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What Happened

By Carmen Nobel, Caron Carlson  |  Posted 2008-06-02 Print this article Print

Telephone and cable companies have overturned some municipal wi-fi projects, but advocates—including congress—are fighting back.

What Happened?

Earthlink declined to comment for this story, but others close to the municipal Wi-Fi situation say the company’s move wasn’t a simple matter of the dream dying with the dreamer.

“There were several problems with the Earthlink model, the first being Earthlink itself,” says Esme Vos, founder of Muniwireless.com, a Web site dedicated to information about municipal wireless deployments. In addition to its municipal Wi-Fi investments, she adds, Earthlink invested hundreds of millions of equity dollars in Helio, the mobile virtual network operator the company founded with SK Telecom.

“If Earthlink hadn’t invested in Helio, that might have helped,” Vos says. “My feeling about a company that invests in a company like Helio is that it’s stupid. But when you’re being offered something for free, you don’t ask a lot of questions, do you?”

But the main problem was that building a gigantic wireless network was more expensive than Earthlink had anticipated. Plus, initial advertising and subscriber revenues didn’t match up.

“To some extent, we were coasting along with Earthlink,” says Tropos’ Chari, who admits that the business model seemed a little iffy from the get-go. “When you’re getting all this business, it’s easy to sit back and enjoy it … but there were cost overruns and overly stringent RFP requirements from some of the cities. As part of the contracts, Earthlink had to agree to certain levels of coverage, which wasn’t always economical.”

In other words, Earthlink couldn’t adjust the size of the networks to meet demand, because the deals generally called for citywide networks, period.

The cost issues stemmed largely from the fact that the networks required more wireless equipment than expected. Furthermore, wireless networks require places to hang those access points—on buildings or utility poles—and some building owners charge a fee for that.

Earthlink is still working out transition deals with its client cities. However, when Wireless Philadelphia held a city council meeting to field questions about the project, nobody from Earthlink showed up.

Other cities weren’t surprised that the Earthlink business model didn’t work.

“It felt as though it was an easier, understandable way to build a network: Hand it over to someone else, and everything will be rosy,” says Pam Reeve, CEO of OpenAirBoston.net, a nonprofit entity that Boston established to oversee its municipal Wi-Fi program. “I don’t think there was a lot of consideration given to what would happen after the prom.”

Boston eschewed the Earthlink model because it wanted more control over its network operations. “Handing the network over to one supplier was just like what we had with [the incumbent telecom and cable operators],” Reeve says. “We already had a duopoly, and we weren’t looking for a triopoly.”

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