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A year ago, it seemed like just about every major U.S. city was drawing up ambitious plans to build wireless Internet networks so more people, both rich and poor, could have online access wherever they wanted. Now, economics is blurring the Utopian vision as city leaders and the companies proposing to build the Wi-Fi networks haggle over whether the projects make financial sense.
The problem came into sharper focus this week as once-ballyhooed projects in San Francisco and Chicago unraveled while another high-profile deal in Houston neared a breaking point.
"Cities and companies are rethinking the models that they are adopting," said Esme Vos, founder of MuniWireless.com, a Web site that tracks trends in the industry. "It's all about economics and risk-sharing now."
MuniWireless estimates Wi-Fi networks have either already been built or are under consideration in 455 cities and counties across the United States, up from 122 two years ago.
The second thoughts about municipal Wi-Fi revolve around questions about whether the networks will generate enough revenue to justify the multimillion-dollar investments to build and maintain them.
EarthLink Inc., an Internet service provider that had been one of the chief evangelists in the crusade to blanket cities with Wi-Fi, has decided it can no longer afford to foot the bill by itself as the Atlanta-based company tries to bounce back from $46 million in losses during the first half of this year.
"We will not devote any new capital to the old municipal Wi-Fi model that has us taking all the risks," Rolla Huff, EarthLink's chief executive, told analysts during a Wednesday conference call. "In my judgment, that model is simply unworkable."
Later Wednesday, Huff informed San Francisco Mayor Gavin Newsom that EarthLink was rescinding a proposal to cover the estimated $14 million to $17 million cost of building the city's Wi-Fi network.
Had the San Francisco system been built, EarthLink planned to charge about $20 per month for Wi-Fi access that would have been three to four times faster than a free service subsidized by ads sold by Google Inc. San Francisco still hopes to find other vendors willing to build a Wi-Fi network in its city, an effort that Google said it will continue to support.
"Google is committed to promoting alternative platforms for people to access the Web no matter where they are, and we encourage others to think creatively about how to address access issues in their own communities," Google spokesman Andrew Pederson said.
Last year, Google completed a free Wi-Fi network in its hometown of Mountain View that the company says attracts about 15,000 users per month.
EarthLink had doubts about whether it could sign up enough San Francisco subscribers to recover its costs there, based on its experience so far in other cities, including Philadelphia and New Orleans, where it has already completed or is still building Wi-Fi networks.
Houston was counting on EarthLink to invest about $50 million to build a Wi-Fi network there, but those high hopes are now fading. The city this week notified EarthLink that it will fine the company $5 million for missing its contractual deadlines. The payment will give EarthLink more time to consider whether it wants to abandon the Houston project or find other partners willing to help defray the costs.
Chicago canceled its $18.5 million Wi-Fi project after concluding it would require the city to spend too much money to help finance it.
Financial worries also have jeopardized a $20 million Wi-Fi network in Milwaukee. The project remains in its testing phase, but the vendor, Midwest Fiber Networks, has publicly expressed concerns about whether the network will attract enough customers to recoup the investment.
Vos and other industry observers believe the dreams about wireless Internet access in big cities can still be realized if the some of the financial burden is shifted from the private sector.
"What is happening right now is a black eye (for Wi-Fi), but I don't think it's a death blow," said Godfrey Chua, who follows wireless networking issues for the research firm IDC. "We just need to work on new business models."
Some cities already have agreed to help finance Wi-Fi by sharing some of the upfront costs and guaranteeing subscriptions. Minneapolis, for instance, has agreed to become the "anchor tenant" on its Wi-Fi network — a commitment that will cost the city $1.25 million annually.
Houston had also agreed to pay EarthLink $500,000 annually to give the city's workers Wi-Fi access during the first five years of its contract, but that still might not be enough to keep EarthLink on board.