What you need to know about the New York City Wi-Fi payphone project

UPDATE (5 December 2014): NYC Wi-Fi payphone project: conflicts of interest

The primary goal of the New York City project to turn the old public payphones into “Public Communications Structures” (a fancy name for [mostly] digital advertising stations that happen to have Wi-Fi access points) is to bring money to the city. The city will not be spending any money at all for the project.

It is not a bridge-the-digital-divide project designed to provide cheap broadband to low-income people. Neither is it a municipal Wi-Fi project designed to bring Wi-Fi to every corner of the city.

The Wi-Fi access portion of this project is a nice touch, a side show at best. It gives the city (and the winning bidder) an opportunity to issue press releases that make them look as if they are on the forefront of Progress plus the mayor gets to prance around looking like a “man of the people”.

Plainly and simply, the city needs a lot of money (to fix the crumbling subway system, fill in the moon-crater potholes, clean the filthy streets, etc.) and this project is designed to bring in money.

One must divide these Public Communications Structures into two types:

(a) “Advertising Stations” (these have display ads and Wi-Fi APs with 1Gbps); and

(b) Non-advertising Stations (Wi-Fi only, 100 Mbps, but no ads).

The centrepoint of this project (and the only reason why anyone would be willing to spend $200 million or more) is the ADVERTISING REVENUE generated by the Advertising Stations. Ads will be shown to people passing by, the franchise owner will get paid and the city will get a cut, a generous one, actually, as there is a minimum guaranteed payment every year – $20 million in the first year, rising to over $70 million in the 15th year. What happens when the economy of NYC enters into a downturn? You know given the history of one of the members of the winning consortium, see details below.

Here’s what you need to know about the project — who won the public tender and what’s in the proposed contract (which you can download from the NYC DoITT website).

(1) The winner of the public tender is a consortium called CityBridge whose members are Qualcomm (chip manufacturer), Titan (outdoor advertising firm which has outdoor ads on pay phone booths and bus shelters in NYC), Control Group (design company) and Comark (manufacturer of ruggedized computers and displays).

It’s interesting to note that a person named Robert Richardson who is a Senior Advisor, Citywide Technology Strategy and Engagement to the NYC Technology Development Corporation (August 2014 to present) was Senior Director, Strategy to Control Group (one of the members of the CityBridge consortium) from Sept 2012 to August 2014, and before that he was Director Strategic Technology Development of NYC DoITT from August 2011 to September 2012 (taken from the Linked In Profile).

robert richardson

 

(2) Titan ran into trouble with New York’s Metropolitan Transit Authority in 2010.

Here’s a quote from an article on Crain’s regarding the Metropolitan Transit Authority’s revocation of the advertising contract with Titan:

The Metropolitan Transportation Authority has revoked its contract with troubled advertising firm Titan Outdoor Holdings and awarded the right to run ads on the region’s buses and commuter trains to CBS Outdoor. The decision was a blow to Titan, which was founded in 2001 and quickly became a top player in transit advertising with contracts around the country and in Canada. The New York-based company’s contract with the MTA started in January 2007. “We’re very disappointed,” said Bill Apfelbaum, Titan’s chairman, in a conference call with reporters Wednesday afternoon. “We didn’t expect this result.” Mr. Apfelbaum said the company had been negotiating with the MTA since last February, once the recession made it impossible to fulfill the guaranteed minimum payments called for in the contract. Titan wanted to continue to pay the MTA 72% of its billings, but would lower the payments to about $4 million a month from $5.4 million . . . Titan’s rapid growth had been fueled by aggressive bargains it struck with transit authorities, and the company has had trouble continuing to meet its minimum payments in other areas.

It is surprising that the CityBridge consortium (with Titan as a member) won this public tender and not another consortium that includes CBS Outdoor. But one must assume that the CityBridge proposal had enough delicious morsels in it for the city to ignore the unfortunate events of 2010 involving its own transit authority and Titan.

(3) Given the “aggressive bargains” mentioned in the Crain’s article I quoted above, one should examine very carefully whether the Franchise Fee payment schedule in the proposed contract between New York and CityBridge is reasonable. See the graphic below taken from Section 6.3.1 (page 35) of the Franchise Agreement (the proposed main contract).

Here is the relevant section in the Franchise Agreement which addresses the Franchise Fee.

6.3.1 The Franchisee shall pay to the City a Franchise Fee, with respect to each Contract Year, in an amount equal to the greater of (i) fifty percent (50%) of Gross Revenues for that Contract Year or (ii) the Minimum Annual Guarantee payment, as detailed in the table below. In Contract Year Eight, the Percentage of Gross Revenue payable to the City shall increase to fifty-five (55%) percent for Gross Revenues derived by Franchisee from the display of Advertising on the PCS, but shall remain at fifty (50%) percent for all other Gross Revenues. In the event that the Agreement expires or is terminated by reason other than a Termination Default, before the completion of a Contract Year, the Franchisee shall pay to the City a pro- rated amount of the Minimum Annual Guarantee (based on the number of days in the Contract Year prior to such expiration or termination divided by 365). If within any Contract Year Franchisee makes payment to DoITT to satisfy any permitting fee relating to the installation of a Structure, such payment will be credited as payment towards the Minimum Annual Guarantee.

NYC payphone project Wi-Fi

NOTE: The column that reads “Percentage of Gross Revenue – Non Advertising” refers to the revenue that CityBridge makes from the Public Communications Structures that have Wi-Fi access points but do not display advertising.

How much money will CityBridge make from a NON-Advertising structure? We know all too well how much money (or how little money) anyone ever made from those free muni Wi-Fi projects, even the ones with advertising baked in. My guess is the non-advertising revenue will be quite negligible compared to the Advertising Revenue, especially since the Non-Advertising Stations are primarily in areas not as rich as Manhattan. That brings us to the part of the contract that’s giving the bridge-the-digital-divide / cheap-broadband-for-all activists nightmares.

(4) 1 Gig for the rich, 100 Mbps for the proles (but at least the proletariat will be spared from digital ads).

Here’s where it gets complicated. If you have downloaded the Proposed Contract package, you need to look at the document called “Proposed PCS Franchise Attachment – SRV Services”. This attachment sets forth the number of Public Communications Structures that CityBridge will deploy, broken down into Advertising and Non-Advertising Structures. Section 1.2.1 of the attachment states:

1.2.1 (i) The Franchisee shall construct and install no less than 6,000 Advertising Structures and no less than 1,500 Non-Advertising Structures, over an eight (8) year period, in accordance with the distribution table below. The schedule set forth in Section 1.2.3, sets forth the minimum cumulative number of Structures required to be operational per year, per borough beginning on the Effective Date (which schedule reflects, among other things, completion of not less than 4,000 Advertising Structures and 150 Non-Advertising Structures within four years of the Effective Date).

NYC Wi-Fi payphone projectBut here’s the list of Advertising versus Non-Advertising Structures that have to be built by Year 8 (according to Section 1.2.3 of the attachment:

nyc payphone wi-fi projectAccording to Section 4.2.1 of the attachment, the Wi-Fi APs on Advertising Structures must be capable of supporting 256 devices with a total aggregate throughput of 1Gbps, but Wi-Fi APs on non-Advertising Structures are required to deliver only 100 Mbps total aggregate throughput:

4.2.1 All PCS’s, other than Existing PPTs, must provide free Wi-Fi Services in accordance with the requirements of this Agreement, including Part IV. Franchisee shall provide the Wi-Fi Services twenty-four hours per day, seven days per week, 365 days per year throughout the term of this Agreement, with an uptime of at least ninety-seven percent (97%) exclusive of upgrades and planned maintenance providing at each PCS a Wireless Access Point (WAP) supporting simultaneous dual spectrum 2.4 GHz 802.11 b/g/n, and 5GHz a/n/ac services. Each WAP on an Advertising Structure will be capable of supporting up to 256 devices with a total aggregate throughput of 1Gbps. Each WAP on a Non-Advertising Structure will be capable of supporting up to 256 devices with a total aggregate throughput of 100 Mbps.

This means all of the 3900 structures in Manhattan get 1Gbps but in the Bronx, roughly half of the structures will have only 100 Mbps. Why the difference?

– There are many more people in Manhattan (tourists, residents, working people) walking around, presumable trying to get Wi-Fi access, so these structures should have more backhaul. In addition, because the structures are Advertising Stations, they need more backhaul to show video ads.

– The most obvious reason (given that this project is all about raising money for the city): Advertisers are targeting Manhattan because that’s where tourists go and where people with money live and hang out. Therefore, advertisers are willing to pay much more for ads displayed in Manhattan.

(5) The deal is structured as a franchise agreement. That means one entity is responsible for replacing the old pay phones with new structures, and it is responsible for maintaining them, delivering ads and providing Wi-Fi. Because it’s a franchise agreement, it suffers from all of the disadvantages of a franchise agreement, namely, it is a monopoly (like cable franchise agreements which everyone, except the cable company, hates). However, it has one of the advantages of a franchise agreement — the city gets to scream at one entity when things are going badly (although this hasn’t worked out very well with cable franchises, has it?).

(6) Let’s be realistic about citywide Wi-Fi. Will the Wi-Fi signal from these Advertising Stations and non-Advertising Stations really penetrate into apartments to enable people to enjoy free Wi-Fi access?

You know the answer to that: for people living on the ground floor and maybe the first 2 floors, perhaps they will get a good Wi-Fi signal (depending on many things, such as the kind of glass on their windows, the structure of the walls, etc.). But for the vast majority of people desiring good free Wi-Fi access, they need to stand outside near the structures to get a decent Wi-Fi signal!

Who is going to stand outside in New York in the winter (from November to end of April, especially when the famous POLAR VORTEX is driving New Yorkers to spend more time in Florida)? Who is going to stand outside in July and August when the place turns into a muggy soup of intense humidity, coupled with the awful New York smells of rotting garbage and trash, which hopefully will diminish if the city gets more money from the CityBridge consortium, to do more street cleaning and trash pickup?

You are left with 4 months of decent weather (barring the rain) during which you would be willing stand outside for free Wi-Fi. This is absurd. Most people, by now, have a smartphone with a data plan (especially in Manhattan). This data plan allows them to do most of the things they can do with Wi-Fi, which is email, web browsing, messaging, and a bit of video here and there. Why would you punish yourself and stand outside during a polar vortex or muggy soup of humidity (with accompanying repulsive street smells) just to get Wi-Fi?

CONCLUSION

After having spent much time in New York City (which I actually enjoy despite the Third World quality of the subways, the potholes that remind me of Manila in the old days, and the decrepit La Guardia airport that has become even worse than Mumbai airport), and in other cities where I had to check email, use Waze, look up Google Maps, check websites, etc. with my Nexus 5 phone (plus cheap voice/data prepaid plan) I just don’t think citywide Wi-Fi is that important anymore given the fairly fast LTE cellular speeds I have enjoyed in many parts of the world, including in the US (where there’s LTE, at least in some places — which oddly enough in the Silicon Valley area, there are too many places still suffering from EDGE or no cellular signal at all!). Note: I am including in this “cheap” cellular prepaid plan the Vodafone Italia 15 EUR prepaid SIM card I bought in Italy last September which was more than enough for all my mobile data needs.

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My main complaint about this project and the way it is structured isn’t about 1Gig for the rich, 100 Mbps for the proles.

It’s about the franchise model itself. This is a monopoly, pure and simple. Why not have a standard model for the kind of advertising structure + Wi-Fi and have different companies run them in different locations? This is the “open structure model” that I prefer, and the city can have five or six companies running it. A consortium to build the structures itself and maintain it (from fees paid by the service providers). This is a kind of structural separation. The franchise model is the old way of doing things.

I’m disappointed that NYC has not come up with something a bit more MODERN – i.e. STRUCTURAL SEPARATION.

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Finally, to address the issue of the digital divide: You need to do away with these monopolies and duopolies. You need real structural separation. Period.

The NYC Wi-Fi Payphone project is money-making project for the city. End of Story.

Comments

  1. Great article and typical New York political bid contract favoritism. Your research was very well laid out. I’m trying to figure out who is paying the $200M that you think it’s going to cost and who is paying the monthly bill to provide fiber connections to all these locations and management, tech support, data center costs, etc… This project is 2-3 times the amount that MetroFi did and they failed spectacularly, even with all the big players behind them. With the financial commitments that Titan is making, the numbers simply won’t make sense. My guess is they don’t make it 2 years, if that, unless Qualcomm or someone buys them out for a $1 like Google did in Utah. By then, somebody will have lost tens of millions of dollars.