Earthlink cuts jobs, has no comment on delayed Wi-Fi buildout

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Earthlink, the company chosen by the city of Houston to build out its citywide Wi-Fi system, has made official massive job cuts that have been rumored for a while:

Internet service provider EarthLink announced a plan today to cut 900 jobs, or about half its work force, and close four offices as part of a restructuring plan aimed at reducing operating costs.

The restructuring by the company, which has a contract to build a city-wide wireless network in Houston, will begin immediately and be completed by the end of the year, said Rolla P. Huff, the Atlanta-based company’s president and chief executive. More cuts could be announced before the year’s end, he said.

[snip]

There was no immediate word on how the restructuring would affect the Houston project, which has been stalled for months.

The company declined to comment on deals with specific cities, but EarthLink spokesman Jerry Grasso said they plan to discuss with each city where they are doing business the need for the city government to serve as the company’s primary customer. Houston’s contract is already based around that model.

“We will be talking to each city on an individual basis to discuss the needed changes in our new business model, which includes them stepping up to some sort of anchor tenancy agreement,” he said.

As noted previously, Earthlink has not yet started the Wi-Fi buildout in Houston that should have begun months ago. The Chronicle‘s Dwight Silverman posted yesterday that the project had been “inexplicably delayed.” However, there seems to be a ready explanation: Earthlink has discovered that it’s going to be very difficult to turn a profit on the project, and is now trying to sort out its options, which likely include abandoning the project altogether or asking the city of Houston to increase its anchor tenancy fees.

A story in the Chicago Tribune reports that Chicago and its eminently sensible mayor have opted not to pursue the Earthlink Wi-Fi boondoggle there:

As envisioned in early 2006, Chicago was expected to become one of the first big cities in the country to blanket its streets and neighborhoods with a wireless Internet signal that would allow residents access to the Web in their homes and wherever they traveled in the city.

But technology is advancing and the cost of online access for consumers is declining so dramatically that Chicago has other avenues to promote more use of the Internet. As a result, the Wi-Fi deal lost luster when negotiations bogged down, according to sources close to the matter.

Chicago officials had intended that the city would offer infrastructure, but no cash, to a carrier that would use its own funds to build the network here. EarthLink and AT&T Inc. submitted proposals to the city, but after months of negotiations the parties were unable to reach agreement.

The companies sought a commitment from Chicago to be an “anchor tenant,” agreeing to pay to use the Wi-Fi network to support city services, but the city declined.

[snip]

A few years ago when San Francisco, Philadelphia, Houston and other cities jumped into Wi-Fi, officials thought paying less than $20 a month to get a high-speed Internet connection anywhere in the city would find a lot of takers. They also thought advertising could support citywide free connections.

Results on both scores have been generally disappointing. In Lompoc, Calif., which activated its $2 million Wi-Fi network almost a year ago, the city signed up fewer than 500 users out of a population of more than 40,000.

“There’s a serious dose of reality, much needed, that has come into play after all the hype last year about free, ad-driven Wi-Fi,” said Craig Settles, a wireless business strategist and consultant based in Oakland.

Doses of reality can be helpful.

UPDATE: The Chronicle posts a story by Alexis Grant on this topic, although there’s not much more in the way of details than there was in the AP copy.

UPDATE (2007-08-29): KHOU-11’s Lee McGuire reports that Mayor White has cut a deal with Earthlink. They get to postpone the buildout, for which they currently do not have financing, and the city gets $5 million.

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