The dream of wireless networks bathing U.S. cities in free and pervasive internet access has come to an end, at least for now. As the number of failed or stalled municipal wireless projects continues to rise, the focus has shifted from closing the so-called digital divide to why plans for such networks, in only a year's time, seem to be dissolving almost daily.

Last week, San Francisco, Chicago and St. Louis all announced significant and perhaps fatal roadblocks in their municipal Wi-Fi projects.

"Frankly, I'm not surprised at all," said Dewayne Hendricks of Tetherless Access, a provider of metropolitan wireless-networking services. "It's been clear this was going to happen for a while now."

Chicago, one of the most recent cities to curtail its citywide Wi-Fi project, was unable to eke out a viable business plan with either AT&T or troubled internet service provider Earthlink.

Indeed, after realizing how much the build-out would cost, both companies tried to tweak the agreement terms and requested that Chicago become an "anchor tenant," paying a guaranteed minimum fee to use the Wi-Fi network in support of city services. Chicago, like many other cities who've been asked to do the same, declined.

San Francisco's own high-profile project has fared no better. On Thursday, Earthlink bowed out of its three-year Wi-Fi contract, stating similar cost-related reasons. Earthlink had already announced restructuring plans that will entail laying off nearly half its workforce – including the company's head of municipal networking, Don Berryman.

It's a harsh dose of reality that juxtaposes the giddy enthusiasm for ubiquitous Wi-Fi that cities like San Francisco, Philadelphia, Houston and many others displayed only a few years ago. In part, that enthusiasm was based on a handful of assumptions. The first was that advertising could support citywide connectivity, enabling the services to be free or low-cost. Many proponents also argued that residents would actually want to use the free networks. Both assumptions were mistaken.

Esme Vos, an intellectual-property lawyer who tracks various national municipal projects on her site, MuniWireless, notes a pronounced downturn in muni Wi-Fi projects and attributes that trend to telecoms finally realizing they have no clear path toward profit with the agreements they currently have in place.

When companies like MetroFi and Earthlink started bidding for contracts in 2004, they often agreed to some spectacularly generous terms. For instance, many telecoms acquiesced to footing the entire bill for network build-out, maintenance and upgrades. They would also frequently agree to pay the cities to lease public property, such as light poles, which would hold Wi-Fi transmitters. Earthlink's canceled San Francisco contract contained many of these terms.

Then, there was the issue of radio transmitters needed to broadcast the signal. With a range of just 100 or 200 feet at most, Wi-Fi networks simply don't provide adequate access – especially for people in buildings or other enclosed areas. As a result, most networks deployed in the past several years have required between 20 and 100 percent more access points than budgeted, according to journalist Glenn Fleishman who publishes Wi-Fi Net News.

Lack of demand was the final nail in the coffin. Although cities and telecoms expected 10-25 percent of an area's population to sign up for muni Wi-Fi, what they got, in many cases, was closer to 1 or 2 percent, Fleishman says.

Craig Settles, an analyst who follows muni Wi-Fi and the author of the book Fighting the Good Fight for Municipal Wireless, says the whole thing gives him déjà vu – especially Earthlink's recent troubles.

When he was employed by Metricom, Settles' Ricochet network was one of the pioneering wireless internet service providers in the United States in the late 1990s. Settles said one of Metricom's major failings was that "it tried to sell to consumers a service they perceived as too slow and too expensive, while ignoring the business community."

In fact, he suggests that Earthlink's recent press release indicates the company is abandoning the consumer Wi-Fi market for one very clear reason: "Consumers are a weak play for muni wireless – they're expensive to get, and more expensive to keep."

"If Earthlink is serious about finding subscribers who are more likely to be 'lifers,' as (the) release states, then they should repackage their muni wireless offering for governments in a way that shows (them) the return on investment potential of anchor tenancy," Settles says.

In fact, Settles says all telecoms should focus more on developing an aggressive business-focused marketing campaign that "capitalizes on a continually growing interest among small- and medium-size businesses for mobile workforce applications."

But Hendricks isn't ready to give up on the general public just yet, and says the public Wi-Fi story is far from over. "Lets just say things work in waves," he said. "You see this a lot, especially in the Silicon Valley. The first time around, projects don't go so well. Then you try again."

In fact, Hendricks characterizes the recent downturn in muni Wi-Fi projects simply as "the end of the first beginning."

The second beginning, he says, may already be underway with the IEEE's work on 802.11s, a yet-to-be-ratified amendment to the Wi-Fi standard that defines how wireless devices can interconnect to create decentralized, ad-hoc networks, or "mesh networks."

Mesh-networking systems are designed to be self-configuring, allowing wireless nodes to find one another and create links automatically or with very little user intervention. Recent reports from market-analysis company In-Stat show that the Wi-Fi mesh-networking equipment market had more than 100 percent growth in 2006, and will have more than 90 percent growth in 2007.

Hendricks says technologies like WiMax, which offers longer range and higher bandwidth than Wi-Fi, may also prove to be a particularly appealing model for cities. Companies like Sprint and Clearwire have already stated they will begin investing billions of dollars for major WiMax build-outs in metropolitan areas like New York in the coming year.

"Cities are saying: Wait a minute, if these guys are doing all the work, why should we lift a finger?" Hendricks said.

And if the larger, more ambitious municipal networks prove infeasible? Well, growing evidence shows smaller, localized networks may be the answer.

"More localized Wi-Fi is one option – for example, deploying in areas where there are a lot of tourists, foot traffic, business people," says Vos.

Recent successful examples include Google's own wireless network in the town of Mountain View, California, and the Westside Wi-Fi Project, a wireless broadband network in San Francisco's Western Addition neighborhood funded by the nonprofit Community Technology Foundation of California. The Westside project uses mesh networking with radios located inside residents' apartments.

Whether it's new business models or new technologies, it's clear that the first wave isn't working. The old approach to municipal Wi-Fi may be drawing its last breath, but a strict dose of business reality may be exactly what cities and ISPs need before getting back on track.