To survive, EarthLink is launching a major makeover that will result in the company's biggest transformation since its February 2000 merger with MindSpring. The changes will toughen EarthLink's already bitter fight with many telephone and cable companies, and blur the increasingly muddy line between telephone, television and Internet providers even more.
There was a time when the world was wide open for EarthLink (Nasdaq: ELNK) .
The Atlanta-based Internet service provider was one of the hottest technology companies around, with its stock in the clouds and its cool cachet bolstered by endorsements from everyone from Steve Jobs to the National Football League.
But with Internet users increasingly moving to high-speed broadband service, and court and regulatory rulings threatening to limit the access of independent ISPs from cable and telephone broadband networks, the company today has its back against the wall.
Moving Into Telephone Service
To survive, EarthLink is launching a major makeover that will result in the company's biggest transformation since its February 2000 merger with MindSpring. The changes will toughen EarthLink's already bitter fight with many telephone and cable companies, and blur the increasingly muddy line between telephone, television and Internet providers even more.
By early next year, EarthLink plans to be not just an ISP, but a significant provider of home telephone service. It also wants to start citywide wireless broadband Internet networks for computer users. And it plans to start a new cellular service with advanced next-generation cell phones that promise to be the first of their kind in America.
All that still might not be enough.
"I think they're an endangered species," said Jim Penhune, an analyst with technology research firm Strategy Analytics.
EarthLink officials, of course, disagree. They say the company's push into new markets ensures its future, and that its standing as the nation's No. 2 independent ISP behind AOL shouldn't be overlooked.
"Many people over the years have predicted our demise," said Dan Greenfield, EarthLink vice president of corporate communications.
But many investors apparently share the concerns about the company's future.
EarthLink's stock has hovered around the US$9 mark for much of the year -- just above its 52-week low and a fraction of the $60-plus price it traded at six years ago. The company reported last month that its second-quarter profit dropped 12 percent from a year earlier.
Mostly Dial-Up Users
It's not that EarthLink doesn't have a good product. The company consistently earns accolades in user surveys, with customers saying they like its reliability and features such as spam and pop-up ad blockers.
The problem is that the vast majority of EarthLink's customers are dial-up users. Now that high-speed broadband service is being used by nearly 60 percent of Americans, according to Nielsen//NetRatings, the dial-up business is in a steep decline.
Today, EarthLink has about 3.8 million dial-up customers, and only 1.5 million on broadband through relationships with Time Warner (NYSE: TWX) Cable and phone companies.
By comparison, the biggest broadband provider, cable company Comcast (Nasdaq: CMCSK) , has an estimated 6 million subscribers. And with sharp competition in the industry, many cable and telephone companies are now offering high-speed service that's almost as cheap as EarthLink's dial-up service.
Worse for EarthLink, the Supreme Court recently ruled that cable broadband companies such as Time Warner, Comcast and Cox Communications shouldn't be required to open their networks up to rivals like EarthLink. Cox Communications is a sister company of Cox Newspapers, which owns The Palm Beach Post.
The FCC is in the process of drafting new rules governing how broadband carriers should operate, based in part on the Supreme Court ruling. Industry analysts say it has clearly been leaning toward allowing cable and telephone companies to freeze out rivals.
VoIP Service Planned
EarthLink executives "definitely have some challenges ahead of them," said Jupiter Research analyst Joe Laszlo. "They have a real good product on the table right now, but in some ways it's really dependent on the kindness of regulators to enable them to stay in business."
Company executives say they're confident they can renew an important agreement with Time Warner Cable -- which was required to ensure competition as part of Time Warner's merger with America Online -- that accounts for 500,000 of EarthLink's broadband customers.
EarthLink also is seeking to strengthen and expand relationships with telecom companies, although its relationship with some that are big DSL providers themselves, such as San Antonio-based SBC Communications (NYSE: SBC) , is rocky at best.
Company executives acknowledge times have been better, but say the best of EarthLink may still be yet to come.
"We see a lot of places to grow," said Kevin Brand, EarthLink's vice president of product management.
The biggest is in the telephone business.
In September, EarthLink plans a major rollout of a new voice over Internet protocol telephone service. By the end of the year, it also will launch with partner Covad Communications Group the first big deployment of a promising new VoIP technology called line-powered voice, with initial tests in Dallas, Seattle and the San Francisco Bay area. With the new technology, users can keep their regular phones, numbers and lines. It also supports 911 emergency service.
Competing against established telephone companies such as SBC and BellSouth (NYSE: BLS) isn't easy, as EarthLink has already learned. But the company has said it hopes to have 1 or 2 percent of the residential market and $500 million in sales by the year 2009.
Cell Phone Service
EarthLink's biggest push, however, will be into mobile phones .
In January, it inked a far-reaching joint venture with South Korea's SK Telecom to bring much-lauded Asian cell phone capabilities to the United States.
The new SK EarthLink is working on next-generation cell phones that potentially could play digital music, receive satellite television and radio broadcasts -- and also make phone calls and take pictures, of course.
"We are targeting a very small percentage of the overall wireless market ... that wants an unparalleled experience with their phones," Cobb said.
EarthLink and SK Telecom are investing $440 million in the venture. But the potential payoff is big as well, they say.
By 2009, SK EarthLink predicts it will have 3 million subscribers and generate more than $2 billion in sales, which would make the new company bigger by about $1 billion than EarthLink itself is today.
"Our competitors have been able to fight wars on a bunch of different fronts where we've essentially been naked," said Steve Howe, vice president of voice services at EarthLink. "That's going to change."
http://www.ecommercetimes.com/story/a0txcUgfY4Q83D/Earthlink-Sets-Out-to-Do-Some-Major-Rewiring.xhtml
There was a time when the world was wide open for EarthLink (Nasdaq: ELNK) .
The Atlanta-based Internet service provider was one of the hottest technology companies around, with its stock in the clouds and its cool cachet bolstered by endorsements from everyone from Steve Jobs to the National Football League.
But with Internet users increasingly moving to high-speed broadband service, and court and regulatory rulings threatening to limit the access of independent ISPs from cable and telephone broadband networks, the company today has its back against the wall.
Moving Into Telephone Service
To survive, EarthLink is launching a major makeover that will result in the company's biggest transformation since its February 2000 merger with MindSpring. The changes will toughen EarthLink's already bitter fight with many telephone and cable companies, and blur the increasingly muddy line between telephone, television and Internet providers even more.
By early next year, EarthLink plans to be not just an ISP, but a significant provider of home telephone service. It also wants to start citywide wireless broadband Internet networks for computer users. And it plans to start a new cellular service with advanced next-generation cell phones that promise to be the first of their kind in America.
All that still might not be enough.
"I think they're an endangered species," said Jim Penhune, an analyst with technology research firm Strategy Analytics.
EarthLink officials, of course, disagree. They say the company's push into new markets ensures its future, and that its standing as the nation's No. 2 independent ISP behind AOL shouldn't be overlooked.
"Many people over the years have predicted our demise," said Dan Greenfield, EarthLink vice president of corporate communications.
But many investors apparently share the concerns about the company's future.
EarthLink's stock has hovered around the US$9 mark for much of the year -- just above its 52-week low and a fraction of the $60-plus price it traded at six years ago. The company reported last month that its second-quarter profit dropped 12 percent from a year earlier.
Mostly Dial-Up Users
It's not that EarthLink doesn't have a good product. The company consistently earns accolades in user surveys, with customers saying they like its reliability and features such as spam and pop-up ad blockers.
The problem is that the vast majority of EarthLink's customers are dial-up users. Now that high-speed broadband service is being used by nearly 60 percent of Americans, according to Nielsen//NetRatings, the dial-up business is in a steep decline.
Today, EarthLink has about 3.8 million dial-up customers, and only 1.5 million on broadband through relationships with Time Warner (NYSE: TWX) Cable and phone companies.
By comparison, the biggest broadband provider, cable company Comcast (Nasdaq: CMCSK) , has an estimated 6 million subscribers. And with sharp competition in the industry, many cable and telephone companies are now offering high-speed service that's almost as cheap as EarthLink's dial-up service.
Worse for EarthLink, the Supreme Court recently ruled that cable broadband companies such as Time Warner, Comcast and Cox Communications shouldn't be required to open their networks up to rivals like EarthLink. Cox Communications is a sister company of Cox Newspapers, which owns The Palm Beach Post.
The FCC is in the process of drafting new rules governing how broadband carriers should operate, based in part on the Supreme Court ruling. Industry analysts say it has clearly been leaning toward allowing cable and telephone companies to freeze out rivals.
VoIP Service Planned
EarthLink executives "definitely have some challenges ahead of them," said Jupiter Research analyst Joe Laszlo. "They have a real good product on the table right now, but in some ways it's really dependent on the kindness of regulators to enable them to stay in business."
Company executives say they're confident they can renew an important agreement with Time Warner Cable -- which was required to ensure competition as part of Time Warner's merger with America Online -- that accounts for 500,000 of EarthLink's broadband customers.
EarthLink also is seeking to strengthen and expand relationships with telecom companies, although its relationship with some that are big DSL providers themselves, such as San Antonio-based SBC Communications (NYSE: SBC) , is rocky at best.
Company executives acknowledge times have been better, but say the best of EarthLink may still be yet to come.
"We see a lot of places to grow," said Kevin Brand, EarthLink's vice president of product management.
The biggest is in the telephone business.
In September, EarthLink plans a major rollout of a new voice over Internet protocol telephone service. By the end of the year, it also will launch with partner Covad Communications Group the first big deployment of a promising new VoIP technology called line-powered voice, with initial tests in Dallas, Seattle and the San Francisco Bay area. With the new technology, users can keep their regular phones, numbers and lines. It also supports 911 emergency service.
Competing against established telephone companies such as SBC and BellSouth (NYSE: BLS) isn't easy, as EarthLink has already learned. But the company has said it hopes to have 1 or 2 percent of the residential market and $500 million in sales by the year 2009.
Cell Phone Service
EarthLink's biggest push, however, will be into mobile phones .
In January, it inked a far-reaching joint venture with South Korea's SK Telecom to bring much-lauded Asian cell phone capabilities to the United States.
The new SK EarthLink is working on next-generation cell phones that potentially could play digital music, receive satellite television and radio broadcasts -- and also make phone calls and take pictures, of course.
"We are targeting a very small percentage of the overall wireless market ... that wants an unparalleled experience with their phones," Cobb said.
EarthLink and SK Telecom are investing $440 million in the venture. But the potential payoff is big as well, they say.
By 2009, SK EarthLink predicts it will have 3 million subscribers and generate more than $2 billion in sales, which would make the new company bigger by about $1 billion than EarthLink itself is today.
"Our competitors have been able to fight wars on a bunch of different fronts where we've essentially been naked," said Steve Howe, vice president of voice services at EarthLink. "That's going to change."
http://www.ecommercetimes.com/story/a0txcUgfY4Q83D/Earthlink-Sets-Out-to-Do-Some-Major-Rewiring.xhtml
