The company, MobileStar Network, laid off 88 workers on Tuesday, which a source described as "everybody." It also hired the Diablo Management Group to "oversee an orderly sale of the assets," according to two sources.
It remained unclear what would happen to the high-speed service that MobileStar provided for about 500 of the 3,000 Starbucks outlets throughout the United States plus dozens of hotels and airport lounges. The service was running normally on Wednesday.
The company was trying to raise cash for at least six months and had reached a tentative deal just a few weeks ago, but that "went away," a source said.
A spokesman for MobileStar said he could neither confirm nor deny the layoffs. He said the company expects to make a statement about its future soon, perhaps Thursday.
Some of the original investors say the company is falling victim to troubling economic times that have proven to be fatal for other wireless service providers, including Metricom, the providers of the Ricochet high-speed wireless service. Metricom was shuttered earlier this year, leaving about 51,000 subscribers without service.
Like Ricochet, MobileStar's product was well liked.
"This is not a throwaway company; this is not a bad idea," said Blair Whitaker of Norwest Venture Partners, one of the MobileStar's early investors.
MobileStar used a wireless technology known as 802.11, a wireless protocol that allows people to connect their computers and laptops so they can share the same Net connection. Customers could get Internet access in public areas, such as airports or business areas of cities like Dallas, near the company's Richardson, Texas, headquarters.
The MobileStar service cost about $30 a month to use. It was available in the Seattle-Tacoma area, the San Francisco Bay Area, New York City and in much of Texas. The company was also hoping to launch service in Atlanta, Chicago, Boston and the Washington, D.C., Metro Area.
The company also sold its gear to 19 different hotel chains, where consumers could get Internet access in lobbies and rooms.
Hilton Hotels used MobileStar to service about 50 of their locations. MobileStar also claimed on its Web page to be in a partnership with Ramada Inns. But Rich Roberts, communications director for Cendant Corporation's hotel division, said that isn't true. One Wyndham Hotel out of more than 256 used MobileStar for service to its customers, a Wyndham Hotel spokeswoman said.
MobileStar's largest customer was Starbucks, which planned to install the wireless Internet system in more than 3,000 of its locations. It would be free to use for those with MobileStar subscriptions. MobileStar said earlier that it had installed its gear at 500 Starbucks so far.
Starbucks was also working with Microsoft on the project. Compaq Computer was to provide access devices such as iPaq Pocket PCs for customers to use while in the stores.
Representatives for Microsoft and Compaq did not immediately return calls for comment.
The same access was used to help some displaced New Yorkers after the Sept. 11 attacks. Six Starbucks in Manhattan opened their doors to those needing access to family and friends.