S.F. Wi-Fi plans lost in a fog: Muni Wi-Fi model under pressure as players re-evaluate

After more than two years, a plan to blanket San Francisco with seamless wireless Internet access at no cost to consumers is back where it started. All that stands in the wake of the failed citywide Wi-Fi effort now is a mountain of paperwork.
At least this time critics can’t brush it off with the oft-rehearsed “only in San Francisco” line of thinking. Other large cities have watched Wi-Fi plans come and go in recent months, and the reasons are pretty much the same in every municipality.
Shattered dreams
Once considered by many cities and towns to be the roadmap to offer high-speed Internet access for all, wide-spread use of the unlicensed technology is now less certain.
San Francisco’s deal was already largely considered dead in late August when EarthLink Inc. rescinded its proposal to cover the estimated $14 million to $17 million cost of building the citywide Wi-Fi network.
Although it was mostly a bureaucratic move, a committee of the Board of Supervisors put the final death knell on the project weeks later when it declined to vote on the contract. Time will tell if this has closed the chapter on Mayor Gavin Newsom’s years-long plan to blanket the city with free Internet access.
Newsom, who has made it a priority to appeal to a broad spectrum of residents, took an early lead among his counterparts on a plan of this scope. It required technological know-how from bureaucrats, partnerships with Internet pioneers nestled just south in Silicon Valley, and a forward enough thinking plan that would deliver a great resource to residents for many years to come. No politician wants a boondoggle on their watch.
It’s still unclear whether a ballot measure slated for the November election will go on; voters are being asked to vote for free Wi-Fi access, but the outcome will not be binding.
As the plan neared completion, all the pieces to the puzzle kept falling like dominoes-into the bay and out of Newsom’s favor.
Support from the Board of Supervisors was dwindling, criticism on the choice of Wi-Fi reached a heightened pitch and long-range viability was in question. Then, EarthLink pulled the plug.
Flawed models
Many analysts say there was little silver lining for EarthLink in the Wi-Fi deals it made with about a dozen cities. The deals called for EarthLink to shoulder all of the upfront costs, and when other divisions of its business began to wane, it began having serious second-thoughts. It wanted the municipalities to help pay for the construction, but San Francisco and others were unwilling to meet the company halfway.
“We will not devote any new capital to the old muni Wi-Fi model that has us taking all of the risk by fronting all of the capital, then paying to buy our customers one by one,” EarthLink President and CEO Rolla Huff said in a conference call with analysts following the announcement. “In my judgment, that model is simply unworkable.”
Huff would like to see more interested parties share the costs of municipal Wi-Fi to represent their vested interests. “The municipalities, the chipmakers, the infrastructure vendors, even the WiMAX providers. No one player is going to be willing to front all the capital required to make these networks a reality, but they could all be interested in a broader sharing of the costs.”
Google’s count
This all came while Google Inc. boasted about 15,000 unique users each month on a municipal Wi-Fi network that covers 12 square miles in its home base of Mountain View, Calif.
EarthLink, which was planning to team up with Google for the municipal Wi-Fi network in San Francisco, fired 900 employees following the news, including Don Berryman, the executive who led the company’s municipal Wi-Fi division. It closed offices in Orlando, Fla.; Knoxville, Tenn.; Harrisburg, Pa.; and San Francisco, and also said it will substantially reduce its presence in Pasadena, Calif., and Atlanta.
EarthLink has operations in about a half-dozen cities and contracts for another half-dozen. According to the company’s latest filing with the Securities and Exchange Commission, EarthLink manages 150 square miles of Wi-Fi networks across all of its markets, covering 600,000 households. EarthLink has not disclosed usage numbers for any of its Wi-Fi operations.
EarthLink’s core business has been “diluted by new business initiatives that were begun with good intentions but morphed into larger commitments,” Huff added. “We are not exiting these growth initiatives; we’re scaling back their cost structures to fit the startups that they in fact are.”
But EarthLink did more than scale back. Later that day, the company rescinded its proposal to cover the cost of building San Francisco’s Wi-Fi network and cut a $5 million check to Houston for missing a contract deadline on plans for building a Wi-Fi network there.
“If you don’t have the money for a computer . then you’re not going to have a need for municipal Wi-Fi either. The carriers are often criticized for leaving all these poor neighborhoods behind. In the end, these companies are in the business of making money,” said Roger Entner, senior VP of the communications sector at IAG Research.
“I think it’s a very noble goal,” Entner said. “In the end you have to put your money where your mouth is.”
Others follow
And EarthLink isn’t the only company rethinking the dollars and sense of its Wi-Fi strategy. After announcing its first such deal just one year ago, AT&T Inc. pulled out of its plans to build a Wi-Fi network in Springfield, Ill., the city announced.
Chicago city officials scrapped plans to blanket the city with Wi-Fi coverage there, citing costs and rapidly changing pace of new technologies coming to the scene that have altered the marketplace.
Filling the gap
Touted as a revolutionary plan to bring Internet coverage to all, regardless of their economic status, the idea of municipal Wi-Fi is quickly falling into the background now as newer technologies with even greater promises hit the scene.
“There’s a fundamental shift in the structure of the industry and that’s what they have to address,” Entner added.
Indeed, Chicago will be among the first cities to gain access to a new nationwide mobile WiMAX network being built by Sprint Nextel Corp. and Clearwire Corp.
“I think reality is taking a hold when it comes to muni Wi-Fi because you have challenges around the business model. It’s questionable that you actually have enough subscribers. And the biggest question mark is ‘is Wi-Fi the right technology?'” Enter said. “They are trying to force a technology into a use it was explicitly not designed for in a segment that doesn’t have the early adopters and people who are willing to spend money for it.”
The bill
EarthLink has billed its shift as a “corporate restructuring.” The company expects to pay out $60 million to $70 million associated with the plan while generating $25 million to $35 million in savings through the end of the year. It expects to see a positive return on the restructuring costs within six months.
“While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future. These changes get our cost structure in line, but there is much more to do,” Huff, who’s only been in the lead role at EarthLink for two months, said in the announcement. “We expect to announce additional steps as we continue our work over the coming weeks and months.”