Two cities agree to take Wi-Fi networks off EarthLink's hands

IDG News Service - EarthLink Inc.'s pullout from the municipal Wi-Fi market moved two steps closer to completion yesterday, as the governments of both Corpus Christi, Texas, and Milpitas, Calif., agreed to take over local wireless networks owned by the struggling Internet service provider.

The city councils of Corpus Christi and Milpitas each voted on Tuesday to take possession of their respective networks. That will leave just three networks — in Philadelphia, New Orleans and Anaheim, Calif. — in EarthLink's hands. The company is still in discussions with the governments of those cities about the fate of the networks there, according to EarthLink spokesman Chris Marshall.

Neither Corpus Christi nor Milpitas will pay anything for their networks, although Corpus Christi will forfeit $1.59 million in payments that were owed to it by EarthLink. The network assets will be transferred within 45 days in Corpus Christi and 30 days in Milpitas, Marshall said.

He added that EarthLink will continue to support its Wi-Fi subscribers in both cities for another 30 days, after which it will offer them special deals on its dial-up and broadband Internet services. Marshall said that EarthLink will refund all payments that it has received for home-based equipment and prepaid Wi-Fi service.

Starting in 2006, EarthLink built or took ownership of Wi-Fi networks in a handful of U.S. cities and proposed deals with several others, claiming that it could set up the networks without tax dollars and make money through advertising and subscription fees. The company's aggressive move into the market helped build hope that municipal Wi-Fi networks could profitably provide Internet access across cities while giving low-income residents online services at a reasonable cost.

But it all fell apart for EarthLink last year. As the advertising-driven Wi-Fi business model began to look shaky, and the company continued to lose dial-up Internet subscribers, EarthLink first scaled back its municipal Wi-Fi efforts, saying it would focus on networks in large cities.

Just four months later, the company dropped plans to build a Wi-Fi network in San Francisco and said it wouldn't invest any more money in networks if it had to bear all of the upfront costs. New management then decided to get out of the Wi-Fi business altogether, and in February of this year, EarthLink said it was checking with city officials to see if they wanted to take over its existing networks.

Corpus Christi built its Wi-Fi network and then sold the technology to EarthLink last March for about $5.3 million. Milpitas chose EarthLink to develop its network in March 2006, and the company began offering Wi-Fi service there that December.