San Francisco Muni is on the Clock

The San Francisco Board of Supervisors may not know it, but the new chairman of EarthLink has pretty much given them 60 to 90 days to make up their minds as to whether to pursue the municipal wireless partnership proposed by his company and Google. Activists in San Francisco have been pushing the city council to dump the EarthLink-Google deal, which they see as too tainted by the profit motive, and pursue a taxpayer-financed municipal broadband system that will cost millions. The result has been months of gridlock as Mayor Gavin Newsom, who backs the EarthLink-Google deal, and vocal opponents on the city board, remain at loggerheads. Meanwhile EarthLink, which once saw the muni wireless partnerships as a strategic growth area, has been getting second thoughts after finding that in other other markets network costs have doubled and competitors have dug in. Now comes a statement from Rolla Huff, EarthLink’s new CEO, that all of EarthLink’s operations are up for strategic review. Here’s how InformationWeek reports it.

Saying he will spend the next 60 to 90 days reviewing EarthLink’s current lines of business, Huff said, “I don’t know at this moment where the company will wind up” in terms of overall strategy. “What I’ve told the board is that we will put together a clearly articulated and focused strategy of what EarthLink is going to be and what it’s not going to be.” That’s a fairly clear implication that at the moment it’s unclear just what EarthLink is. One of the earliest nationwide Internet service providers, the Atlanta-based company succeeded by providing reliable and relatively low-cost Internet service to millions of consumers. Though the company still has 5.3 million subscribers (and $1.3 billion in annual revenue), its ISP business is declining fast as broadband options proliferate and it lost $30 million in its most recent quarter. Attempts to diversify, including joint ownership of virtual wireless carrier/handset vendor Helio, along with partner South Korean wireless company SK Telecom, and a series of municipal wireless projects, some in collaboration with Google, have not yet paid off.

More telling are statements that follow.

“The real question around municipal Wi-Fi is, ‘What is the economic model going to look like?'” said Huff. “At end of day, we all have to understand what it’s going to take to make money at this.” If he decides the business model is cloudy, Huff said, he won’t hesitate to pull the plug — even on highly visible projects like the Google-EarthLink effort to build a wireless network for San Francisco. “To the extent I don’t think we have the capability to get to the point of profitability, I’ll make that judgment, too.” EarthLink’s strength lies in a fairly loyal customer base, but the monthly-subscriber model is changing, Huff said, for telcos and Internet companies alike. “The model is gradually moving away from monthly charges to a model that rewards those that can deliver very customized content to very well-understood groups of people.”

This final statement may well be the epitaph for these costly, ill-conceived muni schemes. It runs counter to two major assumptions that muni enthusiasts have made since the beginning: First, all that’s needed to make broadband popular is a low price (or no price at all). Second, and more important, that broadband is a content-neutral utility, and one service is indistinguishable from another. Consultants have continually used these two dubious premises to sell municipal governments on throwing millions of dollars at misguided fantasies of creating cheap, city-run, broadband ubiquity. If EarthLink, which staked a lot on municipal wireless, is questioning them, perhaps its time some elected officials did, too.