Philly Wi-Fi Network Hits Snags, Delays

Alfred Zaccaria was finally going to leave the world of dial-up for high-speed access to the Internet without having to pay a lot more for service.

Or so he thought.

A 63-year-old landlord in northeast Philadelphia, he signed up for EarthLink's Wi-Fi Internet service in June for $6.95 a month, a rate that would rise to the regular price of $19.95 after six months. Five months later, he still can't get it to work despite moving his wireless modem from room to room and closer to windows to get a better signal.

"I'm paying them and they're not giving me the service," said Zaccaria, who's stuck with a one-year contract and a $70 modem whose return date has passed. "It seems unjust."

Three years after Mayor John Street announced Philadelphia would be the first major U.S. city to have its own network for wireless Internet access, the project is nearly a year behind schedule and beset by cost overruns.

Technical problems and restructuring at EarthLink Inc., the Atlanta-based Internet service provider that won the 10-year contract to set up and manage the network, slowed the process. But its future grew much murkier Friday, with Earthlink's announcement that it is considering "strategic alternatives" -- in other words, a possible sale -- for its municipal Wi-Fi business.

"Making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value," the company has decided, Chief Executive Rolla P. Huff said in a statement.

Shares of EarthLink rose by 13 cents, or 1.8 percent, to $7.27 amid heavy trading Friday, then climbed another 85 cents, or 11.7 percent, after-hours.

Earthlink, which did not disclose what other paths the unit could follow, said the division is worth about $40 million.

The company has struggled to generate revenue as its dial-up customers have turned to high-speed services. It brokered a joint venture with SK Telecom to form wireless company Helio and launched its municipal wireless service.

Terry Phillis, Philadelphia's chief information officer, said his city's 135-square-mile network is 75 percent complete and EarthLink is committed to finishing it. Earthlink vowed Friday to continue working with its municipal partners.

It's not clear who will own or run Philadelphia's network once it's built, though the city could take it over and find another company to operate it.

Consumer complaints have reached the office of City Councilman Frank Rizzo, who said he also had trouble connecting to EarthLink's Wi-Fi hot spots around the city and has called for a hearing on it.

"I started to get e-mails from people complaining the service doesn't work well, and that bothered me," Rizzo said.

Jerry Grasso, a spokesman for EarthLink, declined to disclose subscriber figures. But municipal officials have said they were disappointing there and in other cities.

Wireless Philadelphia, the nonprofit overseeing the project, has signed up only 440 households for the "Digital Inclusion" program for low-income residents, well below the goal for June of 1,000. Participants would get a refurbished computer, training, Internet access for a year, wireless equipment and tech support.

The network initially was to be finished last spring. Now, Wireless Philadelphia said it will be completed early next year.

Some delays were technical. EarthLink had to nearly double its number of Wi-Fi nodes to more than 40 per square mile to improve connectivity. And the company didn't require residents to buy or rent equipment to boost the signal indoors as necessary.

Then, in August, EarthLink announced it would cut 900 jobs, nearly half of its work force, and reassess the business model for its municipal broadband projects.

"We will not devote any new capital to the old municipal Wi-Fi model that has us taking all the risks," Huff told analysts then. "In my judgment, that model is simply unworkable."

Earthlink pulled out of San Francisco's Wi-Fi project in August, and Chicago and Cincinnati abandoned their efforts about the same time. The company paid Houston $5 million for missing the starting deadline for that city's Wi-Fi project and was mulling whether to walk away.

The announcement on Friday puts in limbo the investment in Houston, which Richard Lewis, that city's chief information technology officer, estimated at $40 million to $50 million.

EarthLink agreed to foot the bill for Philadelphia's network, give free accounts to the city, lease spots from the city for its Wi-Fi nodes and subsidize Internet access for low-income residents.

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

"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."