EarthLink said late Wednesday that it is bailing out of a contract to build San Francisco's free Wi-Fi service, according to a CNET News report.

"EarthLink backed out of the deal a day after the company announced it was laying off 900 employees--nearly half of its staff. EarthLink, which is trying to get its finances in order, announced earlier this summer that it would not invest in any new citywide Wi-Fi deployments until it came up with a better business model."

This is right on the heels of Chicago's decision to drop municipal WiFi earlier in the week. Ars technica blogger Eric Bangeman wrote that while the news is troubling, it's probably not indicative of a large-scale move away from city-backed WiFi.

"I don't see the end of large projects, but I do expect them to be more carefully thought out," technology consultant and author Craig Settles told Ars Technica in an interview. "Plans are being scaled back that were originally built upon unrealistic, over-inflated expectations. The laws of economic reality, like the laws of physics, cannot be violated without severe, often negative results."

Either way, anyone who's been planning to use their new iPhone's high-speed WiFi mode will surely be disappointed at the delays.

Free San Francisco Wi-Fi project dies [CNET News]
Chicago's decision to drop muni WiFi symptomatic of a troubled sector [Ars Technica]