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4/27/2007
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EarthLink Pauses On New Muni Wireless Projects

The Internet provider said it will focus on current municipal wireless projects as startups and established tech firms such as Google and Motorola also bid on city contracts.

Taking a breather in a hyperventilating market, EarthLink said Thursday it will focus on current municipal wireless projects and consider bidding on new citywide systems "on an individual basis" before deciding whether to move forward.

"We are focusing on the networks we have on hand at this time," the company said in a statement. "This includes those in build out (Anaheim, Philadelphia) and those we are working with on contracts/city council approvals (Houston, Pasadena, etc.).

"We will be studying the performance to ensure we are delivering what we've promised to the cities, residents, and users of the networks."

The announcement came on the same day that EarthLink reported it lost $29.96 million in its most recent quarter on revenue of $324.4 million. That compared with $16.3 million in the same period last year on revenue that was 5% lower -- a safe indication that EarthLink must focus on cutting costs going forward.

The company's statement was released after an Associated Press reporter quoted CFO Kevin Dotts saying the company is "not yet able to establish that comfort level" that its municipal wireless investments will be profitable. The AP said EarthLink is "reviewing" its muni strategy, but spokesman Jerry Grasso said that characterization is inaccurate. The company, he said, is still going after new business, including its proposal along with AT&T for Chicago, where EarthLink is a finalist for the contract.

EarthLink is among the companies, including a raft of startups plus established tech firms such as Google and Motorola, that have invested millions in the last several years building citywide Wi-Fi networks whose eventual profitability remains unproven.

Last month reports said MetroFi, a Mountain View, Calif.-based startup that has signed contracts for several major muni wireless projects including the system in Portland, had shifted its business model away from underwriting the total cost of the networks itself. The company will now require cities in which it provides free, ad-supported Wi-Fi access to commit to "anchor tenancy" -- i.e., buying a contractually agreed-on level of services from the network provider -- before going forward with new citywide projects.

"We still build the network for free," Adrian van Haaften, MetroFi's VP of marketing, told Wi-Fi Net News, "but there is a requirement that there is a certain amount of services bought by from us by city departments."

The EarthLink and MetroFi moves suggest that reality has broken over the metro Wi-Fi market, which to date has seen heavy cloudbursts of hype. Several cities from Taipei (which has the largest wireless mesh network in the world) to Lompoc, Calif., have encountered problems signing up subscribers, as for-pay wireless networks compete with cable and DSL for residential broadband customers.

EarthLink, which has sought a way to expand its business beyond pure Internet access, has used gear from mesh network system provider Tropos Networks to build out some of the largest wireless networks announced to date. It's also teaming up with Google on the free network in San Francisco, which has been dogged by slow contract negotiations and City Hall politics.

"The era of the vendor-financed muni network may be (mercifully) coming to an end," says wireless consultant Craig Settles, author of the book Fighting the Good Fight for Municipal Wireless. "As a major player in this space, EarthLink is smart enough to realize this. They have generated lots of great press, they have driven a nationwide movement and thus created a great market demand, and they are an established leader in the industry. But it's time to look at changing up the approach."

Cities that decline to make investments of their own in wireless networks, Settles adds, will in the future have trouble finding vendors willing to build networks gratis.

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