EarthLink announced its fourth quarter earnings late last week, and it wasn't pretty. After six straight quarters of losses, the ISP has decided to exit the municipal WiFi sector and will actively look for someone to buy the business.

First, the financials: EarthLink lost $9.5 million (8¢ per share) on revenues of $22.6 million. Both figures were an improvement over the last quarter of 2006, which saw a loss of $17.9 million (15¢ per share). Much of the financial pain came from the ISP's municipal WiFi business, which lost a whopping $32.1 million during the last three months of 2007, compared to a $7 million loss a year prior.

After climbing into the driver's seat last June, EarthLink CEO Rolla Huff called for a strategic review of the company's operations. The company quickly laid off 900 employees and decided to scale back its municipal WiFi venture. In mid-November, Huff announced that the company would no longer make "significant further investments" in the business. During the conference call, Huff confirmed that the company has slapped a "for sale" sign on its municipal WiFi business.

"We're actively working to determine if there are viable outside buyers for the assets or if the cities themselves are interested in the assets," Huff told listeners. "We are looking to come to a solution with the municipalities that works for them, [one that] reduces our future spending obligations."

One of the problems EarthLink ran into was cities' insistence on getting a fully-operational network with little or no cash outlay on their part. "It quickly became evident [after starting the review of its business] that we would have a really difficult time changing the perception by some of the cities that we owed them a free network rather than the city stepping up to make the business model viable for both them and for our shareholders," Huff concluded.

Indeed, most of the news in the municipal WiFi sector during 2007 was bleak. Philadelphia, which announced plans for a 135-square-mile WiFi network back in 2004, has seen costs spiral upwards due to problems getting adequate coverage. San Francisco has had to alter its expectations for its planned citywide WiFi network due to EarthLink's reluctance to pour endless amounts of cash into the project, and Chicago's plans for a municipal network have been effectively cancelled.

Selling its municipal WiFi business may prove very difficult for EarthLink (maybe the company can swap troubled businesses with Time Warner). Since the glory days of the middle of the decade, municipal WiFi has fallen so far out of favor in some quarters that an ambitious network planned for Silicon Valley is on the ropes—despite the Valley being flush with venture capital cash.

Whether or not EarthLink can find a buyer for its WiFi business depends on a number of factors, industry analyst Craig Settles told Ars. "Everything depends on the vision of the buyer," argues Settles. "There is a lot of interest among governments in making the business case for getting a network that will serve primarily mobile government workers and asset management, plus key constituent groups such as the medical and university communities."

When it comes to making money off of operating a commercial citywide network, Settles says that's just not going to happen. "I think EarthLink's position that there's not 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," he told Ars. "And I think that anyone who buys this business with that in mind is in for trouble."

The only viable option left for municipal wireless may be networks intended primarily to serve the interests of municipal governments. Under that model, any commercial revenues are gravy. Unfortunately for EarthLink and its shareholders, man cannot live by gravy alone.

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