Last year in July I questioned whether EarthLink would become a model of success in the muni-WiFi and MVNO market or an example of a company that took too many risks. It appears the latter has happened.
Wireless was supposed to represent a new frontier for EarthLink, which was looking for ways to offset its dramatically declining dial-up customer base. It was EarthLink's former CEO Gary Betty who had the original passion and vision to see the new businesses through, but he died in January 2007. Current CEO Rolla Huff came in and cleaned house.
It's not that anyone could blame him. The company was losing money from these initiatives. EarthLink's most recent earnings report said it lost $80 million in 2007 from municipal operations, including a $28 million impairment charge that wrote down the municipal assets' goodwill. The ISP also took an $111 million hit from Helio, its MVNO joint venture deal with SK Telecom. It would have taken significant time for EarthLink to find the right business model for muni-WiFi, and a company whose core business isn't wireless doesn't have the time nor the funds to experiment.
But where does EarthLink go from here? Virtually all of EarthLink's businesses aren't faring well. Dial-up customers continue to decline and its broadband business is struggling. Despite losing $54.8 million in 2007 and experiencing a drop in customers by 27 percent, Huff was able to show Wall Street some progress in the fourth quarter: operating income of $22.6 million compared with a loss of nearly $18 million the previous year. And after repurchasing 10.1 million shares of its own stock, it is forecasting "record income from continuing operations" for 2008.
Huff may be able to keep Wall Street happy with all of his cost cutting in the short term, but he still must address the fact that his company's core business is floundering. Will the company look for another wireless opportunity to grow or simply become a small regional version of itself?--Lynnette