As EarthLink (ELNK) Tightens Its Belt, Muni Wi-Fi Implodes

It sounds simple: cover a city with wi-fi signals, whet appetites with slow, ad-supported service, sign up enough people to pay for faster access, and presto — wireless Internet for all. Turns out the municipal wi-fi business model was a bust, and in the last few days, the industry has all but imploded. That might not be a bad thing.

WSJ’s Ben Worthen has a good wrapup of the week’s events: First, Internet service provider EarthLink, which was among the most aggressive bidders for citywide wi-fi contracts, said it would cut about half its jobs to make up for losses stemming from ambitious wi-fi projects and its investment in cash-burning “virtual” wireless carrier Helio. Next, a bunch of muni wi-fi projects dropped like flies. Chicago said it would abandon its project because it was too expensive. EarthLink pulled the plug on its bid for San Francisco’s network and shelved its Houston project. (In addition, EarthLink wi-fi projects in Alexandria and Arlington, Va., and St. Petersburg, Fla. are also on hold, CNet reminds us.) What went wrong?

These networks are expensive to build — Houston’s project was slated to cost $40 million to $50 million, or $62,000 to $78,000 per square mile of coverage, says CNet — and ISPs are having a hard time convincing city governments to help foot the bill. Those that have been built aren’t pulling in nearly enough subscribers to make it worthwhile.’s Glenn Fleishman tells BusinessWeek that only 1% to 2% of potential subs have signed up, instead of the 15% to 30% the planners were counting on.

Why so few takers? Because there is plenty of privately funded competition for broadband customers. And while citywide wi-fi service allows users to work remotely, it does so at slower speeds than those available via cable modem or DSL service. Meanwhile cable companies and telcos are eager to sway subs with bundled packages of Internet, TV and phone service.

And new technology will only make muni wi-fi less appealing in years to come. Wireless Internet offerings from existing, profitable companies are only getting faster and more prevalent. Sprint Nextel, for example, is building a high-speed network with nationwide roaming it says will reach 100 million people by next year and 125 million by 2010.