Philadelphia Wi-Fi project now in jeopardy, EarthLink may back out

By Michael Hatamoto, BetaNews

November 19, 2007, 10:48 AM

While EarthLink says it's now considering new "strategic alternatives" for its municipal Wi-Fi projects, the Philadelphia Inquirer is reporting the company could very well leave that city with a partly-finished project if it backs out now.

"We will not devote any new capital to the old municipal WiFi model that has us taking all the risks," said EarthLink CEO Rolla Huff in a statement late last week. "In my judgment, that model is simply unworkable."

Many planned citywide Wi-Fi networks across the US rely on EarthLink's contribution. But they all received a heavy blow after the company announced in August it would slash half of its work force before the end of the year.

Citywide Wi-Fi initiatives in San Francisco, Chicago and Houston have already temporarily bitten the dust, with several other plans on hold. Furthermore, EarthLink has been forced to pay $5 million to Houston after missing deadlines agreed to on by both sides.

EarthLink hasn't specifically mentioned what its alternative plans may consist of, but promises to work with cities it has Wi-Fi contracts signed with. What that may mean is payouts to Philadelphia similar to the one it already made with Houston.

"After thorough review and analysis of our municipal wireless business we have decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value," EarthLink's Huff added.

Philadelphia had once planned to be the first large US city to blanket itself with WI-Fi, but major delays and rising costs have forced city officials to begin doubting its ten-year contract with the ISP. Originally, the network was to have been completed in the spring of 2007, but was delayed to the third quarter - and now is scheduled to be done before 2008.

Assuming the Wi-Fi network is finished in Philadelphia, it would be theoretically possible for the city to take control and let another company operate the network. EarthLink is contractually responsible for completing the 75% finished network, said Terry Phillis, the city of Philadelphia's CIO.

"I started to get e-mails from people complaining the service doesn't work well and that bothered me," said Frank Rizzo, Philadelphia city councilman. The sign-up rate for the EarthLink service has been "very, very small," he added.

It wasn't long ago when free Wi-Fi connections were being promoted as a resource for every resident in a city to receive Internet access, but the unofficial company slogans have been changing. Meanwhile, EarthLink will keep promoting its Helio mobile phone service, even though it lost up to $40 million last quarter on the subsidiary.