Why Wi-Fi networks are floundering

Olga Kharif
22 Aug 2007

The static crackling around municipal wireless networks is getting worse.

San Francisco Wi-Fi, perhaps the highest-profile project among the hundreds announced over the past few years, is in limbo. Milwaukee is delaying its plan to offer citywide wireless Internet access. The network build-out in Philadelphia, the trailblazer among major cities embracing wireless as a vital new form of municipal infrastructure, is progressing slower than expected.

These potholes in the nation's wireless rollout of civic ambition"”criticized by many as an improper use of tax dollars"”are hardly the exception. For the road is getting bumpier for cities and the companies they have partnered with in a bid to blanket their streets with high-speed Internet access at little or no cost to users.

Telecoms Get Cold Feet

While 415 U.S. cities and counties are now building or planning to build municipal Wi-Fi networks, 'deployments are slowing down slightly,' says Esme Vos, founder of consultancy MuniWireless.com. Vos's tally still marks a nearly 70% jump from mid-2006, when there were 247 muni Wi-Fi projects on tap, but that's down from the torrid pace of a year earlier, when deployment plans doubled.

Perhaps the clearest hint of trouble ahead is that some of the companies partnering with cities on these projects, including EarthLink (ELNK) and AT&T (T), are having second thoughts about remaining in the municipal Wi-Fi business.

In San Francisco, recent developments have left many observers scratching their heads over whether that city's Wi-Fi project, announced more than a year ago, will ever get off the ground. In July, the president of the city's Board of Supervisors revealed that he was seeking to change the terms of the preliminary contracts awarded to EarthLink and Google (GOOG).

Earthlink Halts Build-Outs

While it's unclear whether he was referring to San Francisco in particular, EarthLink's new chief executive officer, Rolla Huff, promised in his company's July 26 earnings call to 'delay any further build-outs and scale back operating expenses' on existing muni Wi-Fi projects. Though EarthLink doesn't disclose specific operating results for that business, there's little hope it will turn profitable soon. 'The Wi-Fi business as currently constructed will not provide a return,' Huff said during the conference call. EarthLink did not respond to requests for additional comment, while Google directed all questions about the San Francisco project to EarthLink.

AT&T, which made a splash as the only major telecom player to embrace the muni Wi-Fi market, is also showing some doubt. The company is 'evaluating' whether to pursue any new deployments or even whether to continue working on its four existing projects, says Ebrahim 'Eb' Keshavarz, vice-president for business development at AT&T. One opened just over a month ago, on July 9, when AT&T announced a three-square mile muni Wi-Fi deployment in Riverside, Calif.

Such comments contrast sharply with the optimistic terms that network operators have agreed to in many of these Wi-Fi deals.

Developers Seek Revised Contracts

When EarthLink and MetroFi first bid for Wi-Fi contracts several years ago, they often agreed to foot the bill for network build-out, operations, maintenance, and upgrades.

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