Anaheim Fiber Partnership Dissolves

11/01/2008 8:00 PM Eastern

What began four years ago as an unprecedented marriage of public infrastructure and a private telecommunications provider in Anaheim, Calif., ended quietly earlier this month in annulment.

FirstWorld Anaheim, the resulting telephony and digital subscriber line provider, has dropped that business. Its biggest customer, the city itself, will have to sign up with a new telephony provider when FirstWorld stops service in May. The provider had signed about 1,100 business connections.

The city, home to Disneyland, made the deal in 1997 to lease its utility's $6-million fiber optic ring as the backbone for the launch of the service. The vendor was expected to eventually deliver cable services to the community that would compete with the city's current provider, Adelphia Communications Corp.

The partnership began with high hopes. Eighteen companies responded to the request for proposals for a lease of the city's fiber ring. FirstWorld's initial parent company, SpectraNet International, won the bid, besting even Pacific Bell. SpectraNet leased 60 of the city's fiber strands and planned to expand the fiber deployment by another 50 miles. Executives expressed hope that neighboring cities including Santa Ana and Orange would also join the network.

To earn the contract, the deal called for SpectraNet to pay the city $1 million a year, or 5 percent of gross revenue, whichever was higher. City buildings dropped Pacific Bell as the telephony provider and connected to the competitive carrier.

The venture pledged to bring high-speed data services to the entire city by 2002. Eventually, the company would launch "hundreds" of channels of video to residential customers, but that was to be the final phase.

The company began the build, but the project was fraught with difficulty. The parent company was bought by Verado Holdings of Greenwood Village, Colo., which ousted SpectraNet's executive officer. Then in May 1999, the city filed a breach of contract suit, alleging the vendor was $45 million in arrears in payments due the city. That same month, the telecommunications company stopped work on the first development phase, which was supposed to deploy 26 miles of fiber in east Anaheim.

City officials said they are not dismayed by the outcome of the project, which was to last for 30 years. The city ends the deal in possession of 22 more miles of fiber than it began with, noted Melanie Nieman, communications officer for the Anaheim Public Utilities Department.

Regarding the lawsuit, Nieman said the company is now "paid to date."

Kelly Johnson, director of corporate communications for Verado Holdings Inc., said the end of the telecommunications business in Anaheim was a strategic business decision. The company is shifting its business focus to switching data traffic.

Given that shift, "It doesn't make sense to continue" in Anaheim, she said.

To that end, the company has retained its switching site in nearby Irvine.

As for the city, utility executives are evaluating their options in an effort to develop the best business decision going forward, including the possibility of another provider partnership, Neiman said.

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