EarthLink's woes put free muni Wi-Fi in peril

EarthLink's scaled-back municipal Wi-Fi business has jeopardized many cities' plans to bring free or low-cost broadband to low-income residents.

A day after EarthLink announced a massive restructuring that would essentially put almost half its employees out of work, the company wriggled its way out of contracts with Houston and San Francisco to build their citywide Wi-Fi projects. For each of these cities, providing free or low cost wireless broadband was the main reason for building the networks.

Over the past few years, blanketing cities with unlicensed Wi-Fi signals has been viewed as a cheap solution to bringing affordable or even free broadband access to cities. Politicians and community leaders have rallied around the technology as an economic development tool that could help bring low-income individuals into the bustling economy of the 21st century.

But as the economic reality of building a network primarily to serve up low-cost broadband access settles in at EarthLink, the company's top brass says the strategy isn't viable. And as a leader in this industry, cities are now scrambling to find alternative ways to finance their Wi-Fi dreams.

Several cities have already reacted to EarthLink's change of heart by canceling or putting their projects on hold. Chicago, whose main objective was building a network to provide ubiquitous and affordable broadband access, said earlier this week that it has halted its plans for a citywide Wi-Fi project after it couldn't come to terms with demands made by AT&T and EarthLink, which were both bidding for the contract. And in addition to Houston and San Francisco, Alexandria and Arlington, Va., and St. Petersburg, Fla.--all EarthLink Wi-Fi cities-- have also put their projects on hold.

"It's easy to talk about digital inclusion when you're not paying the bill to build the network," said Craig Settles, an independent wireless consultant. "So I'm sure some cities that likely weren't really serious about it in the first place won't pursue it. But for cities that are serious, they'll push forward and either lay down some bucks themselves or find other alternatives for funding."

On Wednesday, EarthLink said it would pay a $5 million penalty to the city of Houston to get a nine month extension on its contract. Later that same day, EarthLink also said it was killing plans to build San Francisco's citywide network.

"EarthLink's decision to scale back its municipal Wi-Fi has put the entire muni wireless market in a state of flux."

--Richard Lewis,
Houston CIO

San Francisco's mayor, Gavin Newsom, has pledged to continue to pursue free Wi-Fi for all San Franciscans. Houston's chief information officer, Richard Lewis, also said the city is committed to building a wireless network.

"EarthLink's decision to scale back its municipal Wi-Fi has put the entire muni wireless market in a state of flux," he said. "But I believe wireless is the future. So in the grand scheme of things, this just means that our wireless infrastructure won't go in as early as we had hoped."

Philadelphia was the first city to make bridging the digital divide its primary objective for building a citywide Wi-Fi network. And EarthLink, which won the high-profile contract in 2005, quickly became the go-to company to make this promise a reality.

Soon cities all over the country jumped on the bandwagon. But it was Google's promise of delivering free Wi-Fi access through advertising that pushed expectations beyond reality, Settles said.

"Everyone wanted to be another Philadelphia," he said. "But they didn't understand the complexities of how Philadelphia structured its nonprofit organization to help defray costs. And then Google and San Francisco said they wanted to give access away for free, setting up unrealistic expectations."

By most counts, Philadelphia was extremely lucky in being the first major city to propose such a network. As a result the company negotiated an extremely good deal with EarthLink, which promised to pay $15 million to build the network and provide service. The contract, which spans 10 years, requires the city only to provide access to light poles and other structures to deploy the wireless radios. It does not require the city to spend any amount of money with EarthLink on services, although city officials say it will likely become a customer.

Unlike San Francisco's proposed plan, Philadelphia does not provide free residential Internet access, although access is free in some outdoor public areas. Instead EarthLink charges $20 a month for its residential service. A nonprofit organization called Wireless Philadelphia subsidizes the cost for low-income households through grants.

With only 50 percent of the city's network built out today, it's difficult to assess the success or social impact of the project. But Greg Goldman, CEO of Wireless Philadelphia, said the city is pleased with the early results. Even though EarthLink has said it's committed to continuing its investment in Philadelphia, Goldman concedes it's unlikely that other cities will get a deal as good as the one Philadelphia negotiated.

"I am glad that Philadelphia is in the position that it's in," he said. "But the business model our network is structured around is unlikely to be replicated in other major cities anytime soon. I guess that's what happens when you're willing to be first and take a risk."

Indeed, EarthLink and other service providers such as AT&T have changed how they approach their negotiations with cities. Now they're asking cities to become anchor tenants of the networks they build, said Hardik Bhatt, Chicago's chief information officer. The idea is that cities will commit to spending a set amount of money on wireless services to drive applications, such as reading meters, mobilizing city workers, or providing public safety.

"The muni-wireless industry has changed in the last few months," Bhatt said. "The two service providers we negotiated with started asking for anchor tenancy as a condition of building the network. But our goal all along was not to spend any taxpayer money on sharing the cost of building the network, so we decided to re-evaluate our plans to keep them in line with our objectives."

Other cities, such as Minneapolis, are building citywide Wi-Fi networks with the explicit purpose of using the network for improving public safety and using it for other city purposes. In fact, Minneapolis' network, which is only partially built, proved instrumental in helping recovery efforts after a major bridge collapse earlier this summer.

But for Chicago becoming an anchor tenant isn't feasible.

"We've had a wireless network in place since early 2004 based on cellular technology," Bhatt said. "And we use our own Wi-Fi network in other parts of the city. So we don't really need a Wi-Fi service right now."

Houston CIO Lewis said his city had committed to being an anchor tenant on EarthLink's network. But the city, which spans some 640 square miles, was promising to commit only $500,000 a year for the first five years of the contract. The network was projected to cost EarthLink between $40 million and $50 million to build.

EarthLink declined to comment on its negotiations with Houston.

While there is little question that EarthLink's financial woes have slowed the market and may have even dampened enthusiasm in the private sector for addressing the digital divide, Goldman of Wireless Philadelphia believes the shift is only temporary. He said cities lined up too quickly to try to get the same deal Philadelphia got without waiting to see if the model proved itself.

"In some ways the industry went too fast in following Philadelphia's lead," he said. "But now, I think the industry is just taking a breather. The public/private partnership presents a great opportunity to address digital inclusion. The movement will march forward. It has to, because the issue isn't going away."