IDG News Service (San Francisco Bureau) — An early municipal Wi-Fi network in Tempe, Arizona, has only 500 subscribers, but it may have a buyer.

A mobile operator, Telscape, wants to buy the 40-square-mile network, which consists of about 1,000 access points in a mesh. With the proper marketing, the system could draw 10,000 users, according to Telscape Chairman Tad Neeley.

The network's poor adoption is the latest embarrassment for municipal wireless, which EarthLink and some smaller companies were aggressively pursuing just months ago. Builders and operators have found that the networks required more nodes than expected, and residents haven't turned out in large numbers to subscribe. EarthLink has effectively put its Wi-Fi program on hold, and one of the country's biggest planned networks, in Silicon Valley, is stalled because of fundraising problems.

The Tempe network, serving a city of more than 165,000, is run by Kite Networks, a division of Gobility, in Richardson, Texas. It was launched in March 2006 with fewer than 400 access points by Neoreach Networks, but Kite took over the network soon after and added about 600 nodes to improve coverage, said Alan Crancer, Kite's vice president of sales and marketing. Users can log in for rates ranging from $19.95 to $29.95 per month based on speed and added features, he said. Hourly and daily rates are also available. To use the network for residential broadband, Kite recommends and sells a $69.95 access device.

Telscape thinks the network is sound and Kite has simply failed to get the word out about it.

"The real cost of deploying this was not the network itself. It's about customer acquisition," said Telscape's Neeley, who is also a principal at investment company Gemini Partners, which is a backer of Telscape. After turning on the network, Kite neglected to develop compelling products and services, he said.

Telscape is a mobile virtual network operator (MVNO), a company that buys cellular services wholesale from a carrier and resells them with a set of added features that appeals to a particular market. It targets the Hispanic market in the United States. The Tempe network raises the possibility of a combined cellular and Wi-Fi service using dual-mode phones, Neeley said.

The company isn't getting a distressed network at a bargain-basement price, Neeley said. It's interested in the potential.

"These networks need to stand on their own, based on their business case," Neeley said. "If I looked at this from the ground up and it didn't make sense, I wouldn't invest in it."

Telscape is in negotiations with Gobility to buy the network and also needs to make a deal with the city of Tempe for access to light poles and other mounting locations for radios. If the deal goes through, Telscape's service should be available in the near future, Neeley said. Gobility Chairman and CEO Gary Brown declined to comment.