Anaheim Suit Says Telecom Partner a Virtual No-Show

Anaheim’s ambitious plan to become Orange County’s first “virtual” community has come to an abrupt halt, with officials accusing their private-sector partner of abandoning a massive expansion of the city’s telecommunications network.

The charges are contained in a lawsuit filed this week by Anaheim against First World Communications Inc., which two years ago joined with the city in what was hailed as a novel public-private project to provide residents and businesses with cheaper and faster communications service.

The Anaheim network was being closely watched by other cities, not only for its technological advances but as a way for municipalities to upgrade telecommunication wiring with minimal taxpayer costs.

Under the deal, First World agreed to finance the $275-million digital network and pay Anaheim a commission for each additional city that agreed to join the system.

Consumers were promised hundreds of new cable channels as well as speedier Internet connections when it was completed. Businesses would benefit from faster document and currency transfers, among other things.

But Anaheim officials now say the company appears to have fallen behind schedule on the network and fear it will never complete the work.

“They basically said they don’t plan to do anything more,” City Atty. Jack L. White said.

Leslie Aun, a spokesperson for First World, declined to comment on the lawsuit but said the company hopes to reach a “satisfactory settlement” with the city.

“It is unfortunate that the city of Anaheim has decided to file these actions,” Aun said. “It is our desire to satisfactorily settle the matter.”

The lawsuit alleges that First World stopped making quarterly rent payments for use of city’s existing fiber-optic loop, which the company promised to expand. Under the agreement, the company was to pay $45 million in rent payments over the term of the 30-year contract. It has paid the city $1.9 million to date, White said.

The lawsuit seeks at least $45 million in damages and demands that First World complete the project.

The city alleges that First World has stopped work on the first phase of the project, a 26-mile extension through east Anaheim that was scheduled to be completed at the end of 1998.

Officials said the company refuses to tell them about the progress of the work. They believe a majority of it is done but are not certain. A second phase was supposed to provide the digital network to the rest of the city.

City officials had hoped that several neighboring communities including Santa Ana and Orange would eventually tap into the network. If the network was expanded, Anaheim also stood to share in First World’s profits, which come through fees from consumers using the lines.

City officials claim First World lost interest in the project after it underwent a radical shift in business strategy. They allege that the company, once focused on providing networks and services to municipalities, is now concentrating on being a national Internet service provider.

Some experts now see the project as a cautionary tale about the limits of government partnerships with the private sector and the pitfalls of municipalities getting into the volatile telecommunications business.

“It does certainly illustrate the lesson that government, just like business, needs to be careful about expanding to areas that are not their core of expertise,” said Robert Poole, executive director of Reason Foundation, a Los Angeles-based think tank. “It seems like a very poor job of risk assessment was done before they entered into it.”

First World, known until last year as SpectraNet, was one of several telecommunications companies that bid for the Anaheim project.

Pacific Bell, one of the unsuccessful bidders, criticized Anaheim’s partnership idea in 1997, saying it compromised the city’s obligation to regulate the telecommunications industry. In essence, the city was becoming a communications provider by forming the partnership with First World, the utility argued.

“Pacific Bell does not believe the city can be a telecommunications provider, or receive financial payments from a partner and implement telecommunications . . . regulation in a nondiscriminatory manner,” wrote Mark Leslie, Pacific Bell’s area vice president for external affairs.

Santa Ana decided against joining the network after negotiations fell through last year, according to city officials.