After months of cost overruns, delays and plenty of bad press, EarthLink recently announced that it is putting its municipal wireless business up for sale, leaving one of its leading customers, the City of Philadelphia, at a crossroads regarding its municipal Wi-Fi deployment.

The initiative in Philadelphia has been one of the most discussed deployments of municipal wireless networks in the US, and EarthLink’s decision to sell is an example of the volatility of this market. In order to ensure continued viability of the network, the city must be very careful in taking its next steps.

Philadelphia is one of the least connected major cities in the US. As such, in 2005, when the city signed a ten-year deal with EarthLink to blanket the city with wireless internet, hopes ran high.

The initiative would allow Philadelphians to access the internet for free in public spaces. Residents who wanted service in their homes could pay a monthly rate, with low-income residents qualifying for a discount. In order to shepherd the project along, the city set up Wireless Philadelphia, a non-profit entity to secure funding for computer education and outreach programs in under-connected areas. Most importantly, the implementation would come at virtually no cost to the city; Philadelphia would allow EarthLink the use of its utility poles to mount routers, and as a non-profit entity, Wireless Philadelphia would seek its own funds for its work.

The initiative, however, did not turn out as planned. Reception was spotty around the city, and EarthLink was forced to install double the number of routers it had planned for. Project costs spiraled out of control, rising to $20M, compared to $12-15M originally budgeted. In August, EarthLink laid off more than 50% of its workforce, and when the company failed to attend a Philadelphia city council hearing on the project in December, alarm bells sounded. This month, with about 75% of the network already in place across the city, the company put its municipal wireless business up for sale, claiming that cities expected too much from wireless networks.

Related Research: Premium Company Profile Earthlink Inc.