EarthLink and Municipal Wireless Have a Really Bad Week

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This has been a bad week for municipal Wi-Fi and a very bad week for EarthLink.


The ISP cut 900 jobs and closed several regional offices. This followed a poor second quarter. The piece says that the company is expected to continue to "bleed well into 2008" as it struggles to survive.


News reports this week detailed three hits EarthLink took to its municipal wireless business. If this in essence is the company's exit from the business, it is a painful one.


A project in Chicago was tabled after the city was unable to work out a deal with EarthLink and AT&T. The Motley Fool says the city, AT&T and EarthLink couldn't agree on the financial structure. Wired, quoting The Chicago Tribune, offered a bit more detail: The city initially only wanted to provide infrastructure. AT&T and EarthLink asked that the city become an "anchor tenant" and pay to use the network for city services. Negotiations along those lines fizzled.


EarthLink also this week dropped out of an agreement to participate in a municipal Wi-Fi project in San Francisco. CNET says that the project was approved in January, though it was awaiting final sign-off from the city's Board of Supervisors. The deal was structured differently than the Chicago plan. Google was to sell advertising on the free portion of the service. EarthLink, CNET says, wanted to ante up $2 million to join the project and be allowed to sell higher-speed subscriptions for $20 apiece.


EarthLink also is in trouble in Houston, according to the Houston Business Journal. There, it agreed to pay a $5 million penalty for missing an agreement deadline with the city. A restructured agreement gives EarthLink nine months to decide if and how it wants to participate in the two-year-old project. The initiative now is on hold, the story says.


A blog posting August 30 by Dave Coustan, who only is identified as an EarthLink employee, says that the company will continue operating existing municipal wireless networks, including one in Philadelphia. It's interesting that the blogger -- who writes as if he has a good take on management thinking -- says that the company is discussing anchor residency options with municipal officials in San Francisco and elsewhere, while the news reports suggest that the deal is dead. That point, the blogger said, was addressed by CEO Rolla Huff in a conference call about the restructuring held on August 29.


Regardless of how this hashes out, there is no doubt that municipal wireless projects are are in trouble. This piece at the Economist sums up the current situation well. Initially, the feel-good idea of providing free wireless service attracted many municipalities. Those that are in better shape today initially called for municipal involvement. The problems, the piece says, include poor coverage inside structures, the need for an unexpectedly high number of transmitters and a dearth of users.


Clearly, there are two issues at play. The first is that EarthLink is in serious trouble. The second and related issue is that the business model for municipal Wi-Fi projects is in flux. It may be that this week's news is more about the stability of EarthLink than the efficacy of municipal wireless.


Then again, maybe not. It could be that at least some of EarthLink's troubles are due to the disappointing results in this sector. In any case, it would be a mistake to conclude that municipal wireless isn't fighting for survival. It may be that commercial Wi-Fi and 3G connectivity -- which will soon be joined by WiMax -- is skimming enough off the universe of potential customers to make the business model inoperative. Perhaps the reality -- as consultant Craig Settles has argued -- simply is that the focus should be on municipal use, not fickle consumer demand.