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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.

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."

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.

Microsoft is teaming up with advertising technology provider JiWire to offer advertisements on municipal Wi-Fi networks.

The companies are testing the new advertising service in Portland, Ore., and Oakland County, Mich.

The companies haven't talked about the details of the deal, but they have said they will share revenue from advertising.

Using advertising to subsidize or offer free Wi-Fi in citywide networks is not a new concept. San Francisco plans to offer a free tier of service when it rolls out its network. It has chosen EarthLink and Google to build the network.

But JiWire CEO Kevin McKenzie said that JiWire's approach is different from Google's approach. While Google provides text listings, JiWire will offer a 30-second commercial before people can access the network. The company will also sell banner advertisements.

Since the municipal Wi-Fi movement started taking shape a couple of years ago, politicians, community organizers and the companies building the networks have touted Wi-Fi as a cheap solution to myriad social and economic problems plaguing cities today. Some cities see it as a way to bridge the digital divide, while others see Wi-Fi as providing a third alternative to a broadband market dominated by the cable and phone companies.

But building and maintaining Wi-Fi networks costs real money. Advertising can help the defray the cost, but only if cities and network operators can get advertisers to pony up big bucks to run the ads.

This is where JiWire says it can help.

The network in Portland, which is being built by MetroFi, already uses advertising to provide free Wi-Fi in parts of the city. But McKenzie said that his company can get a lot more money for its ads than MetroFi can get on its own. He said that JiWire charges advertisers $35 to $150 per CPM, or cost per 1,000 impressions. By contrast, he said that MetroFi is probably getting CPMs in the range of $2 to $3 on its own.

This is big money. And it could be just what the muni Wi-Fi market needs to get off the ground.