Earthlink pulls plug on Wireless Philadelphia

May 13, 2008 3:49:27 PM PDT
EarthLink Inc. is pulling the plug on its troubled wireless high-speed Internet network in Philadelphia, once touted as a national model. EarthLink, which pinned its future on municipal Wi-Fi networks following rapid declines in its dial-up Internet access business, said Tuesday that it could not find a buyer for the $17 million network.

It also said talks to give the network to the city or a nonprofit organization had failed, even after offering to pay $1 million in cash and donate the Wi-Fi equipment.

City officials have said it would cost taxpayers millions of dollars each year to operate the network, which will shut down after June 12.

Also Tuesday, the company sued the city in U.S. District Court seeking to remove its Wi-Fi equipment from streetlights and cap its liability at $1 million.

"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 serving people using dial-up Internet service and casual Internet surfers who want an economical plan.

Atlanta-based Earthlink plans to shutter a similar network in New Orleans on Saturday. The company has reached agreements with the cities of Corpus Christi, Texas, and Milpitas, Calif., which are taking over ownership of their networks. And it is in talks with Anaheim, Calif., over its network there, Huff said.

Huff said EarthLink's Wi-Fi assets are now part of the company's discontinued operations. He doesn't expect to take a charge against earnings for closing Philadelphia's network.

Four years ago, Philadelphia officials announced they would try to create one big citywide Wi-Fi hot spot to make high-speed Internet access the norm in poor neighborhoods.

The plan, announced with great fanfare, attracted attention from cities around the world and built Philadelphia's cachet among technophiles.

Under a contract finalized in early 2006 and approved by City Council two years ago, Earthlink agreed to charge $21.95 a month - and half that to low-income households.

EarthLink paid the full cost of building the network and pledged to pay the city rent for use of light posts where Wi-Fi equipment would hang.

EarthLink's goal was to create a direct Internet pipeline into homes so it would not have to buy capacity from phone companies. But the technology proved unreliable and difficult to deploy.

EarthLink later said that its Wi-Fi business model had not panned out.

It also wasn't a big seller. The company 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 operating the network because subscriber fees covered less than half of costs.

Doug Oliver, a spokesman for Mayor Michael Nutter, said EarthLink flip-flopped on whether it wanted Wi-Fi.

"Now they say, 'We don't want to do it. We're walking away and we're taking our marbles,"' he said. "We are left to respond the best way we can, in the best interest of the city."

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."

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 the network remains incomplete and EarthLink is vulnerable to litigation.

He also 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.

The stock fell 6 cents to $9.18 on Tuesday.

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AP Business Writer Rachel Metz in New York contributed to this report.


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