EarthLink is pulling in the reins on its municipal Wi-Fi business, focusing on existing deals and big cities for the rest of this year, in a move that raises questions about the growing trend of city-wide wireless networks.

The ISP will keep working on projects it's already committed to and continue talking to other cities, but will focus on large cities such as Los Angeles and Chicago, Chief Financial Officer Kevin Dotts said on a conference call Thursday following the release of EarthLink's first-quarter earnings. The company lost US$30 million in the quarter, or $0.24 per share, as more subscribers left its traditional dial-up business.

For the rest of the year, EarthLink plans to focus on driving up usage in large cities rather than launching new projects, Dotts said. The company plans to cut in half its capital expenditures on municipal Wi-Fi.

EarthLink has aggressively pursued contracts to build and operate municipal wireless networks, which many cities in the U.S. and elsewhere have built or are planning. Governments hope widespread Wi-Fi will give them a new tool for their own operations, attract business and get underserved consumers and small enterprises online. While many of these projects include a free access option, sometimes advertising-supported, EarthLink aims to make money through paid services such as monthly subscriptions and "anchor tenant" deals with city governments.

Reports of spotty service on some of the networks, along with political spats and doubts about advertising prospects, have taken some of the shine off the municipal Wi-Fi movement. EarthLink's scaling back is likely to raise further questions about the economic viability of the concept, though these projects are still in their infancy.

The Atlanta service provider has won contracts for networks in Houston, Corpus Christi, Texas, and other cities and has been chosen along with Google Inc. for a high-profile proposal in San Francisco that is currently embroiled in political controversy. But so far the company only has about 2,000 monthly consumer subscribers to its municipal Wi-Fi services, which executives estimated on Thursday cost an average of $40 per household to deploy.

The regular price for a monthly plan is $21.95, though many subscribers aren't paying that yet because they are still on discounted introductory plans, the company said. Revenue from occasional users has been stronger than anticipated. EarthLink looks to bring its average revenue per user over $21.95 in time by signing up governments for applications such as wireless parking meters.

The IDG News Service is a Network World affiliate.