May 13, 2008 9:00 pm US/Eastern
EarthLink To Pull The Plug On Wi-Fi In Philly
PHILADELPHIA (AP) ―
EarthLink Inc. is pulling the plug on its troubled wireless high-speed Internet network in Philadelphia, once touted as a model for how big cities should deploy Wi-Fi.
EarthLink, which once pinned its future on municipal networks such as Philadelphia's following rapid declines in its dial-up Internet access business, said Tuesday that it could not find a buyer for the $17 million network and that talks to give it to either the city or a nonprofit organization had failed.
City officials have said it would cost taxpayers millions of dollars each year to operate the network.
"It's been an unfortunate situation," Earthlink Chief Executive Officer Rolla Huff told The Associated Press. "It was a great idea a few years ago, ... but it's an idea that simply didn't make it."
Huff said EarthLink will stay focused on its core customers -- people using dial-up Internet service and casual Internet surfers who want an economical plan.
A few weeks ago, Atlanta-based Earthlink announced it would shut down a similar network in New Orleans. EarthLink has reached agreements with the cities of Corpus Christi, Texas, and Milpitas, Calif., which are taking over ownership of their networks. Huff said EarthLink is still in talks with Anaheim, Calif., where it has been running a Wi-Fi network.
EarthLink has reclassified its municipal Wi-Fi assets as discontinued operations in the third quarter of 2007. The company said the shutdown of the Philadelphia network should not materially affect its current financial outlook.
EarthLink, which will give current Philadelphia customers until June 12 to switch to another provider, said it even offered to donate the Wi-Fi equipment and $1 million to the city.
Meanwhile, EarthLink filed a federal suit Tuesday in U.S. District Court in Philadelphia that seeks to remove its Wi-Fi equipment from city streetlights and cap its potential liability at $1 million.
Four years ago, Philadelphia officials announced that they would try to create one big citywide Wi-Fi hot spot and make high-speed Internet access the norm in poor neighborhoods. The plans, announced with great fanfare, attracted attention from cities around the world and built Philadelphia's cachet among technophiles.
Initial reports touted that free Internet was on the way, though officials only promised that it would be priced cheaper than commercial providers. Under a contract finalized in early 2006 and approved by City Council two years ago, Earthlink agreed to charge $19.95 a month and offer half-price discounts to low-income households. The monthly price later was raised to $21.95.
EarthLink built the network at no cost to the city. It also pledged to pay the city rent for use of its streetlights from which Wi-Fi equipment would be hung.
At the time, EarthLink had wanted to have a direct Internet pipeline into the home so it would not have to buy capacity from phone companies.
But the technology itself proved to be difficult to deploy and, at times, unreliable. EarthLink later admitted that its Wi-Fi business model had not panned out.
It also wasn't a big seller. The company said it only has 5,942 subscribers in Philadelphia out of a projected minimum of 100,000, according to its lawsuit. EarthLink said it is losing up to $200,000 a month to operate the network because subscriber fees covered less than half of costs.
EarthLink also blamed the city for not reaching an agreement with a nonprofit that was interested in taking over the network, according to court papers.
Mayor Michael Nutter's office didn't immediately return a call for comment Tuesday.
Craig Settles, a technology business strategy consultant in Oakland, Calif., faulted EarthLink for rushing the recent negotiations with the city.
"EarthLink was putting a lot of pressure to be done and be gone, while the city has its things it has to deal with," he said. The talks were "not as lengthy as they make it seem to be," Settles said.
Philadelphia officials recently said they want EarthLink to abide by the contract, but would rather not go to court to enforce it.
Councilman Frank Rizzo, an early opponent of the Wi-Fi network, said he hasn't heard of anyone interested in buying EarthLink's network.
"Comcast and Verizon, they haven't even sniffed around," he said of the companies that provide cable and phone-based Internet access in Philadelphia.
He said the city's Wi-Fi network has not even been completed.
"EarthLink knows they are vulnerable to litigation," Rizzo said.
The stock fell 14 cents to $9.10 in afternoon trading Tuesday.
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