December 13, 2005

AFN’s problems extend beyond debt

Officials missed lucrative catch

By Vickie Aldous
Ashland Daily Tidings

USWeb CEO Ed Shull says the city's mishandling of his case made him decide not to relocate his California-based business here. Orville Hector | Ashland Daily Tidings

Ed Shull is exactly the type of businessman the Ashland Fiber Network was built to attract.

He is chief executive officer of California-based USWeb, an Internet marketing firm with clients like Dow Jones and Lending Tree. Shull is also the father of a middle school-age son, making him extra valuable to the community in an era of declining enrollment for the city’s schools.

“At first I thought, ‘Wow. Their plan worked. It got me here.’ It’s a beautiful town with AFN, skiing, the Oregon Shakespeare Festival, an independent film festival and great schools,” he recalled.

But when Shull moved to Ashland and then tried to bring along his company, he said he ran into a series of problems getting AFN’s business-level high-speed Internet service, known as a data line.

He eventually decided to pull the plug on his idea to bring USWeb here. He still lives in Ashland, as does his son, but USWeb remains in California.

The case sheds light on how the city-owned AFN, at times, does not operate like a competitive business hungry to attract major customers.

Potential data-line customers should be prime targets for AFN because the service, with its huge bandwidths and lightning speeds, brings in significantly more revenue per account than AFN’s regular high-speed service.

A data line costs at least $400 per month with a $1,000 installation fee and can cost significantly more if a data line customer needs extra bandwidth, according to the city’s Web site.

“The whole thing was just an amazing experience. It became clear to me why this thing is in trouble,” Shull said. “We were ready to spend $85,000 a year.”

AFN is in debt by $15.5 million largely because construction costs were higher than anticipated, Charter Communications has engaged in fierce price competition with AFN and the city did not attract enough data line customers, according to AFN Options Committee members.

Bruce Wand, director of information technology and services for the Oregon Shakespeare Festival, had the opposite experience as Shull.

OSF was one of the first adopters of the AFN data line, and Wand said the installation process and subsequent service has been excellent.

“We couldn’t ask for more. They were a great deal of help to us. We were able to implement things that would have been a lot slower coming,” he said. “We’ve been very happy.”

Off on the wrong foot

Shull said the city mishandled his case from his first contact in August.

Potential customers who call the city about AFN reach the utility billing department, which mainly handles bills for AFN, sewage and water.

Shull said when he told the city representative that he was interested in getting the data-line service, the person tried to talk him out of getting it, saying the city’s regular high-speed service is fast enough and the data line is too expensive.

“They were kind of arguing with me, trying to get me to take the cheaper line,” he said, noting that because of the large bandwidth USWeb uses, he knew he would have needed the data line.

That experience contrasts sharply with how many customers are treated when they try to sign up for service from Charter Communications. Charter representatives frequently try to “upsell,” a business term for trying to convince a customer to buy a higher priced good or service than the customer had originally intended to buy.

Ashland Finance Director Lee Tuneberg said city employees try to sell customers what they need.

“You call Charter and they give you the hard sell. Our people were trying to give the right size line that they thought the customer needed. The ethics of my people at the front counter are excellent,” he said.

The situation points to an inherent problem in having a city provide a service in competition with businesses. Some businesses may feel upselling is an acceptable — and even necessary — practice, no more objectionable than a McDonald’s worker asking a customer who ordered a cheeseburger, “Do you want a drink with that?”

City government may feel more constrained about using the tactic and therefore would be at a competitive disadvantage.

Tuneberg said the city representative also may have tried to sell Shull the standard Internet service because the house Shull rented cannot be reached for data service without the installation of a lengthy and expensive fiber optic cable directly to the home high in Ashland’s hills.

Wrong location

During Shull’s first call to the city about AFN, he said he was transferred to AFN Network Operations Superintendent Richard Holbo’s voicemail after he insisted he wanted the data line.

Their stories then differ, with Shull saying Holbo told him the house he was considering renting was within AFN’s data line service area. Shull then rented the house.

Holbo said he told Shull the city would have to do a service availability check. He said he then called back about a week later and left a message that there was no cost-effective way to reach the house.

Holbo said the city would have to run a long fiber optic cable to the house at a cost of at least $15,000.

“My initial up-front costs are well above any funds I have available at this point,” said Holbo, noting that if the home were closer to the city’s existing fiber line, it could be connected for a much lower amount.

“We’d be happy to hook him up at a different location,” he added.

The city has a fiber optic line that runs through town. Standard high-speed Internet customers, such as home users, are connected to the fiber optic line through a normal cable. Data line customers are connected to the city’s core fiber optic line with their own fiber optic line.

Shull said after his first call with Holbo, he left numerous messages with Holbo but never heard back from him. After four weeks, he called AFN back and was referred to Tuneberg.

Holbo disputes Shull’s claim that he never returned Shull’s messages, but he said he understands some of Shull’s frustration.

“If we want to serve top-notch customers, we ought to have a team. My view is he felt like he didn’t get the treatment he felt he deserved for the amount of money he was going to spend,” Holbo said. “We don’t have the resources to do that.”

Tuneberg said he tried to talk to Shull about his concerns.

“He didn’t give me much chance to negotiate with him. I said, ‘Can we sit down and talk about how to make this happen?’ He said, ‘No. I’m going to wait to see what happens to AFN.’ He didn’t give me a chance to resolve it,” Tuneberg said.

Shull said he could reconsider the matter if AFN’s future is solidified. The Ashland City Council is pondering AFN’s fate after receiving a recommendation from the AFN Options Committee to work on selling and spinning off the service.

Valuable customer lost

Alan Oppenheimer, president of Open Door Networks in Ashland, said Shull’s case represents a lost opportunity.

“USWeb would have been a great business to get up here,” he said, noting that the company could have brought a major data center to town.

Oppenheimer uses a data line to retail AFN’s Internet services to Ashland customers as well as running his software and Web hosting operations.

Although Oppenheimer has a financial stake in AFN’s continued existence and doesn’t want to see it sold, he said the operation — while technologically excellent — has suffered from a lack of management and marketing.

For several years, Dick Wanderscheid headed both AFN and the city’s electric department until earlier this year, when the city council decided to search for a full-time AFN leader. That search has stalled because of uncertainty about AFN’s future. Tuneberg has become AFN’s de facto head in the meantime.

AFN lost high-tech businesses that used data lines when the Internet bubble burst, but the city also needs to be more aggressive about marketing the service, Oppenheimer said.

“We need to get the rest of the world to know it exists. People don’t relocate here because they don’t know it exists,” he said.

Wand, OSF’s information technology and services director, said people are aware of AFN’s standard high-speed Internet service, but the city has not done enough to market the data line service to businesses and nonprofits.

“We just knew about it. It’s not that I ran into any particular advertising,” he said. One of OSF’s staff members was on an initial AFN advisory board and some staff members also toured the facility, giving them early knowledge about AFN services.

In light of uncertainty over AFN’s future, Wand has researched available options if AFN’s data line is no longer available, but has yet to find a comparable service that would meet OSF’s needs. The nonprofit’s reliance on the Internet is increasing as more and more members access OSF’s Web site to get information and order tickets, he said.

“I hope whatever solution is put forward takes into consideration the businesses that have come to depend on this particular service,” Wand said.

Oppenheimer said the city could add more data line customers with pricing changes. Many businesses use AFN’s standard high-speed service because it is usually adequate, but also because the minimum $400 monthly cost for a data line is prohibitive, he said.

“No one is going to go with $400 unless they are a high-end business or a software developer or Web hoster like we are,” Oppenheimer said.

He said the $400 cost for the minimum level of data line service is still better than charged elsewhere, but the city should offer a lower price to entice businesses to step up from standard high-speed service to the data line.

Shull has offered a number of suggestions for AFN, including bringing in a new sales staff on a high commission basis, hiring a strong leader and partnering with businesses that want to offer unlimited local and long distance phone service over the Internet.

He said, with changes, he believes AFN can work and generate increased revenues to pay off its $15.5 million debt.

“What a hardship for a town to bear financially for no reason,” Shull said.

Staff writer Vickie Aldous can be reached at 479-8199 or vlaldous@yahoo.com.