month.

To purchase the network, we would propose a price of $1,500 per AP or
$894,000. MetroFi would train the City on the network operation and transfer
assets, spare equipment and knowledge to the City. MetroFi is also
discussing network purchase with other prospective buyers, but there is no
assurance that we can complete a sale.

The third option is to remove the equipment, beginning in June 2008.

I understand this is a lot to digest, which is why I have requested a
meeting or call to allow us to discuss these options in more detail. We are
looking to understand the city’s position as soon as possible as our intent
is to begin network shut-down and equipment removal the by the end of June
if we do not have a buyer.

Please let me know a convenient time to meet and discuss these options with
you at your first opportunity.

Chuck Haas
President & CEO

Logan Kleier, who oversees the network for the city, told DailyWireless today:

Obviously this news is disappointing but not unexpected. We have not had any buyback discussions with MetroFi. As MetroFi indicated in their letter to us, they seek to either sell the network in the short term or shut it down beginning in June.

In an email to Dailywireless editor Sam Churchill, on May 18, CEO Chuck Haas said:

“We have a great team of dedicated employees and it’s our desire that the network be purchased, not shut down.”

Brendan Finn, Chief of Staff, for Commissioner Dan Saltzman who oversees Unwire Portland had this to say:

1. Obviously, we are disappointed to see things reach this point. That being
said, private sector business ventures involving new technology are often a
risky proposition. This was the reason the city decided not to make a public
2. No discussions about buyback options have taken place
3. I would expect there to be a good deal more of public discussion on the
issue, we want to generate new ideas. Not aware of any private meetings that
are taking place.

Construction came to a screeching halt about 6 months ago in Portland. Metrofi wanted the city to provide cash in the form of an “anchor tenant” contract, before it proceeded (see DW MetroFi Vs Portland). The city refused. Under its contract with the City, MetroFi is required to complete its citywide buildout by August 2008. Portland was MetroFi’s only major city where an “anchor tenant” contract was not required. An “anchor tenant” provision has since become a requirement for Metrofi contracts.

No city money has been invested in Portland’s wireless network, although the city spent some $250,000 planning for the network and paying Logan Kleier, the city staffer responsible for overseeing Unwire Portland.

In Portland, as in other cities, Metrofi offered a $19.95/mo tier (without ads). But MetroFi’s free, ad-supported, WiFi tier set the company apart and was undoubtedly the most popular option.

The latest numbers released by Metrofi stated some 20,000 people a month were using the system. CEO Haas claims that 150,000 out of 540,000 people had access to the service.

According to the Portland Mercury, City Commissioner Dan Saltzman, whose responsibilities include oversight of the network, has said that MetroFi’s conduct has been “regrettable,” though he will allow the project “a quiet path to termination”—meaning there will be no action until August 2008, when the two sides will likely part ways.

The “free” service uses Microsoft’s Side Guide, which automatically places ads on the sides of your internet browser. Metrofi also offered businesses broadband connectivity using their own backhaul system which included Dragonwave gear.

Philadelphia’s Earthlink system charged $19.95/month for access but offered a discounted $9.95/month service to qualified low-income residents, run by Wireless Philadelphia, a non-profit group funded by subscription revenue and various charities.

EarthLink complained this week that it was losing up to $200,000 a month in Philadelphia for a system that was expected to draw more than 100,000 customers but had only 5,942 subscribers. EarthLink said 908 were digital-inclusion customers who pay about half the regular monthly $19.95 rate.

Halfway through 2007, EarthLink’s Municipal wireless business, which had been leading the charge with big contract wins to build and run networks in San Francisco, Houston, and Philadelphia, started unraveling. In September, 2007, Earthlink pulled out of proposed networks in San Francisco and Houston. And in early February 2008, EarthLink put its citywide Wi-Fi business up for sale (see DW Earthlink to Philly: We’re Outta Here).

Both MetroFi and EarthLink underestimated costs and overestimated revenue.

Chuck Haas and MetroFi have received a lot of wrath, some deserved, by competitors and users. But only MetroFi was willing to take the courageous leap of faith to offer “free” service.

Besides the free WiFi now available in many coffee shops, hotels and restaurants, Municipal WiFi operators are also facing new competition; especially from the Mobile WiMAX venture from Sprint, Clearwire, Cable and Google, which also provides voice.

PersonalTelco has more background on MetroFi’s Portland WiFi troubles.

DailyWireless has more than 650 related Municipal Wireless stories including; Earthlink to Philly: We’re Outta Here, MuniFi Roundup, Muni-Fi’s Got Trouble, Who the MuniFi MAN?, Municipal WiFi: What Would You Do?, Wireless Silicon Valley: Would You Believe a Dozen Hotspots in San Carlos?, Free Grass Roots Wi-Fi: It Works in Portland, Starbucks Adds AT&T Wi-Fi, Earthlink Gets Out, MetroFi Vs Portland, Meraki Proposes Free SF Wi-Fi Network, OpenAirBoston Regroups; Becomes Open, Sacramento WiFi on Slow Track, Sacramento Approves WiFi, SoCal Wireless: Toast?, MuniFi: What Now?, MuniFi: Not Dead Yet, Earthlink Restructures, MuniFi Holds Breath, San Francisco WiFi Dead?, Earthlink Tweeks WiFi Business, New York’s 750 sq mile Cloud, San Francisco WiFi Dead?, Wireless Houston: Size Queen?, State-wide Wireless Broadband Access, Ten Cities Under Colorado Cloud, FiberNet for Calif Schools, Washington’s 1500mi Cloud, Sprint WiMAXing NYC, Connecting the Nation, WiFi Vs WiMAX in Windy City, New York’s 750 sq mile Cloud, Will “N” Rescue MuniFi?, Aeris + PacifiCorp: CDMA Meter Reading, M2Z: Free Internet Now!, Sprint’s WiMAX Cities, San Francisco: Now it’s the Antennas!, WiFi War in San Francisco, Houston + Earthlink to Build Huge MuniFi Network, El Paso Unwired + Most of California, Green Light for Philly WiFi Expansion, City Clouds Turn On, Minneapolis Goes Local, Digital City Winners, Anaheim Turns On, New Orleans Gets Earthlink Cloud, Portland Chooses MetroFi for 134 Mile Cloud, Milwaukee’s $20M Cloud, Dvorak: Muni WiFi Will Die, The World Largest WiFi Cloud, Rain on SF Cloud, Google WiFi SitRep, San Mateo: 1st Silicon Valley Cloud, Sacramento Approves WiFi, Cloud for Silicon Valley, Wireless Silicon Valley Proposals, Park City: Solar WiFi, Solar Powered Solstice, GoogleFi: Ads or Not?, Google WiFi Interview, Portland Chooses MetroFi for 134 Mile Cloud, SF WiFi: Bad Deal for Poor?, SF Cloud: It’s Google/Earthlink, Minneapolis Bridge Collapse & Emergency Communications and Philly Chooses Earthlink.

Posted by Sam Churchill on Friday, May 16th, 2008 at 7:55 am .

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