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Saturday, November 17, 2007

WiFi: Why NOT

EarthLink Inc., which has been a chief evangelist for blanketing cities with wireless Internet service, said Friday that it plans to consider “strategic alternatives” for that business.


The company “decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value,” Chief Executive Rolla P. Huff said in a statement.

Huff in August said the company would study its business of building citywide wireless networks - a project he said “morphed into larger commitments.”

The company later bowed out of a deal to provide Wi-Fi access throughout San Francisco, and Cincinnati shelved plans for citywide wireless Internet after noting EarthLink’s difficulties in the field.

Chicago officials abandoned their effort to install municipal wireless in conjunction with Earthlink because of the cost the city would have incurred. But about 175 U.S. cities or regions have citywide or partial systems.

Atlanta-based Earthlink said it is looking at “strategic alternatives” for the division, which it said was worth about $40 million, but did not disclose what those might be. As it considers the alternatives, the company said it would work closely with cities like Philadelphia that have embarked on wireless projects with it.

Cities have complained about high costs and less enthusiasm than expected from residential customers. And service providers paying for the networks have questioned whether they will generate enough revenue to justify spending many millions of dollars to build and maintain them.

EarthLink had to pay Houston $5 million for missing deadlines, and Philadelphia lawmakers want to call a hearing on delays and cost overruns stemming from the company’s attempt to launch a wireless network there.

Huff, who was named chief executive in June, leads a company that has struggled to generate revenue as dial-up customers turn to high-speed services from cable and phone companies. In August, the company said it would cut 900 jobs - or about half its work force - and close offices in four states to reduce operating costs.

As EarthLink’s tradition dial-up business started shrinking, the company started searching for new revenues. It brokered a joint venture with SK Telecom to form wireless company Helio and launched its municipal wireless service.

It has also been gradually scaling back its ambitions as it decided it can no longer afford to foot the bill for citywide wireless Internet services by itself.

Analysts say the business model attracted few businesses or higher-end residential customers who could have supported the service.

“The company was looking to find a new strategy, and municipal Wi-Fi was an unproven but promising strategy,” said Michael Balhoff, former telecom equity analyst with Legg Mason Inc. “But we’re seeing low subscriber counts because municipal Wi-Fi is appealing to a part of the clientele that would not generate the kind of revenue necessary to support such a service.”

The company’s decision was “long overdue,” said Anthony Townsend, a research director at the Institute for the Future, a Silicon Valley think tank.

“It was pretty clear that it was going to be a long road,” he said. “It’s a fragmented market. You’re dealing with clients and governments that move slowly and are very risk averse. They really didn’t have a lot of options, and it turned out to be a lot harder than they expected.”

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