EarthLink’s municipal Wi-Fi business is in tatters, and the Internet service provider itself may pull the plug on the business before too long. On Friday EarthLink Chief Executive Officer Rolla Huff said the company is looking for strategic alternatives to its muni Wi-Fi business. Whether that means shutting down the project entirely remains to be seen, but the money spigot is definitely turned off.

“After thorough review and analysis of our municipal wireless business, we have decided that making significant further investments in this business could be inconsistent with our objective of maximizing shareholder value,” Huff said in a statement.

EarthLink set the tone for today’s backing away from municipal wireless in August when it announced 900 layoffs and a major restructuring after finding that the muni Wi-Fi business was much rougher going than it originally thought. Huff re-evaluated all of EarthLink’s businesses after taking over as CEO earlier that summer and concluded that the costs EarthLink was incurring by shouldering the entire builds of citywide broadband networks was just too high for the expected return.

EarthLink estimates its muni Wi-Fi unit has a book value of $40 million, representing the sizable investments it’s made in building wireless public access networks in Philadelphia; Anaheim, Cal.; and Corpus Christi, Texas.

Huff said then that EarthLink would maintain its current Wi-Fi networks and would look into expanding its efforts with the expectation that cities and other partners would share network deployment costs. But last week Huff appeared to back away even from that lessened commitment to public Wi-Fi. New networks now appear to be out of the question, though EarthLink said it would continue to work with cities, in which its networks are already launched.

Muni Wi-Fi consultant Craig Settles, however, said the industry should wait until EarthLink reveals what these “strategic alternatives” are before hammering the final nail into muni Wi-Fi’s coffin. The consumer-centric approach to municipal broadband has clearly failed, but these services weren’t originally meant to target a city’s residents—they were meant to target a city’s workers, Settles said. Municipal services, like remote meter-reading, public safety and city mobile communications, were the basis of many of the original muni Wi-Fi proposals. Politicians seeking re-election and over-optimistic vendors turned muni Wi-Fi into the consumer broadband free-for-all that is crippling the sector today, Settle said.

“What we’re seeing is a direct result of the hype of ‘06,” Settles said. “If this whole thing had not been hijacked by the notion of free broadband and the ad-driven business model, we wouldn’t be seeing the doom and gloom around municipal broadband today.”

Settles pointed to one of EarthLink’s own networks, Corpus Christi, as an example of muni Wi-Fi working properly. There the city invested in the network in order to create a remote meter-reading system after one of its utility workers was attacked by a dog. The city not only built the original network—which it then sold to EarthLink at a discount—it is the network’s anchor tenant, supplying a steady stream of revenue and a foundation for EarthLink to offer consumer services.

Chicago and San Francisco, however, are examples of cities that got too greedy, demanding free access for their residents without creating a firm basis of municipal services to drive the network, Settle said. Those projects have consequently been canceled or severely reduced in scope. Other major cities like Seattle are looking into Wi-Fi projects, though expectations there are far less short-sighted, Settles said.