March 2, 2006

Philly Wi-Fi Network to Pay for Computers

PHILADELPHIA -- Philadelphia on Wednesday announced details of its deal with EarthLink Inc. (ELNK) for the construction of a high-speed wireless network that will span the city, including provisions for EarthLink to pay for computers, training, and subsidize Internet access for low-income households.

Among the country's major cities, Chicago and San Francisco have announced similar plans for Wi-Fi networks, but Philadelphia's plan has come the furthest, and the concessions EarthLink is making to Philadelphia are bound to be watched carefully by other cities.

Mayor John Street announced Wednesday that the city and Wireless Philadelphia - a nonprofit charged with overseeing the Wi-Fi initiative - have signed agreements with EarthLink, the Atlanta Internet service provider. Street also urged the city council to approve the contracts, which will span 10 years.

The 135-square-mile network is expected to be completed next spring. The contracts call for EarthLink to rent space on 4,000 city light posts for its equipment, and pay the city $74 annually per light post - for a total of nearly $300,000 a year. EarthLink also agreed to give Wireless Philadelphia 5 percent of its access revenue.

The money will be used to provide 10,000 computers and training to kids and low-income households. EarthLink will also provide Internet access for up to 25,000 low-income households at $9.95 a month, and give the city government free or discounted access.

Moreover, EarthLink will operate free Wi-Fi hotspots at 22 locations.

Wireless Philadelphia said it would cost EarthLink between $20 million and $22 million to build and operate the network. The Wi-Fi speed will be at least 1 Megabit per second, slower than some DSL or cable connections but much faster than dial-up.

EarthLink will charge a wholesale rate of under $12 a month to other Internet service providers, which in turn will sell their services to the public. That rate is up from the original estimate of $9. The goal is still to keep retail prices under $20 a month.

EarthLink and its partner ISPs could face stiff competition from the phone companies, which have been heavily discounting their high-speed Internet packages. Verizon Communications Inc. (VZ), which serves Philadelphia, is offering DSL broadband for $14.95 a month.

Donald Berryman, president of EarthLink's municipal networks division, expects the network to have 50,000 to 80,000 subscribers by the end of its second year.

Berryman said he's not concerned if other cities seek concessions similar to those in Philadelphia's deal, which he expects to be profitable for the company.

EarthLink and Google Inc. (GOOG) have joined forces and submitted a proposal to construct a similar network to cover San Francisco. That plan includes free, ad-financed access at lower speeds in addition to full-speed subscription access.

Berryman said EarthLink is also interested in making a bid for Chicago's Wi-Fi plans, announced last month.