City's goal: Sign up 30% of homes, 40% of businesses in '06
North Kansas City will roll out high-speed Internet service to its residents and businesses next month after beating a legal challenge by Time Warner Cable.
It has ambitious goals: City officials want to sign up 30 percent of the city's residences and 40 percent of its businesses by year's end.
"We're going to knock on every door," said Paul Rader, who was tapped in October to lead liNKC City, the name for the city's broadband utility.
How Rader's team does will answer a question with national implications: Do cities, which often operate water and electric utilities, belong in the Internet service business?
Larger cities such as Philadelphia, San Francisco and Chicago have announced plans to build citywide wireless Internet networks, which could pose an emerging competitive threat to telecom carriers.
North Kansas City's liNKC City is far bolder in that it presents a direct attack on cable modem service and DSL service that is already marketed heavily by the cable and phone companies.
Time Warner Cable tried to block the city's plans last year by filing a lawsuit. In its suit, the company cited a state law that requires cities to get voter approval before offering a video service.
In December, the 8th U.S. Circuit Court of Appeals upheld a lower court's ruling that there was no ground for a challenge unless the city gets in the cable television business, which it has no plans to do.
The city is marketing a service with Internet speeds on par with cable modem and DSL service for $34.95 a month. The $10 million network will reach all 2,500 residential units and 900 businesses in the city by the fall.
North Kansas City was in an unusual position to undertake the costly job of building a network. The city, which collects $10 million a year from riverboat gambling taxes, paid for the network without incurring any debt.
Rader said the city expects a 10-year payback. But with no debt payments, he said he realizes the city has flexibility its competitors might not.
"Really, I just have to break even," he said.
The North Kansas City Business Council, a collection of local employers, supported the city's Internet plans. Members said AT&T Inc. (previously SBC Communications Inc.) and Time Warner Cable were slow to bring broadband to the city of 4,500.
The city's plan has gained national attention. Business 2.0 magazine writer Om Malik wrote about liNKC City last month on his blog, a must-read among telecom industry insiders.
Jeff Samborski, North Kansas City's director of economic development, said media coverage has national firms inquiring about real estate in the city.
But North Kansas City's plans have roiled private-sector Internet providers, which are turning their attention to protecting their base and sinking liNKC City.
"We'll be as competitive as we can be," said Mike Chambers, regional director of external affairs for AT&T. "North Kansas City is important. It won't be ignored by any means."
One advantage for the incumbents: their ability to bundle Internet service with phone and cable.
A liNKC City customer who calls Time Warner or AT&T about phone and cable could be offered Internet service for a throw-in, discounted price.
"That would be a marketing niche we can use," Chambers said.
Phil Spencer, president of Lenexa-based Everest Connections Corp., said liNKC City needs to play up its advantages, such as faster Internet speeds, to compete. Time Warner Cable competitor Everest has 34,000 subscribers in Johnson County and south Kansas City.
"It's going to be tough," Spencer said.
Rader said he is taking cues from Everest, which has a 43.5 percent penetration rate for the homes it passes.
In the early planning, Time Warner Cable scoffed at North Kansas City's contention that it could get 20 percent of its residents and businesses to sign up in the first year.
"If that's the case, then Everest has a bad business plan," Rader said, "because Everest is kicking their butt."
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