End appears to be near for Philly Wi-Fi network

EarthLink gives customers 30-day shutdown notice after proposed transfer 'unraveled'

In another blow to the municipal Wi-Fi market, EarthLink Inc. today told users of its network in Philadelphia that their wireless service will be terminated on June 12.

The struggling Internet service provider also said in a statement that it is seeking approval from a federal court to remove its Wi-Fi equipment from streetlights in Philadelphia after the 30-day transition period ends. In addition, EarthLink is asking the court to cap its potential liability resulting from the planned shutdown at $1 million.

The problems in Philadelphia have been brewing for months, following decisions last year by EarthLink to first stop investing in new municipal Wi-Fi networks and then to get out of the Wi-Fi business altogether. Terry Phillis, Philadelphia's CIO, told Computerworld in January that he thought there was a 75% chance that EarthLink would sell or abandon its citywide network there this year.

EarthLink, which last month reached agreements to transfer ownership of its Wi-Fi networks in Corpus Christi, Texas, and Milpitas, Calif., to those two cities, was negotiating a similar deal to hand over the $17 million network in Philadelphia to the municipal government or an unidentified nonprofit group.

But the company said the proposed transfer "unraveled due to unresolved issues" among the city, the nonprofit and Wireless Philadelphia, a local group that works to provide technology and discounted Internet broadband services to low-income residents. "Since we have exhausted our efforts to find a new owner of the network, our only responsible alternative now is to remove our network at our cost and assist our Wi-Fi customers with alternative ways to access the Internet," EarthLink CEO Rolla Huff said as part of the company's statement.

Philadelphia officials didn't return phone calls and e-mail messages seeking comment on EarthLink's planned shutdown of the network. Mayor Michael Nutter, who took office at the start of this year, told The Philadelphia Inquirer that he doubted another company could be found to operate the network. "The business model was tenuous at best," Nutter was quoted as saying. "I think what we have here is a market going in a different direction."

Officials at Wireless Philadelphia also couldn't be reached for comment today. In a blog post on the group's Web site, dated last Friday, CEO Greg Goldman wrote that Wireless Philadelphia and city officials were continuing "to work together to ensure a positive future for Philadelphia's municipal wireless network" and the technology distribution program. But he added that the group "adheres to a basic principle of not speaking publicly about negotiations in progress."

EarthLink said in its statement that it plans to begin decommissioning the network in Philadelphia "shortly after the transition period" ends. The company added that it will attempt to shift customers of the network to its other Internet access services.

Construction on the Philadelphia Wi-Fi network started in earnest last May, and more than 70% of the proposed 135-square-mile network was in place at the beginning of this year, according to Phillis. At one point, EarthLink had estimated that building the network and running it for 10 years would cost $22 million.

Atlanta-based EarthLink announced last month, as part of its first-quarter earnings report, that it was shutting down its Wi-Fi network in New Orleans. With Philadelphia's network also now scheduled to be decommissioned, that leaves only a network in Anaheim, Calif., to be disposed of or shut down by the company.

EarthLink moved aggressively into the municipal Wi-Fi market two years ago, when various vendors hoped to use advertising and subscription revenues to fund and then make money from the networks while providing online services to low-income residents at a reasonable cost. Companies such as EarthLink initially promised to provide services to cities at no cost to the local governments.

But it quickly became apparent last year that the original business model wasn't working out for wireless vendors. In addition to EarthLink's pullout from the market, Gobility Inc. last December cut off service on a network that it owned in Tempe, Ariz. And MetroFi Inc. halted work on a proposed Wi-Fi network in Portland, Ore., last September, leaving the network only about 20% complete.

Copyright © 2008 IDG Communications, Inc.

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