The project of having a citywide free Wi-Fi network in San Francisco is now a sweet fantasy, because the company that had been charged with building it is not facing financial troubles.
EarthLink, the company that won the bid for San Francisco’s Wi-Fi back in February 2006, is facing bankruptcy if it doesn’t come up with a restructuring plan.
In February 2006, Internet search giant Google and EarthLink had entered in a partnership to bid for building SF’s wireless network, competing with names like MetroFi, Communication Bridge Global, NextWLAN, Razortooth Communications and SF Metro Connect.
The partnership was the result of SF city government’s RFP (request for proposals) to build a Wi-Fi network that would provide free wireless Internet access to the town’s citizens.
Participating companies were requested to provide free, high-speed Internet service to users- whether at home, at work or in the park- at no cost to the city. The companies were also asked to provide a premium level of paid service with 1 megabit-per-second download speeds at prices that are less than commercial rates.
EarthLink would have paid for most of the projected $15 million cost to build and maintain the network over 16 years, with Don Berryman, EarthLink's president of municipal networks, saying that the company would recover some of its expenses by charging about $20 per month for premium Internet access (about 20 times faster than dial-up service).
The project’s future faces new hurdles as both EarthLink and the San Francisco city government are confronted with difficulties that touch the financial and the administrative aspects.
First, San Francisco Mayor Gavin Newsom is now forced to roll back to its initiative from almost two years ago, asking citizens (again) for their support to….build the network. Back to the basics, no investments made until citizens express their support. The reasons for this situation are obviously of political nature: disputes over the length of the contract signed by the city with EarthLink (some have suggested reducing it to only 8 years) and the speed provided to users (other have suggested free access through the city’s optical fiber cables) have slowed down to the minimum the construction of the Wi-Fi infrastructure.
Assuming that San Franciscans will eventually vote in favor of the construction (sometimes in November), there is still no guarantee that the network will become a reality, considering the losses EarthLink has to cope with these days.
According to recent financial estimates provided by the company, EarthLink registered a net $(16.3) million loss, or $(0.13) per share, which includes a $(40.1) million, or $(0.32) per share Helio (a joint venture with Korea Telecom) equity loss.
"I love the concept of citywide Wi-Fi," Don Berryman, the head of EarthLink's municipal Wi-Fi initiative, who will be leaving the company as part of a restructuring plan, said. "But a business model built around EarthLink fronting all the capital and then paying for subscribers one at a time is not viable. We'll continue to scale the networks where money is already spent, but we won't deploy new capital on this strategy under the old business model."
Earthlink recently announced a bold restructuring program which is to include the elimination of around 900 jobs. The ISP will close its Orlando, FL; Knoxville, TN; Harrisburg, PA and San Francisco, CA offices as part of the efforts to cut costs. Its facilities in Pasadena, CA, and Atlanta, GA, will also be shrunk.
EarthLink also noted that it plans to buy back shares, about $200 million's worth. The news helped stock go up by about 10%. The company announced an expected full-year net loss of $79 million to $109 million. The company currently employs about 1,900 people and expects to fire around 900 of them. That doesn't seem that much, considering EarthLink cut 2,600 jobs in 2003 and 2004.
"We expect to announce additional steps as we continue our work over the coming weeks and months," said Rolla P. Huff, EarthLink President and CEO, in an official press release. "While we recognize this is a difficult time for those affected individuals, this was a needed action for the company to better align our cost structure with our existing business," Huff said.
A lot of Earthlink's dialup customers have fled to other types of services. Although the company tried to offer DSL and satellite solutions, they were not enough to fight off offers from other competitors such as cable operators.
In the second quarter of 2007, EarthLink said it lost a total of 177,000 subscribers, mostly from its consumer narrowband access business. At that time, the company predicted it would lose a total of 450,000 to 500,000 subscribers in 2007. On Tuesday this week, it revised those figures and said it expects to lose an additional 200,000 subscribers by the end of 2007, bringing its total to 3.9 million subscribers.
