• Business Week, Wednesday, August 15, 2007 10:46 AM

Municipal Wi-Fi, once hyped as the coolest new way to get Internet access on the cheap, is in trouble. Hundreds of citywide projects have been announced in the last few years, but the one with the highest profile, the one San Francisco operated by Google and EarthLink, is in limbo. Contractual disputes, the high cost of building the networks, and the potentially low margins, have caused many operators to halt the building of municipal Wi-Fi networks in other areas, too, like Milwaukee and Philadelphia.

In all, 415 U.S. cities and counties have jumped on the city Wi-Fi bandwagon, which requires cities to partner with an infrastructure builder and/or an Internet Service Provider to execute the plan. But many of the cities' partners are now getting cold feet, because, as new EarthLink CEO Rolla Huff put it during his company's Q2 earnings call, "The Wi-Fi business as currently constructed will not provide a return." AT&T is another major telecom doubting its city Wi-Fi plans for four metro areas.

They may want to reconsider. In most of their muni Wi-Fi contracts, EarthLink and AT&T agreed to foot the bill for building, operating and maintaining the networks. They also agreed to lease public facilities to aid the building and promised to give up a chunk of subscription and ad revenue to the cities. Signups were expected to be near the 30 percent mark of an area's population, but so far, they've been a much weaker 1 to 2 percent. Now the ISPs want more money from the cities, or they face big losses.

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