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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.

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.