Soaring costs and lagging profits prompted EarthLink yesterday to say it will strip the city next month of equipment broadcasting Internet service to Wireless Philadelphia subscribers.
The system's demise demonstrates the evolving and competitive nature of Internet-access technology. Philadelphia and EarthLink partnered two years ago in an optimistic launch that envisioned more than 100,000 people logging onto low-cost wireless access across the city.
EarthLink, in a federal lawsuit filed yesterday to break that partnership with the city and Wireless Philadelphia, complains that it spent almost $30 million to develop the system and has just 5,942 subscribers. Most customers pay $19.95 a month while 908 "digital inclusion" customers qualify for a $9.95 rate based on their household income.
EarthLink said it is losing $180,000 to $200,000 a month on its 10-year Philadelphia contract, which calls for the company to make a $1 million payment to the city on May 23.
The company, citing in its lawsuit "the enormous up-front financial risk" of creating the system, asks the judge to cap its payments to the city at $1 million based on a "limitation of liability" clause in the contract.
EarthLink wants to start dismantling the network on June 12.
Wireless Philadelphia customers connect to the Internet using computers that receive wireless signals from transmitters attached to city street lights.
"As far as I'm concerned, we are far from over in terms of having discussions with EarthLink," Mayor Nutter said yesterday, adding that he has no plans for the city to take over the wireless network or pump cash into the system to keep it running.
EarthLink announced in November that it was getting out of the municipal wireless business. The company reached agreements with cities in Texas and California to turn over control of networks and plans to end service in New Orleans on Saturday.
"It has not appealed to nearly enough consumers," said EarthLink spokesman Chris Putala. "We build networks and the traffic simply has not materialized."
EarthLink yesterday e-mailed local customers about the end of wireless service next month, offering to transfer them to service that uses telephone lines.
Nutter described EarthLink's relationship with Philadelphia and other cities as a "tortured situation for a long period of time."
The city and Wireless Philadelphia, a nonprofit set up in 2005 by the Street administration, had been negotiating with EarthLink to have OneCommunity, a Cleveland-based nonprofit, take over the local system.
Street in 2006 touted the creation of Wireless Philadelphia as drawing "international acclaim . . . to position Philadelphia as an innovative world-class city." He did not respond to a request for comment yesterday.
OneCommunity announced last month that the John S. and James L. Knight Foundation was funding a five-year, $25 million effort to help establish Internet access in 26 cities across the country, including Philadelphia.
"There have been at least two or three deals that fell apart between EarthLink and OneCommunity over the past week to 10 days," Nutter said yesterday. "If you don't have an EarthLink and OneCommunity partnership, it's virtually impossible for Wireless Philadelphia to do anything."
EarthLink, which values the Wireless Philadelphia equipment at $16.8 million, said it offered to provide an additional $2 million in hardware and $1 million in cash to anyone taking over the system. The company says it has spent another $13 million on operations and marketing here.
Putala said a confidentiality agreement restricted him from naming the nonprofit organization in the Philadelphia negotiations. But he said EarthLink was told of problems in the negotiations between that nonprofit and the city about the system.
OneCommunity did not respond to a detailed request for comment yesterday.
Nutter said the original idea behind Wireless Philadelphia was that the city would not put up its own money to run the system. He does not see that changing.
"I would say, as we stand here at this moment, it is not our intention to take over this network," Nutter said. "There are significant operations costs in the millions of dollars as well as technological responsibility."
So, what changed between the time that Philadelphia embraced EarthLink two years ago and now, as the company seeks a judge's approval to leave town?
Putala said competition from communication companies including Comcast, AT&T and Verizon had played a role as the market has experienced advances in Internet access through wireless, cellular, cable and telephone networks.
Nutter said it was clear that the Internet market was heading in a different direction.
"You don't have to be a soothsayer to figure out that maybe the industry was taking a turn. Technology has changed. It continues to change," Nutter said. "The [EarthLink] business model was, I think, tenuous at best."