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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.

Cities and local governments would be free to build their own broadband networks under a bill approved once again this week by a U.S. Senate panel.

Yes, that's right--not all of them enjoy that freedom right now. The Community Broadband Act, which was approved by the Senate Commerce Committee and counts both Democrats and Republicans as sponsors, is largely a response to the enactment of several state-level laws that limit the ability of municipalities to compete with private broadband providers. (Not surprisingly, it's phone and cable companies that have fought for those laws.)

The bill, which first emerged in 2005, says state and local lawmakers can't prohibit governments from offering Internet service. The governments are, however, encouraged to seek "public-private partnerships." And if they intend to make Internet offerings, they must first seek public comment on the costs and benefits, potential alternatives and other factors central to the process.

The action comes amid a mixed track record for city-sponsored Wi-Fi networks. Some locales, such as San Francisco, are still struggling to get their networks up and running, but others, like Minneapolis and Philadelphia, are reporting early signs of success.

Local officials, consumer advocacy groups, public utility companies, and the Internet service provider Earthlink, which has inked municipal broadband partnerships with numerous major U.S. cities, support the Senate bill. They argue it'll help the United States meet the goal of "universal broadband" and help ensure low-income residents have affordable access. Some free-market-leaning politicians, who question the effectiveness of governments offering services already provided by the private sector, have said it's not clear the legislation is necessary.

Whether the proposal will actually become law this year is another story.

The House of Representatives has yet to act this year on its own version of the measure, and a Democratic aide to the relevant committee said nothing is on the agenda yet. The same Senate committee threw its support behind a similar proposal last year, but it never went anywhere because it was wrapped up in a mammoth communications bill that died out because of disagreements over Net neutrality regulations.

SANTA CLARA, Calif.--Apple's iPhone and other Wi-Fi enabled handsets coming into the market could boost demand for citywide Wi-Fi networks, said experts Tuesday at the MuniWireless conference.

As cell phone operators push their 3G data services, new cell phones outfitted with Wi-Fi capability are also being introduced. Apple's iPhone was one of the first to reach the American market. And so far the phone has gotten rave reviews for Web surfing when it's on a Wi-Fi network. Conversely, critics have complained about the painfully slow surfing on AT&T's 2.5G cellular network. (The iPhone does not operate on a 3G wireless network, which is considerably faster than a 2.5G network.)

Bill Gurley, a general partner at the venture capital firm Benchmark Capital, told conference attendees that the Wi-Fi enabled iPhone, along with Research in Motion's newly announced Blackberry 8820 and other Wi-Fi enabled handsets will help drive the need for citywide Wi-Fi networks.

"The devices are coming," he said. "Most chip companies will soon be embedding Wi-Fi and 3G cellular capability into their chips, which will make just about every phone out there Wi-Fi capable."

Up until recently, most people using a citywide Wi-Fi network have done so using a Wi-Fi enabled laptop or PC. EarthLink built a whole business model on selling Wi-Fi broadband service as a replacement for DSL or cable modem service. The company also targeted some nomadic users, who would also typically connect to the networks using laptops. But this strategy has proved to be difficult, and EarthLink has greatly scaled back its citywide Wi-Fi plans.

But with Wi-Fi enabled cell phones users could benefit from true broadband mobile Web surfing, which would likely drive demand for the service.

Ken Biba, managing director at Novarum, a consulting firm that independently tests wireless broadband networks, said that in some cities the Wi-Fi networks are outperforming the carriers' 3G networks. For example, he noted the iPhone can connect at faster speeds over the Wi-Fi network in cities like St. Cloud, Fla., and Toronto much faster than other handsets can connect using a major carrier's 3G cellular network.

"In a city where Wi-Fi is deployed right, it can create a real paradigm shift," he said.

And with 1.39 million iPhones already in the market, according to Apple, demand will likely continue to grow.

Karl Garcia, a technical staff member at Google who is helping run the citywide Wi-Fi network deployed by Google in Mountain View, Calif., said that there are roughly 850 iPhones connecting to the city's free Wi-Fi network every day.

T-Mobile USA, the smallest of the four major operators, is already leveraging Wi-Fi, and could also be tied to citywide efforts. This summer it launched a service that allows people to switch between Wi-Fi and cellular.

If you can't beat 'em, join 'em.

That seems to be the philosophy AT&T has taken when it comes to citywide Wi-Fi. Only a few years ago, AT&T was lobbying in city councils and statehouses around the country trying to prevent cities from building their own broadband networks. AT&T and other service providers argued that these new networks would compete unfairly with their own broadband services.

But a little over a year ago, the company had a change of heart. And instead of battling local governments in court and in the legislature, AT&T joined forces with them to give them what they all seem to want--low cost, high-speed Internet access using Wi-Fi.

James Cicconi, senior executive vice president of legislative and external affairs for AT&T, speaking at the MuniWireless conference in Santa Clara, Calif., on Tuesday, said AT&T is taking a fresh view of the citywide Wi-Fi movement.

"Our position on citywide Wi-Fi has evolved," he said in an interview. "Cities have also evolved in how they think about citywide Wi-Fi. It's a very different scenario when a city is looking to partner with the private sector than if they go out and use taxpayer money and issue bonds to build a network that will compete with services already offered by the private sector."

Cicconi said AT&T's change of heart shouldn't come as a surprise. The company already provides thousands of Wi-Fi hotspots in cafes and other public places around the country. And the company sees Wi-Fi as simply another access technology for connecting users to broadband service.

"Connecting people with broadband service is our business," he said. "And if you think about it, Wi-Fi is eventually connected to fixed infrastructure somewhere, so we felt like citywide W-Fi is a good thing for us to be doing.

But the citywide Wi-Fi movement has hit a few roadblocks as some of the public/private partnerships forged in these cities have begun to fall apart. In the past six months, EarthLink, one of the most aggressive companies touting the citywide Wi-Fi deployments, has scaled back its efforts and pulled out of several contracts, including ones to build networks in San Francisco and Houston.

AT&T also seems to be treading lightly in this market as cities and service providers try to work out viable business models for these networks. In August, AT&T abandoned plans to build a citywide Wi-Fi network in Springfield, Ill. In nearby Chicago, AT&T also dropped out of the race to build a major Wi-Fi network. The city has since tabled its plans and is re-evaluating plans for a network.

But AT&T said it's moving forward in other cities, where Cicconi said the business case makes sense. For the most part, AT&T is looking for cities that will commit to being anchor tenants. This means the cities themselves are required to become customers of the service and commit to using a certain amount of service each year.

Cicconi said the network AT&T has built in Riverside, Calif., is a good example of this strategy. Riverside is using the network to assist in public safety and to enable other mobile government services. AT&T is also building a network in St. Louis, where the city is also expected to become a customer of the Wi-Fi service.

"Having the city as an anchor tenant is one business model that we think could work," he said. "There are a variety of applications that cities could use where Wi-Fi could be used. And then once the network is built, cities can think about using the excess capacity to do other things."

While AT&T has stepped into this market, the company hasn't been particularly aggressive about using Wi-Fi as a major part of its strategy. The reason is simple. AT&T also owns a cellular network and it's in the midst of deploying 3G broadband service for that network, too. And as AT&T's traditional landline business continues to lose subscribers, the company is counting on growth in its cellular business to drive profits. On Tuesday, the company reported a 41.5 percent rise in quarterly net profit for the third quarter of 2007 based mainly on growth in its cellular business.

Because of this conflict, experts say AT&T will likely continue to move slowly in this market, picking and choosing deployments very carefully.

"AT&T's heart really isn't in citywide Wi-Fi," said Ken Biba, managing director of Novarum, a company that tests and consults in the wireless broadband market. "It's more likely the company is just trying to cover its bases."

Citywide Wi-Fi is not dead in San Francisco.

At least that's what the city's chief information officer Chris Vein said Monday at a panel at the MuniWireless conference in Santa Clara, Calif.

Vein told attendees at the conference that the city is simply "taking a deep breath" while it figures out its next step.

"Nothing has changed in terms of our strategy," he said. "A lot has happened in the last three years, so we are at the stage now where we're listening and learning to figure out what our next move should be."

That said, Vein added that he fully expects the initiative to move forward and take shape in the Mayor Gavin Newsom's next term. Newsom, who in 2004 put forth the idea of offering free Wi-Fi access to all citizens, is expected to easily win his re-election campaign in November. And Vein said that the mayor expects to have an even more "audacious" term this time around.

In August it looked like San Francisco's Wi-Fi dreams were dead in the water. EarthLink, which had won the contract to build and operate the network, wriggled out of the deal as its new CEO and company restructured the company and basically laid off half of its staff. As part of the restructuring, the company greatly scaled back its Wi-Fi efforts.

Google, which was going to provide the advertising to support the free tier of service, is also out of the deal. Vein said he hasn't heard much from Google and is not in talks with the company or anyone else to kick-start the effort.

But the network will live on, he said. Citizens of San Francisco will vote on whether they want a citywide Wi-Fi network in November, when the issue is put up as a nonbinding ballot initiative. Despite many community based Wi-Fi efforts, many in San Francisco expect the ballot to pass easily.

But there are still many big questions that must be answered. For example, what will the San Francisco network look like? Who will own it and operate it? And what kinds of services will be available?

Mayor Newsom has gone on record several times saying that he believes a public/private partnership, like the one the city struck with EarthLink and Google is the answer. But some people on the Board of Supervisors would like to see the city take more ownership of the network to ensure control of the infrastructure.

San Francisco is one of many cities that have been forced to pull back on plans to build a citywide network. The main reason is finding a business model to support such networks. EarthLink clearly doesn't see the financial upside to a deal in which it bears most of the expense and risk to build the network.

San Francisco's main reason for building the Wi-Fi network is to bridge the digital divide and provide low-income citizens with affordable broadband access. Because the social merits of building and operating such a Wi-Fi network is a tough sell to many private partners, some cities are making public safety or improved government efficiency as their primary focus for building new networks. And they are promising to be anchor tenants, who guarantee service providers a set amount of business every year for using the network.

That's exactly what cities such as Minneapolis, Minn., and Providence, R.I. Minneapolis has committed to being an anchor tenant for 10 years. Its Wi-Fi network was put to the test this summer when it helped with recovery efforts during the aftermath of a major bridge collapse. And Providence uses a Wi-Fi network to help police better patrol city streets. Other cities are using Wi-Fi for remote surveillance, controlling traffic, lights and automatically reading parking and water meters.

Vein said that those kinds of applications are also being considered for San Francisco. In fact, he sees big potential in having city building inspectors use handheld Wi-Fi devices to access records and file reports remotely while they are in the field. He said that some of these applications will likely be addressed as part of the city's plans for the wireless network.

But he emphasized that bridging the digital divide through free or low-cost broadband access would continue to be the city's main focus in pushing the initiative forward. In part, providing free Wi-Fi access is an easier to sell politically in San Francisco, a city that has always kept the needs of poor and underprivileged citizens as a top priority. By contrast, pushing the project as a way to improve government efficiency could be viewed more suspiciously.

"In a city like San Francisco, there are some 200,000 people who are without broadband," he said. "And there are a lot of race and socioeconomic issues that come up as a part of this that politicians often need to address."

Whatever the final plan ends up being, Vein said that many of the issues and concerns that were brought up during the EarthLink negotiations will still be there and will need to be addressed.

"The same challenges of addressing privacy, health, and security concerns will still be there regardless of the business model and technology used," he said. "So we need to come together to address those concerns."

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."