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Local investors have rescued Philadelphia's citywide Wi-Fi network.

Former Verizon executive Mark Rupp is part of an effort to complete and improve the $17 million project that was built but abandoned last week by EarthLink, according to a report Tuesday in the Philadelphia Inquirer. Philadelphia Mayor Michael Nutter said during a news conference Tuesday that no public funds would be used to complete or operate the project, although no further financial details were released.

The group plans to create an ad-supported service that would be free to residents, but businesses would be charged, according to the investment group.

EarthLink, which had filed a proceeding in federal court to start removing Wi-Fi radios from city streetlights and cap its potential liability at $1 million, reportedly welcomed the announcement and said it would work with the new owners on a smooth transition.

EarthLink announced on June 10 that it was abandoning the project after being unable to find a buyer for the network, which has been 80 percent completed. It also claimed that after months of negotiations with the city and a nonprofit group interested in running the network, it was unable to close the deal.

EarthLink, which won the contract in 2006 to build what was at the time to be the largest citywide Wi-Fi deployment in the nation, said earlier this year that it's getting out of the Wi-Fi business.

After the death of EarthLink CEO Garry Betty in early 2007, the company began wiggling out of several contracts with cities such as San Francisco and Houston. Early this year it announced it was abandoning the business altogether, and it started negotiating with five cities in which networks had already been built or partially built.

EarthLink said Tuesday that it is pulling the plug on its citywide Wi-Fi network in Philadelphia.

EarthLink issued a press release on Tuesday stating that it was unable to find a buyer for the $17 million network that has been 80 percent completed. It also claimed that after months of negotiations with the city and a nonprofit group interested in running the network, it was unable to close the deal.

Chris Putala, a spokesman for EarthLink wouldn't identify the nonprofit group. But a Philadelphia Inquirer article named the nonprofit as Cleveland-based OneCommunity, an organization that provides a fiber network to public and nonprofit institutions in Ohio.

EarthLink claims it had offered to donate the network free of charge to OneCommunity as well as pay cash and donate new Wi-Fi equipment, but the "transfer unraveled due to unresolved issues among the city, Wireless Philadelphia and the nonprofit."

OneCommunity was not available for comment.

Mayor Michael Nutter told The Philadelphia Inquirer that he was "disappointed" by EarthLink's decision. He indicated that the city might still hold the company accountable to some of the financial obligations in the 10-year contract it signed two years ago. But he acknowledged that it was highly unlikely that another network operator would take over the network at this point.

"The business model was tenuous at best," he told The Inquirer. "I think what we have here is a market going in a different direction."

EarthLink is giving its nearly 6,000 customers in Philadelphia 30 days to transition to other services before it shuts down the network. Service will be terminated on June 12. The roughly 900 subscribers who were getting service subsidized as part of a "digital inclusion" program will be offered free EarthLink dial-up service for a year, EarthLink's Putala said.

EarthLink, which had once seen citywide Wi-Fi as its best hope for a post-dial up existence, said in February that it was getting out of the citywide Wi-Fi business. The company wiggled out of several contracts in cities such as San Francisco and Houston. In the five cities where it had built or was building a Wi-Fi network, the company looked to sell the network.

Last month, it announced it had transferred ownership of its networks to cities themselves in Corpus Christi, Texas, and Milpitas, Calif. But in New Orleans, where no agreement was reached with the city, it shut down service.

The company has not yet commented on its plans for its network in Anaheim, Calif., which was the first EarthLink citywide Wi-Fi network to launch.

As for the Philadelphia network, EarthLink has already filed a proceeding in federal court to start removing Wi-Fi radios from city street lights and cap its potential liability at $1 million.

"Since we have exhausted our efforts to find a new owner of the network, our only responsible alternative now is to remove our network at our cost and assist our Wi-Fi customers with alternative ways to access the Internet," Rolla Huff, EarthLink's chairman and chief executive officer, said in a statement.

In its court filing, EarthLink said that its subscriber base covered less than 50 percent of its operational costs to run the Philadelphia network. And the company disclosed that it has been losing between $180,000 and $200,000 per month on the network.

"The losses were simply not sustainable," Putala said. "EarthLink had every incentive to make this network work. Despite our best efforts the Wi-Fi industry just didn't live up to our expectations."

While it's clear that the citywide Wi-Fi experiment has left EarthLink with some financial loss, the citizens of Philadelphia are also losing something. The network, which was dreamed up nearly four years ago, was supposed to bring more broadband competition and affordable service to the community. A major component of the network was to also provide free or low-cost broadband service to low-income families in an effort to bridge the digital divide.

And before the service was even really off the ground, EarthLink pulled the plug. Still, Wireless Philadelphia, the nonprofit created to support the digital inclusion part of the service, said it isn't giving up hope.

"Despite today's announcement, Wireless Philadelphia and the city are still working actively together to identify alternatives for preserving this network and applying it to numerous civic, commercial, and social purposes," Greg Goldman, CEO of Wireless Philadelphia said in a statement. "Regardless, Wireless Philadelphia is utterly steadfast in its determination to extend Internet access to all members of the community, and we intend to do everything in our power to continue the momentum generated by WP in support of digital inclusion."

The fate of Philadephia's citywide Wi-Fi deployment is still in limbo as EarthLink threatens to pull the plug.

EarthLink, which fronted $20 million to build the network and has completed 80 percent of the build-out, stopped accepting new customers last week, according to a report by Metro Philadelphia. The company has also supposedly given the city a deadline of this week to come up with a plan to take over the network or sell it to a third party.

EarthLink, which won the contract in 2006 to build what was at the time to be the largest citywide Wi-Fi deployment in the nation, said earlier this year that it's getting out of the Wi-Fi business.

The company had aggressively pushed its municipal Wi-Fi strategy. And Philadelphia was one of several large contracts the company had won to build citywide Wi-Fi networks.

But after the death of EarthLink's CEO Garry Betty in early 2007, it quickly became clear that the Internet service provider had a change of heart when it came to Wi-Fi. Within months, the company had wiggled out of several contracts with cities such as San Francisco and Houston. Early this year it announced it was abandoning the business altogether, and it started negotiating with five cities in which networks had already been built or partially built.

Last month, it announced it had reached agreements with Corpus Christi, Texas; Milpitas, California; and New Orleans. The city governments of Corpus Christi and Milpitas decided to take ownership of the networks and run them themselves. But New Orleans did not. The network, which was already up and running, will be dismantled starting May 18.

A spokeswoman for EarthLink said the company is still negotiating with Anaheim, Calif., and Philadelphia, the two remaining deployments.

Greg Goldman, CEO of Wireless Philadelphia, the nonprofit set up to help low-income residents connect to Philly's network, said in a blog post on Wednesday that there is nothing in the 10-year agreement with EarthLink that permits the company to impose deadlines for the network's transfer or to turn off the service and remove equipment.

In fact, according to Metro Philadelphia, EarthLink still owes Wireless Philadelphia $1 million to be paid by May 23 as part of its 10-year contract with the city.

From the beginning of the project, Philadelphia city officials have been adamant that they do not want to spend taxpayer money to build or run the network. As a result, they negotiated a very favorable contract that put much of the burden on EarthLink.

Since EarthLink stopped construction of the network in February, the city has been working to find someone else to complete the construction and run the network. According to Goldman, Philadelphia Mayor Michael Nutter is still committed to the project.

"As an organization, Wireless Philadelphia clearly believes there is great value in the initiative for a variety of purposes--most importantly, extending the profound educational opportunities provided by technology to the thousands of families in Philadelphia who do not have it," he said in a blog post Thursday. "We are extremely grateful to Mayor Nutter and the Nutter administration for the aggressive efforts they are making along with us to find a replacement for EarthLink and to breathe new life into this vital project."

Minneapolis is quickly becoming the new poster child for the municipal Wi-Fi movement.

The city is expected to have the majority of its 59-square-mile network finished by the end of this month, and already experts are pointing to the nearly completed network as a model other cities should follow.

Over the past year, citywide wireless networks have gotten a bum rap. Halfway through 2007, EarthLink, which had been leading the charge with big contract wins to build and run networks in San Francisco, Houston, and Philadelphia, started unraveling its Wi-Fi strategy.

By September, the company had pulled out of proposed networks in San Francisco and Houston. And in early February, EarthLink put its citywide Wi-Fi business up for sale.

The rise and fall of the movement has been well-documented by the press. Many critics have said citywide Wi-Fi is dead. I'm inclined to believe the movement is still alive. But the business models used in future deployments will be very different than those the industry has seen from EarthLink and others that have failed to deploy successful Wi-Fi networks.

Currently, Minneapolis' approach seems to have the most legs. In this model, the city government and public-safety agencies act as anchor tenants guaranteeing the service provider, USI Wireless, a contract. In 2006, the city agreed to pay USI Wireless $1.25 million a year for 10 years to build and operate its network.

But USI Wireless is not relying entirely on the city to fund the network. The company is also offering service to residents and small businesses.

Having an anchor tenant, like the city, helps guarantee a hefty stream of revenue, but the residential consumer market also provides USI Wireless with an opportunity to grow its business and increase profits.

"For large to midsize cities, Minneapolis will become the standard model," said Craig Settles, an independent wireless-technology consultant.

Minneapolis city officials recognized the value of having a citywide Wi-Fi network. But during the planning stage, they were unwilling to front the money to build the network. So they looked for a company in the private sector to build and operate the network for them.

"From the beginning, we were focused on the institutional benefits of having a citywide Wi-Fi network," said Lynn Willenbring, CIO for Minneapolis. "But we recognized quickly that we could not create a viable business case for the network operator with just our business. The vendor needs to make a profit. So it's important for them to sell to residential and business users too."

The network asset already proved its worth last year. A portion of the newly constructed network had already been completed on August 1, 2007, when the I-35W Bridge collapsed, allowing the city to use Wi-Fi as part of its emergency response effort.

The network is also getting good response from consumers. So far, more than 8,000 residents have signed up for USI Wireless' service, which is being offered at three different speeds: 1-megabit-per-second downloads for $20 per month, 3 Mbps downloads for $30 per month, and 6 Mbps downloads for $35 per month. The service will compete with DSL service offered from Qwest Communications and cable modem service from Comcast.

How Minneapolis model differs
Minneapolis' model differs from that of other cities, which have been less successful in deploying citywide Wi-Fi. EarthLink, the biggest company in the municipal Wi-Fi market, won several high-profile contracts by focusing exclusively on offering residential service. The company also promised free access or reduced access in certain cities like Philadelphia and San Francisco to help bridge the digital divide.

EarthLink did not require city governments or agencies to become customers of its networks. Instead, EarthLink negotiated deals in which it would actually give away service to city agencies in exchange for using city-owned infrastructure like utility poles.

Tempe, Ariz., is another example of a city that did not buy network services, but instead expected to use the network free of charge in exchange for providing access to utility poles. Less than two years after its Wi-Fi network went live, the project is basically dead. Tempe contracted with a network operator called Kite Networks, a division of Richardson, Texas-based Gobility. At the end of 2007, the company cut off service, because it couldn't make any money.

A ComputerWorld article published last month quoted Dave Heck, CIO for the city of Tempe, blaming the failure of the network on Kite Networks for not marketing the service aggressively enough. At its peak, the company was only able to sign up 800 subscribers to the service in a city with 160,000 residents.

"Their rates have been half the cost of wired Internet services, and they could have gotten subscribers if they marketed it right, but they didn't market it well," he was quoted as saying in the article.

But if Tempe had agreed to become a customer of the network, maybe the service would have survived.

Philadelphia's network is nearly 80 percent built. But with EarthLink now out of the citywide Wi-Fi business, the project's future is uncertain. The city is unlikely to finish building the network with taxpayer dollars and it also won't likely run the network. Terry Phillis, CIO for Philadelphia, told the Associated Press earlier this month that selling the network would be the best thing for everyone. But Phillis acknowledged that finding a buyer wouldn't be easy.

But if Philadelphia revised its Wi-Fi contract and promised to buy a certain amount of services from the network provider, it could make the deal more palatable to potential buyers.

"If they aren't willing to support the network as a customer, then the whole thing falls apart," Settles said. "And they've missed a great opportunity."

EarthLink is selling off its municipal Wi-Fi business, the company's CEO said Thursday night during its fourth-quarter 2007 conference call. No buyer has been found, but the business, which has been drastically scaled back from its original vision, is now officially on the auction block.

The news comes as no surprise to those who have been watching the company slowly unravel its citywide Wi-Fi strategy for several months. The strategy seemed doomed ever since the death of former EarthLink CEO Garry Betty, who lost his battle with cancer early last year.

By summertime, the company's new CEO, Rolla Huff, said the company would drastically scale back the project, and by September, it had pulled out of proposed networks in San Francisco and Houston. And in November, EarthLink said it was considering its "options."

While many people in the media are already writing citywide Wi-Fi's obituary, I still think that it's a technology and a business that will continue to grow. Of course, it might look a lot different than the citywide Wi-Fi business EarthLink had envisioned. Instead of consumer Wi-Fi services that compete with cable modem and DSL services, it's more likely that Wi-Fi will be used in smaller cities to provide police departments and other government agencies wireless communications.

Craig Settles, an independent wireless consultant, said he is still seeing a lot of interest in Wi-Fi from midsize cities.

"Many cities see the benefit of Wi-Fi," he said. "And they are willing to invest in the technology themselves to provide government services."

There are plenty of examples of success stories where this is happening. Take the city of Phoenix, Ariz., which deployed 36 Wi-Fi-enabled Internet Protocol video cameras in its downtown area leading up to this year's Super Bowl.

The cameras made it possible for the police department to keep tabs on the crowds and crack down on ticket scalpers. For past events, like the 2001 World Series, which was also in Phoenix, the police department had cops standing on rooftops with binoculars.

Detective Chris Jensen of the Phoenix Police Department said the cameras were very effective, helping police disrupt the activity of four or five highly organized scalping rings, which had flown into Phoenix for the event.

There's no word yet about what will happen to the cities where EarthLink was already in the process of building its network. Philadelphia, the poster child of EarthLink's muni Wi-Fi strategy, is about 80 percent built, making it the largest citywide Wi-Fi project in the United States.

Greg Goldman, CEO of the city nonprofit group Wireless Philadelphia, said its digital inclusion program is growing as it signs up low-income families for broadband service. The group has also been racking up more funding. But EarthLink's latest move, though expected, does put Philadelphia in a precarious situation.

"We aren't surprised by the announcement," Goldman said. "But it's certainly an unfortunate development."

Goldman said Wireless Philadelphia and the city, which are partners in the project, are talking to businesses inside and outside the community, as well as the local universities, to figure out how to continue funding the network. While he didn't rule out going to the city for funding, he said it would be a tough sell.

"We recognize that it would be hard to transition the project from being taxpayer-neutral to something where the city government is responsible for funding it," he said. "So for now, we are looking at more creative solutions."

As for who might buy EarthLink's Wi-Fi business, that's still a big question mark. The company could sell it in pieces to regional operators in the cities where it has networks already built. Or it could sell it to a big entity like AT&T or T-Mobile, which have both been using their national network of Wi-Fi hot spots to enhance their existing broadband and wireless networks.

Wi-Fi hot-spot provider Boingo could also be interested in the assets. The company, which was also started by Sky Dayton, EarthLink's founder, has some common history with EarthLink.

EarthLink also reconfirmed on its conference call Thursday that it will no longer be investing in Helio, a cell phone service targeting young hipsters that EarthLink had invested in with Korean mobile carrier SK Telecom.

The venture is supposedly doing well, but EarthLink said in November that it would no longer be investing in the company. Instead, SK Telecom will continue to invest in the company with the option of pumping in an additional $270 million. EarthLink will still be a stakeholder in Helio, but its share of the company could be reduced to about 22 percent, if SK Telecom continues investing.

Despite financial woes, EarthLink is kicking butt in the broadband market, according to a J.D. Power and Associates customer satisfaction survey published Wednesday.

EarthLink, which said last month that it would lay off nearly half its staff, got the highest customer satisfaction ranking for delivering broadband services in the East and South regions of the United States. It also ranked second in the North Central region of the country.

Frank Perazzini, director of telecommunications at J.D. Power and Associates, said that what's impressive about EarthLink's performance in the survey is that it bucks conventional wisdom.

"Everyone believes that the triple play from the cable and phone companies is the answer," he said. "But EarthLink isn't a pure triple play provider, yet it's able to rise to the top in several regions, both in its traditional dial-up business and broadband, by providing a great service and a great value."

Perazzini admits that EarthLink's lead over cable and DSL rivals isn't huge. In the East, Cablevision is a close second. And Bright House Networks' Road Runner service and Verizon Communications aren't far behind EarthLink in the South.

But the company has had strong and consistent performance for years, making it a major contender in the broadband market, despite the fact that it doesn't own its own infrastructure. Instead, EarthLink relies on its cable and telephone competitors to lease it capacity, which it resells to consumers.

In many instances, EarthLink's service is not cheaper than a competing cable or DSL offering. But the company, which has built a strong dial-up access brand, has done a good job providing customer and technical support to broadband customers, too. Also, the company is able to drive more users to its portal and e-mail services than other broadband providers, said Perazzini.

"The perception is that EarthLink is providing value above and beyond its competitors," he said. "And that's how they are able to build loyalty among their customers."

But with major layoffs looming, it's hard to know whether EarthLink will be able to maintain this high standard of service. Last month, the company said it would lay off 900 employees or nearly half its staff.

"It could be hard for EarthLink to maintain the same level of service," Perazzini said. "Or it may be winning a J.D. Power and Associates award may be just what the company needs to come back and compete even stronger."

EarthLink's head of marketing, Jacqueline Yeaney, said the company plans to keep doing what it's been doing.

"EarthLink has always focused on our customers' online experience, and receiving J.D. Power and Associates' highest ranking is recognition of that commitment," she said in a statement. "We'll continue providing the fast, reliable Internet service that consumers expect as well as the software tools, products and services that make the EarthLink brand synonymous with the highest standards of quality."

Another positive tidbit of information for EarthLink gleaned from the J.D. Power survey is that the dial-up market appears to be alive and well. This is especially good news for EarthLink, which still generates a good deal of cash from its dial-up business.

The survey found that dial-up users, who still make up about a third of the overall Internet access market, are more satisfied and more loyal to their service providers than high-speed Internet subscribers. About 51 percent of dial-up customers are loyal to their service provider, while only 42 percent of broadband customers said they were loyal their ISP.

Overall satisfaction is also higher among dial-up subscribers than high-speed subscribers, increasing 13 points from 2006. By contrast customer satisfaction among high-speed subscribers has declined by 13 points since 2006.

EarthLink said late Wednesday that it is bailing out of a contract to build San Francisco's free Wi-Fi service.

EarthLink backed out of the deal a day after the company announced it was laying off 900 employees--nearly half of its staff. EarthLink, which is trying to get its finances in order, announced earlier this summer that it would not invest in any new citywide Wi-Fi deployments until it came up with a better business model.

But it was assumed the company would fulfill obligations with cities where it had already signed contracts. Now it looks like EarthLink is trying to get out of any deal where it hasn't already begun construction, even if it has a signed contract.

Earlier on Wednesday, the city of Houston announced that EarthLink had agreed to pay a $5 million penalty to the city for not meeting its first deadline for building its wireless network. EarthLink has nine months to start construction or figure out a way to get out of the contract altogether.

And now, the company has also dissolved its contract with San Francisco, which was approved in January but was awaiting final approval from San Francisco's Board of Supervisors.

Under the contract signed in January, EarthLink would have paid the city $2 million for the right to build, install and run a free Wi-Fi network that would be supported through advertising from Google. EarthLink was also going to offer a paid service that offered higher-speed connections for $20 per month.

Earlier this summer the Board of Supervisors tried to tweak the contract, asking for changes in three areas. First, it wanted EarthLink to increase the speed of the free tier of service to 500 kilobits per second. It also asked EarthLink to reduce the length of the contract from 16 years to eight years. And finally, it asked EarthLink to extend privacy provisions it offered for its paid service to the free service.

San Francisco Mayor Gavin Newsom, who had stated publicly that he felt the current contract was sufficient, blamed the Board of Supervisors for dragging its feet and blowing the deal.

He told the San Francisco Chronicle, "I'm disappointed because we had a chance to get it done, and it didn't happen.The board delayed it, and now EarthLink could not be more pleased."

Supervisor Ross Mirkarimi said the mayor was completely wrong in his assignment of blame.

"The mayor wanted us to rush into a deal that was half-baked," he said. "And now he's trying to cover his tracks instead of looking at the real reason this deal fell through which is the fact that EarthLink is having a complete financial meltdown."

Mirkarimi said that it was EarthLink and not the Board of Supervisors that delayed the contract approval. He said that the supervisors were simply trying to get EarthLink to answer questions about the contract.

"They were dragging their feet all summer," he said. "I would expect a company that is trying to do business with the city of San Francisco to really be wooing us. So we knew there was something going on with the company. And it turns out our instincts were right."

EarthLink was expected to appear before the Board of Supervisors on September 12th. And a final vote was expected at that time.

EarthLink declined to comment further on the San Francisco deal. But earlier this week, EarthLink's new CEO, Rolla Huff, told CNET News.com that its citywide Wi-Fi business doesn't make sense for the company right now. He said the company needs to come up with a new business model before it spends anymore money to build these networks.

"We simply have not found a way in the old business model to make a return on our investment," Huff said in the interview. "We need to get our cost structure right, so we aren't burning so much cash that shareholders want to get out of the market altogether. We need to make it a valuable option. We have a real interest in ultimately making municipal Wi-Fi successful."

A day after EarthLink said it would lay off nearly half its workforce, the company has agreed to pay the city of Houston a $5 million penalty fee for missing its first deadline in building the city's municipal Wi-Fi network.

Houston Mayor Bill White announced the settlement with EarthLink at a Houston City Council meeting on Wednesday. EarthLink, which had agreed to blanket nearly 640 square miles of Houston with Wi-Fi service, failed to meet its first deadline by not signing an agreement with CenterPoint Energy to lease its utility poles for the Wi-Fi project.

"EarthLink appeared to try to discharge their contract obligations by not signing the agreement with the electric utility," said Richard White, the city's chief information officer. "But now they've decided to settle the dispute."

Once EarthLink signs this contract, a two-year time clock will start ticking for the company to build and complete the construction of the wireless network.

Now EarthLink will have nine months to sign the utility contract and start construction. During this time EarthLink may reconsider how it will fund the project, which is expected to cost somewhere between $40 million and $50 million. EarthLink declined to comment on the deal.

The city of Houston is also free to consider proposals from other vendors during this nine-month period. And it could decide to dump EarthLink as its provider if it gets a better offer from somewhere else. White has indicated that he won't be soliciting new bids, but he will consider unsolicited proposals.

EarthLink's stall tactics come as the company tries to figure out what to do with its municipal Wi-Fi strategy. The company's former CEO Garry Betty saw Wi-Fi as a growth engine for the future, as the company's traditional dial-up business withers. But since Betty's untimely and sudden death in January, the company's priorities have shifted.

Rolla Huff, the new CEO since June, is now focusing on returning shareholder value. And in addition to the massive cuts across the company announced Tuesday, he has also scaled back investment in new citywide Wi-Fi projects until the company comes up with a more viable business model that doesn't require EarthLink to foot the entire bill for building these networks.

Huff has said publicly that the company is committed to fulfilling its existing contract obligations. But this latest skirmish with Houston is an indication that EarthLink may be trying to get out of some of these deals, too.

In the short term, it makes sense for EarthLink to get out of its contract with Houston. The Wi-Fi network in Houston will cost roughly three times more than what it's costing to build a similar network in Philadelphia, and the networks will serve roughly the same number of residents. But unlike Philadelphia, Houston has already agreed to be an anchor tenant and pay about $500,000 a year for Wi-Fi services for the first five years the network is in operation. And Houston will likely increase its spending on Wi-Fi services as it mobilizes more workers, said Lewis.

For now, it looks like EarthLink has nine months to figure out if it wants to continue with the Wi-Fi project or whether it's going to abandon it. As for the city of Houston, regardless of what EarthLink decides, the city will move forward with a wireless network.

"It's hard to say if EarthLink will be the company to build the network," Lewis said. "But wireless is the future. And wired infrastructure is the past. For us it just means that we may not have our wireless infrastructure in place as early as we had hoped."

Internet service provider EarthLink said Tuesday that it would lay off approximately 900 employees as the company restructures in an attempt to boost its sagging stock price.

EarthLink will lose about half its staff in the restructuring as it shuts down operations in Orlando, Fla.; Knoxville, Tenn.; Harrisburg, Pa., and San Francisco. It will also substantially reduce its presence in Pasadena, Calif., and Atlanta, the company said in a press release Tuesday.

The reductions are expected to cost the company $60 million to $70 million. But it will save EarthLink $25 million to $35 million through the remainder of 2007, the company said.

And these cuts may only be the tip of the iceberg, according to statements made by EarthLink's new CEO, Rolla Huff.

"While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future," he said in a statement. "These changes get our cost structure in line, but there is much more to do. We expect to announce additional steps as we continue our work over the coming weeks and months."

The shake-up comes as EarthLink struggles to find ways to balance losses in its traditional Internet service provider business with the high cost of building its municipal Wi-Fi and cellular phone businesses.

The company has won several citywide Wi-Fi contracts with cities such as Anaheim, Philadelphia and San Francisco. The way these deals are structured, EarthLink builds and runs the networks in exchange for using city-owned infrastructure like utility poles.

But the Wi-Fi projects haven't gone as smoothly as EarthLink had hoped. For example, EarthLink is still in contract negotiations in San Francisco for its planned citywide Wi-Fi network. And projects in Arlington, Va., and St. Petersburg, Fla., are supposedly on hold.

The GigaOm blog has also reported that Don Berryman, head of EarthLink's Muni Wi-Fi business, left the company three weeks ago. I haven't confirmed Berryman's departure yet, but I will be talking to EarthLink's CEO later Tuesday.

EarthLink is also pouring huge amounts of money into Helio, a cellular joint venture it started with Korean cell phone provider SK Telecom. The mobile virtual network operator, or MVNO, started with $440 million from both partners. But recently, each of the partners agreed to contribute another $50 million to $100 million to the company.

And all of this comes while EarthLink continues to lose subscribers in its traditional dial-up Internet business. At the end of the day, EarthLink has some very hard choices to make as it moves forward. Look for a news analysis later Tuesday on CNET News.com.