Archive for Tuesday, January 29, 2008

Revenue from nonprofit goes to for-profit company

January 29, 2008


Internet company seeks city backing

A non-profit Internet service provider is seeking city backing for a loan of nearly $5 million. Enlarge video

Editor's note: The Lawrence Journal-World is owned by The World Company, which also owns Sunflower Broadband. Sunflower Broadband and Lawrence Freenet are competitors in the Lawrence Internet service provider market.

A $4.9 million request by Lawrence Freenet is raising new questions about the company's not-for-profit roots.

The company has promoted itself as a not-for-profit company with a goal of providing free Internet access to everyone in Lawrence.

But company leaders recently conceded that the majority of all the revenue that the not-for-profit receives goes directly to a for-profit company that is partially owned and led by Freenet's founder, Joshua Montgomery.

As Freenet asks for public assistance in a nearly $5 million expansion, some city commissioners have questions about Freenet's relationship to the for-profit company.

"I'm a little concerned about where the nonprofit stops and where the for-profit starts," Mayor Sue Hack said. "It begins to create some cloudiness."

Freenet has been in a contractual relationship with Community Wireless Communications since January 2006. That's when Montgomery started the company with $40,000 in credit card debt and began seeking other outside investors.

Today, Community Wireless Communications owns all the technical equipment, service trucks and employs all of the people who maintain Freenet's wireless Internet network in Lawrence. Freenet's only assets essentially are the right-of-way agreements that allow the network's Internet equipment to be placed on city water towers, traffic signals and city buildings.

Montgomery, who serves as CEO of Community Wireless and as Freenet's spokesman, said that for every $19.98 per month it bills its paying customers, the for-profit Community Wireless company receives $17.

Montgomery said that's appropriate because Community Wireless has spent $2.4 million in private money to purchase the equipment that allows the wireless network to exist.

Some city commissioners said they want to learn more about the relationship between the founders of Freenet and the founders of the for-profit company. Montgomery said he owns about 10 percent of the company but declined to name any other individuals who have an ownership interest in the business.

The for-profit company did not exist when city commissioners originally expressed support for the Freenet concept. In August 2005, city commissioners directed staff to work out below-market rate deals with Freenet to allow them to place equipment on city right of way.

Freenet sent city commissioners a letter in 2006 stating that they were going to do business with the new for-profit company, but the letter did not detail that Community Wireless was owned in part by Montgomery, who was the key individual seeking city subsidies for Freenet.

"I haven't been privy to how those two sides interact," City Commissioner Rob Chestnut said. "But if we have any interest in moving forward at all, we have to get those questions answered."

Montgomery said there hasn't been any wrongdoing. He said he attempted to find a contractor that he didn't have any involvement with to provide the needed services to Freenet but couldn't. He said when he started approaching investors to form a new company, they insisted that he have a personal stake in the company.

"For me it is a completely ideological thing," Montgomery said. "It is completely about making sure that everyone in the community has access to the Internet. It is not about the money."


Joshua Montgomery 10 years, 2 months ago

Please See the Lawrence Freenet Project's Official Response

Keith 10 years, 2 months ago

Good to see Sue Hack, our most ethical mayor ever, leading the charge.

Ralph Reed 10 years, 2 months ago

hmmmmm, let's see. Co-signing a loan which will save a company some money compared with giving a multi-million dollar grant (tax abatement) to a company so it can set up business. I would vote for co-signing the loan.

Solomon (Anonymous) writes: "I checked out "Free"net. What I found is that it costs $20 per month to get their "free" service. The $20 that's paid to a non-profit corporation is (mostly) passed through to a for-profit company that is partially owned by the guy who is in charge of the non-profit. Very fishy."

My understanding is that the $20 cost is if you either; don't qualify for the free, family-friendly, filtered connection; or want access beyond the filtered connection. That's still a small cost for the service. I'm not sure, but I think the least expensive service from cable or DSL services is more than $20. In essence, Freenet provides affordable internet access to people who could not otherwise afford the access. What is wrong with that?

A little competition is good for the marketplace, so why shouldn't the World Co welcome the competition. In case you can't get to the Freenet response to the article, here's a comparison of the low-income services offered by both entities: Freenet Computer Free Monthy Service Free Connection Fee Free Modem Free Total (1Gb/Mo) Free Total (10Gb/Mo) Free

Computer Provide your own Monthy Service First 1Gb Free, $2/Gb over 1Gb Connection Fee $10/Mo Modem $5/Mo Total (1Gb/Mo) $15/Mo Total (10Gb/Mo) $33/Mo

Further, it strikes me that questioning this co-signing is an attempt to keep a section of our population from easily accessing the internet rather supporting that access.

I travel some in my job and I been to cities on both coasts that have "free" wireless access in a large part of the city. I'm sure it's paid for by taxes though. In any event, we have the capability to establish the same thing in Lawrence, especially with the cutting edge technology available at KU. I find it somewhat absurd that Lawrence cannot have city-wide wireless access - another indicator we're falling behind.

I agree with Kathy. There ain't no such thing as a free lunch. Somewhere, somehow, sombody has got to pay for it.

I'm me. Who are you behind your hood of anonymity?

newsreader 10 years, 2 months ago

I've always wanted to buy a business... Maybe the City should co-sign my loan for that too... I'll call it... "FREEGas" and it will be a gas station, but it of course will not be free.

Raider 10 years, 2 months ago

Stain (Anonymous) says:

Is Freenet taking business away from The World Company?

Ding ding ding!!!! We have a winner!

I'd be willing to be $100 that they are somehow behind this. They want to keep their little "monopoly" that has been created.

Ralph Reed 10 years, 2 months ago

Solomon (Anonymous) writes: "Ralph, if you can't see something wrong with a guy washing taxpayer money through a non-profit corp. to a for-profit company in which he has an ownership interest, then there's nothing anyone can say to make you see any differently. If the city wants to get into this business, let them run free internet as a public utility. Let the taxpayer fund it directly and let the city own it."

Solomon, read both articles again. All that's being asked for is for the city to be one of a number of co-signers to a loan. The purpose is so Freenet can save $57K in interest over time. The city is not 'getting into this business' as you say. I do agree with your proposal that internet access be created as a public untilty and funded the same way. But, there's way more involved with that than saying, "Make it so."

As for Freenet taking business away from Sunflower Broadband, Sunflower also has competition from the various DSL companies around here and from the access KU students have in the dorms. So, yes, I can see them starting a turf war. As a side note, I think the only reason The World Company doesn't own KLWN is that there's some federal law against a single entity owning all the media outlets in a single market. I'm not sure though and would appreciate some help confirming or denying my understanding about the law.

I'm me. Who are you behind your hood of anonymity?

jayhawklawrence 10 years, 2 months ago

Freenet or Scam-net?

This idea has similarities to Eagle Bend. Remember that one? We start a golf course that competes with another tax paying golf course and run it out of business. Free market capitalism, if allowed to work correctly, is the best way to allocate resources. When we meddle with it, we usually end up with less efficient distribution of resources and higher individual costs. Less services. Remember Econ 101?

We are still paying for Eagle Bend.

If you cannot afford Broadband access from several of the existing companies, you probably cannot afford to live in Lawrence. I sympathize a little bit, but this is a weak argument to justify the larger expense. I cannot believe the City commission is fooling around with this.

StephenColt 10 years, 2 months ago

Editor's note: The Lawrence Journal-World is owned by The World Company, which also owns Sunflower Broadband. Sunflower Broadband and Lawrence Freenet are competitors in the Lawrence Internet service provider market.

Does anybody know the website address for the world company so that I can analyze the relationship between all of their entities?

Janet Lowther 10 years, 2 months ago

The structure of Lawrence Freenet has seemed kind of fishy to me from the get-go.

First, the very idea of calling itself "Freenet" and charging users $20/mo. seemed suspect. With a name like "Freenet" I was expecting it to be something volunteer-based like Seattle Wireless, not a non-profit supporting a few free users, while sending the bulk of their revenue to a for-profit supplier.

A disabled friend, wholly dependent on SSI & Medicade, Which makes him about as poor as you can get in this country, was recently rejected by Lawrence Freenet as not being eligible when he asked for a free wireless account. Kids only.

lccaf 10 years, 2 months ago

Since all the revenue goes to CWC how does LFN pay their expenses? Do they have expenses or are they just a shell for the for profit? 1100 users? After being in business for almost 3 years? Hmmm.

newsreader 10 years, 2 months ago

This article is the best advertising for LFN. I never woudl have considered switching until now, their internet is much cheaper and no bandwidth limits!

ohjayhawk 10 years, 2 months ago

I haven't lived in Lawrence for almost 13 years, so I don't know anything first-hand about Freenet. But, it's interesting reading in comments above that a $20/month fee is charged and that some people are being denied access when the (supposed) goal of Freenet is stated in the second paragraph of the article as the following:

"The company has promoted itself as a not-for-profit company with a goal of providing free Internet access to EVERYONE in Lawrence."

Doesn't seem to me like they are doing very well achieving that goal.

StephenColt 10 years, 2 months ago

"The company has promoted itself as a not-for-profit company with a goal of providing free Internet access to everyone in Lawrence."

Doesn't seem to me like they are doing very well achieving that goal.

Most companies are striving to accomplish their goals. They wouldn't be goals otherwise. The goal of Freenet is to provide free access to everyone, which as of yet hasn't happened, however, that doesn't mean they aren't striving to reach that. First they began offering free access to low income families, now they are trying to expand that to all kids 18 and under. I imagine they will continue to work toward the goal of everyone in due time. I imaging that is what Sunflower is worried about.

lucky_guess 10 years, 2 months ago

Fishy connection? Not nearly as fishy as Sunflower's response today.

Over 2 years the Freenet project has been underway with little to no coverage by the Journal World, our fair city's, "fair" daily paper.

Tonight, Freenet goes before the commission to ask for support (not direct funds mind you, just to co-sign a loan) in making significant infrastructure improvements so that they can start becoming serious competitors in the broadband market.

Is it a coincidence that the only news coverage given to Freenet in over two years is on the DAY OF THE CITY COMMISSION MEETING, and they run 2 articles, and they are both critical and slanted?

Where's all the press on the good things that Freenet does? A month ago Sunflower announces free internet for low income families and it makes the Journal World front page.Freenet's been doing it for 2 years. Zilch.

It's no surprise to me that the Journal World is acting as the public face for Sunflower here (World Co.'s major breadwinner, supplying over $50 of profits). Unfortunately crap like this is happening all the time. What I get really peeved about is when they claim to have 'integrity' as a 'fair' newspaper that represents the interests of Lawrence residents. Baloney.

a_flock_of_jayhawks 10 years, 2 months ago

RalphReed says... "In any event, we have the capability to establish the same thing in Lawrence, especially with the cutting edge technology available at KU."

If you truly think that a not-for-profit (which is quite a bit different than a non-profit) is or will be capable of investing in new technology upgrades for their infrastructure as they become available, you are nuts. Their network will become a dinosaur in short order and Lawrence taxpayers will be left holding the bag. Good luck with that.

One other important aspect of their network is that it is unlicensed spectrum = prone to interference from other legitimate users of those bands.

What happens when the "synchronization of the street lights" needs to be revisited/maintained/upgraded and FreeNet is no more? You guessed it, Lawrence taxpayers get to underwrite that.

a_flock_of_jayhawks 10 years, 2 months ago

lucky_guess says, "Where's all the press on the good things that Freenet does?"

That would be called advertising and marketing. Freenet would be responsible for that.

Godot 10 years, 2 months ago

"Hey, Dad, its no big deal. It's not like you're buying me the car, all you have to do is co-sign. I promise."

lccaf 10 years, 2 months ago

Luck_guess, What other "good things" that Freenet does? They're not even meeting there 10% free service.

By the way, if they are a viable non-profit with a realistic business plan, why are they NOT pursuing money through the grant process. Then no one cosigns and there is no interest or principal to pay back. Therefore, no need for Lawrence to cosign, no need for me to pay for it when it folds up.

lccaf 10 years, 2 months ago

By the way, Freenet was free to all until last summer. Of course this was because there service was so horrible it was the only way they could keep customers.

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