EarthLink to Sell Off its Muni Wi-Fi Business

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Last November, EarthLink announced it would not make any further “significant investments” in its muni wireless business and that it would “begin a process to consider its strategic alternatives.” Yesterday, the company announced that the alternative it has settled on is to sell off the business altogether. The news came when EarthLink released its Q4 and Full Year 2007 financial results.

While the company has committed to a plan to sell its muni wireless assets, which it values at $40 million, as yet, there are no takers.

The move did not come as a surprise to industry watchers, as EarthLink CEO—and newly elected Chairman of the Board—Rolla Huff has been clear about EarthLink’s declining interest in funding a venture that, while successful by some measures, was not producing the ROI stockholders were looking for.

“After thorough review and analysis of our municipal wireless business we have decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value,” said Huff, in a press release last fall.

In a press release issued yesterday, EarthLink made the decision to sell official.

Phil Belanger, a founding member of the Wi-Fi Alliance, who’s company, Novarum, has done extensive testing on many of EarthLink’s muni Wi-Fi networks, says its not the technology that failed, but rather the business model.

“I think that everyone has already concluded that the EarthLink-style model of building Metro Wi-Fi networks primarily for commercial public Internet access and residential broadband is not viable—particularly in large cities with competitive broadband alternatives. So, this is nothing new for the industry. It is simply the other shoe dropping. Municipal wireless networks are still being built, but the successful ones support multiple applications—usually private city applications with a commitment from the city to buy a minimum level of service,” says Belanger.

In terms of who might buy up the EarthLink assets, Belanger says it will likely vary city-by-city.

“What will not happen is another service provider coming in and assuming the same role as EarthLink with the existing contracts. In Philadelphia for example, the contract never made sense for the service provider. It is far too onerous. There was no way they were going to make money on that network. The best they could do was minimize the bleeding and consider it an advertising expense that helped build the rest of their muni business,” he says.

“In general, the EarthLink muni networks are competently built. So, there are reasonable assets in place that someone could leverage for a particular application. The Philadelphia network provides fairly good coverage outdoors. It could be converted to a public safety network. If the city could get a good deal on the current infrastructure they would not have to invest much more to optimize the network for public safety.

“Ironically, Comcast or Verizon may also be interested in the Philly network. Comcast, in particular, could leverage its cable plant to provide more wired backhaul and increase the performance of the network dramatically. But, they won’t go near it if they have to assume the contract liabilities.”

Muni/metro wireless expert, Craig Settles says the key to success will be for local governments to leverage the networks to meet their own needs.

“Everything depends on how clear your vision is,” says Settles. “There are many local governments actively working to make the business case for a network to serve primarily mobile government workers and asset management, plus key constituent groups, such as the medical and university communities. Given this, if I’m a service provider that can embrace the vision of meeting that government need, then it might make sense to buy the EarthLink business. Everything depends on the price and what you get for your money.

“I think EarthLink’s position that there’s no money to make with muni wireless is true, to a point, if the only thing you want to do is sell a general consumer service. Anyone who buys this business with that in mind is likely in for trouble. But muni wireless as a local government resource, that you can take to the bank.”

EarthLink has publicly committed to continuing to work closely with the municipalities it currently serves. And, according to Settles, Philadelphia, the most prominent EarthLink muni customer, has been expecting this all along and has a contingency plan in place.

“Philadelphia’s CIO has planned for this development,” says Settles. “He views that city’s network as a potential invaluable resource. They have nearly 3,000 mobile government workers, 300 city-owned facilities located throughout the city, a large number of mobile assets such as vehicles, and probably a larger number of fixed assets, such as parking meters. The network significantly benefits improving communication capabilities and management of all of these resources.”

While the money-making end of the business seems not to have worked out in EarthLink’s favor, the deployments have outshined other deployments—including WiMAX.

“For the past several months we have been testing Clearwire fixed WiMAX deployments, as well as the metro Wi-Fi deployments, for our Novarum Wireless Broadband Review,” says Belanger. “With the right client device, the EarthLink network out performs the typical Clearwire network. So, the technology and implementation is competitive and not obsolete in any way. If deployed in a market that is lacking in other broadband alternatives (like most Clearwire cities) the EarthLink networks can deliver a competitive commercial service. In Philadelphia? not so sure—there are many alternatives (with prices that dropped since the EarthLink network went in).”

While EarthLink hasn’t yet indicated if it will break up the assets and sell them city-by-city, given the size of its Wi-Fi-related losses (roughly $80 million last year compared to $20 million the year before), it seems likely that regional deals will emerge.

Naomi Graychase is Managing Editor at Wi-FiPlanet.com

This article was first published on WiFiPlanet.com.