NEWS: "Free" Wi-Fi Follies: "EarthLink Deal With SF Looks Dead"

EarthLink Inc.'s current contract to build a municipal Wi-Fi network in San Francisco appears to be dead following a restructuring of the struggling Internet service provider.

The deal, hammered out in months of negotiations last year and completed in January, calls for EarthLink to build a citywide network at no cost to the city and sell high-speed service to residents while Google Inc. provides a free, slower service over the same network. But after announcing layoffs of nearly half its workforce and a gloomier financial forecast, EarthLink said Wednesday it won't invest any more money in that business model.

"We will not devote any new capital to the old muni Wi-Fi model that has us taking all of the risk by fronting all of the capital, then paying to buy our customers one by one," President and CEO Rolla Huff said on a conference call Wednesday morning.

That includes currently planned networks where the company hasn't yet made capital investments, EarthLink spokesman Jerry Grasso confirmed. In San Francisco and other such cities, networks would have to be built under new arrangements.

"We will approach them to discuss the needed changes to the business model," Grasso said. He declined to comment on the state of discussions with any particular city.

San Francisco's deal with EarthLink has yet to be approved by the city and county's Board of Supervisors, where it faces fierce opponents. The deal is due for a vote in the Board's Budget and Finance Committee next week that could send it on for full board approval. But the changes at EarthLink appear to make the current contract a dead issue.

EarthLink's municipal Wi-Fi woes come as the company struggles across most of its businesses and as the overall climate for municipal Wi-Fi changes. The promise of free networks supported by advertising or residential subscriptions has faded, and EarthLink and other network providers are looking to local government as "anchor tenants" that support the projects by buying services. Chicago, which had been talking with EarthLink and others about a citywide Wi-Fi project, dropped the plan this week, citing high cost and low subscriber interest.

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S.F. citywide Wi-Fi plan fizzles as provider backs off

Mayor Gavin Newsom's high-profile effort to blanket San Francisco with a free wireless Internet network died Wednesday when provider EarthLink backed out of a proposed contract with the city.

The contract, which was three years in the making, had run into snags with the Board of Supervisors, but ultimately it was undone when Atlanta-based EarthLink announced Tuesday that it no longer believed providing citywide Wi-Fi was economically viable for the company.

Newsom blamed the Board of Supervisors for not acting quickly enough to approve the contract that he said was the best deal any big city had negotiated.

"I'm disappointed because we had a chance to get it done, and it didn't happen," Newsom said. "The board delayed it, and now EarthLink could not be more pleased."

Newsom said he did not see any benefit in the deal collapsing even though EarthLink appears to be in financial straits and has an uncertain future.

The company announced Tuesday that it will slash 900 jobs - about half its workforce - and close offices in San Francisco and several other cities as a result of stiff competition from other Internet service providers.

"EarthLink would have been legally obligated to fulfill its promises to San Francisco, and we would have had a functioning Wi-Fi system by now," Newsom said.

EarthLink spokesman Jerry Grasso said that EarthLink was willing to work with San Francisco but had decided that it "was not willing to work in the business model where EarthLink fronts all the money to build, own and operate the network."

Supervisor Ross Mirkarimi said that Newsom should be "relieved" that the contract was not finalized and defended the board, saying that it had saved the city from being stuck with a questionable network and company.

"The mayor should be extremely thankful that the board was so investigative and thorough in its review," Mirkarimi said. "EarthLink's meltdown confirms our concerns that the risks outweighed the benefits."


EarthLink to pay city $5M for missed deadline

EarthLink will pay Houston a $5 million penalty, an acknowledgment that the Internet service provider will not meet its first deadline for building a wireless network throughout the city, Mayor Bill White announced this morning. ... EarthLink now has a nine-month window to start building the network in Houston, White said.

The company failed to meet its first deadline by not signing an agreement with CenterPoint Energy to lease its utility poles for the Wi-Fi project.

"They would like to get other sources of project financing, and they can't do it before the deadline," White said.

In the meantime, Houston can consider offers from other vendors to build wireless for the 640-square-mile city, White said. Whatever happens, the city will keep the $5 million, and the city should use it to bridge the digital divide, perhaps by building smaller "Wi-Fi bubbles" over public spaces, the mayor said.

If built, the municipal Wi-FI project here would be the largest in North America and require a $50 million investment.

EarthLink has said it will scale back or change its business model for municipal wireless initiatives. Donald Berryman, president of EarthLink Municipal Networks, is among those leaving the company, a spokesperson confirmed Tuesday.

The wireless model EarthLink wants to develop with other cities involves the local government being the primary customer. That provision already is part of the contract here. Houston agreed to pay $2.5 million over five years to use the network.


COMMENT: The chickens have finally come home to roost -- "free" muni Wi-Fi just doesn't compute.

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