EarthLink's citywide Wi-Fi biz for sale

EarthLink is selling off its municipal Wi-Fi business, the company's CEO said Thursday night during its fourth-quarter 2007 conference call. No buyer has been found, but the business, which has been drastically scaled back from its original vision, is now officially on the auction block.

The news comes as no surprise to those who have been watching the company slowly unravel its citywide Wi-Fi strategy for several months. The strategy seemed doomed ever since the death of former EarthLink CEO Garry Betty, who lost his battle with cancer early last year.

By summertime, the company's new CEO, Rolla Huff, said the company would drastically scale back the project, and by September, it had pulled out of proposed networks in San Francisco and Houston. And in November, EarthLink said it was considering its "options."

While many people in the media are already writing citywide Wi-Fi's obituary, I still think that it's a technology and a business that will continue to grow. Of course, it might look a lot different than the citywide Wi-Fi business EarthLink had envisioned. Instead of consumer Wi-Fi services that compete with cable modem and DSL services, it's more likely that Wi-Fi will be used in smaller cities to provide police departments and other government agencies wireless communications.

Craig Settles, an independent wireless consultant, said he is still seeing a lot of interest in Wi-Fi from midsize cities.

"Many cities see the benefit of Wi-Fi," he said. "And they are willing to invest in the technology themselves to provide government services."

There are plenty of examples of success stories where this is happening. Take the city of Phoenix, Ariz., which deployed 36 Wi-Fi-enabled Internet Protocol video cameras in its downtown area leading up to this year's Super Bowl.

The cameras made it possible for the police department to keep tabs on the crowds and crack down on ticket scalpers. For past events, like the 2001 World Series, which was also in Phoenix, the police department had cops standing on rooftops with binoculars.

Detective Chris Jensen of the Phoenix Police Department said the cameras were very effective, helping police disrupt the activity of four or five highly organized scalping rings, which had flown into Phoenix for the event.

There's no word yet about what will happen to the cities where EarthLink was already in the process of building its network. Philadelphia, the poster child of EarthLink's muni Wi-Fi strategy, is about 80 percent built, making it the largest citywide Wi-Fi project in the United States.

Greg Goldman, CEO of the city nonprofit group Wireless Philadelphia, said its digital inclusion program is growing as it signs up low-income families for broadband service. The group has also been racking up more funding. But EarthLink's latest move, though expected, does put Philadelphia in a precarious situation.

"We aren't surprised by the announcement," Goldman said. "But it's certainly an unfortunate development."

Goldman said Wireless Philadelphia and the city, which are partners in the project, are talking to businesses inside and outside the community, as well as the local universities, to figure out how to continue funding the network. While he didn't rule out going to the city for funding, he said it would be a tough sell.

"We recognize that it would be hard to transition the project from being taxpayer-neutral to something where the city government is responsible for funding it," he said. "So for now, we are looking at more creative solutions."

As for who might buy EarthLink's Wi-Fi business, that's still a big question mark. The company could sell it in pieces to regional operators in the cities where it has networks already built. Or it could sell it to a big entity like AT&T or T-Mobile, which have both been using their national network of Wi-Fi hot spots to enhance their existing broadband and wireless networks.

Wi-Fi hot-spot provider Boingo could also be interested in the assets. The company, which was also started by Sky Dayton, EarthLink's founder, has some common history with EarthLink.

EarthLink also reconfirmed on its conference call Thursday that it will no longer be investing in Helio, a cell phone service targeting young hipsters that EarthLink had invested in with Korean mobile carrier SK Telecom.

The venture is supposedly doing well, but EarthLink said in November that it would no longer be investing in the company. Instead, SK Telecom will continue to invest in the company with the option of pumping in an additional $270 million. EarthLink will still be a stakeholder in Helio, but its share of the company could be reduced to about 22 percent, if SK Telecom continues investing.