“Additional steps” in this case is a euphemism for “more layoffs to come,” as the company will also “substantially reduce its presence” in Atlanta and Pasadena, Calif.

What this all means for EarthLink’s already faltering municipal Wi-Fi effort remains to be seen. As Om Malik notes, its future is, at best, dubious. EarthLink’s “MuniFi experiment hasn’t gone according to plan, even though the company was successful in signing up quite a few cities for MuniFi networks,” Malik writes. “But EarthLink’s San Francisco effort, for example, is mired in a political morass. The Arlington (Va.) and St. Petersburg (Fla.) MuniFi networks are currently on hold. We are being told that Don Berryman, who used to run the MuniFi business, left the company three weeks ago. More importantly, the company is carrying the costs of Helio, an expensive MVNO effort. Helio, after starting out with $440 million in backing from SK Telecom and EarthLink, recently raised another $200 million ($100 million each from the two partners.) Will EarthLink follow through with this (and future) investments, remains to be seen. Helio is estimated have $40 million in operating costs, not an easy pill to swallow considering that the company continues to lose subscribers in its core ISP business. EarthLink is between the rock and a hard place: If it gets rid of those money-losing businesses, then it is left with a business whose growth engine is negative.”

This agreement catapults San Francisco into a leadership position in wireless technology: the network ensures universal, affordable wireless broadband access for all San Franciscans, especially low-income and disadvantaged residents; and through the mayor’s digital divide program, children and students will have the digital tools to ensure that they have access to everything that the Internet has to offer the growing minds of the city’s promising future.”

–- Donald Berryman, executive vice president of EarthLink, Jan. 5, 2007

Establishing a citywide wireless network in San Francisco may well prove too daunting a job for even Google. The company’s partnership with EarthLink to provide free wireless Internet access in the city may be in danger of collapse, now that the ISP has announced it will re-examine its municipal-wireless network plans..

During EarthLink’s second-quarter conference call last week, newly appointed President and CEO Rolla Huff said the company’s approach to the muni Wi-Fi market isn’t viable. “The Wi-Fi business as currently constituted will not provide an acceptable return,” Huff said. “We’re actively exploring ways to scale this business more economically. We’re going to look for municipal government to step up and become a meaningful anchor tenant on completion of a build. That would go a long way in our being able to get an acceptable return on this investment. Until we’re convinced that we can build new networks and get an acceptable return, we will delay any further new build-outs.”

If that is Huff’s position, he’s not going to take kindly the city’s proposed adjustments to its contract with EarthLink, which includes increasing the speed of the service and shortening the length of the term for which the company would provide it to eight years from 16–neither of which will do much to increase its ROI.

It seems likely, then, that EarthLink’s involvement in San Francisco’s municipal wireless efforts is finally drawing to a close–nearly three years after it was first announced. “The existing contract with EarthLink was already unlikely to move forward due to EarthLink’s business-model changes,” Glenn Fleishman explains at Wi-Fi Networking News. “The emendations to the contract requested by the supervisors’ head ensure that EarthLink will ultimately back out. I give it another four to six weeks before the whole deal is over. Which means that SF has to return to the drawing board.”

What this means for the other 215 cities and counties considering municipal Wi-Fi deployments remains to be seen …