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San Francisco’s efforts to become the first large U.S. city to provide wireless internet access throughout the entire metropolitan area were thwarted yesterday after EarthLink bailed out of the contract to join Google in building the city’s free Wi-Fi network.

The company has been struggling to get its finances in order. On Tuesday, EarthLink announced its plans to cut costs by shedding 900 jobs – nearly half its workforce – and closing its offices in four cities, including San Francisco. But it was hit with a $5 million penalty on Wednesday for not meeting its first deadline for building Houston’s wireless network.

Under the four-year agreement, EarthLink was supposed to bear an estimated cost of as much as $17 million to build and maintain the Wi-Fi network. Google planned to sell ads to help subsidize the free service, while EarthLink planned to recoup its investment by charging $21.95 a month for a faster premium Wi-Fi service. EarthLink's CEO Rolla Huff said in a statement that the company was re-evaluating its approach to providing Wi-Fi in cities because the practice was not providing an acceptable rate of return.