EarthLink to telecom world: Watch us now

Having survived the brutal ISP wars, EarthLink is now taking dead aim at virtually every corner of the telecom market, with the possible exception of large enterprises.

As company executives outlined today at an investors’ conference in New York, EarthLink is moving aggressively into wireless communications, fixed/mobile convergence, voice-data-video bundles, last-mile broadband wireless and small to mid-sized enterprise services.

Building on partnerships, acquisitions and the free cash generated by its still-profitable Internet access business, EarthLink will, by mid-2006, be operating an MVNO; a national CLEC focused on SME data services; a broadband residential service offering line-powered voice, 8 Mb/s data and satellite TV service; and a municipal broadband unit already building networks in two major cities.

Soon to come will be wireless services that use dual-mode phones to enable consumers to completely cut the cord on the telco or cable provider.

“We are going to transform what EarthLink is about,” CEO Garry Betty told investment analysts. “We are becoming a full communications company.”

In the process, however, EarthLink moves from a net income of more than $140 million, and free cash flow of $173 million in 2005, to a projected loss of up to $45 million for the year in 2006, and up to $9 million for the quarter. Those losses reflect the $74 million to $100 million being spent on EarthLink’s Helio wireless venture, its new trueVoice and Home Phone voice services and the municipal Wi-Fi network buildouts.

Those projected results earned the company a 6% drop in its stock price this morning.

As Betty and other EarthLink executives tried to impress on the analyst community, however, the short-term investment will produce long-term growth of between 10% and 15% annually beginning in the fourth quarter of 2006 through 2009.

“We do have a track record of success,” Betty said. “We have done what we promised we would do.” That includes maintaining a profitable ISP business and transitioning most of its dial-up customer base to broadband--something the skeptics said EarthLink couldn’t do, he said.

As Betty and his executive team explained, the multiple initiatives now underway will require significant investment this year and aren’t expected to generate much in the way of new subscribers until the fourth quarter. Those initiatives include:

• Helio, the announced MVNO EarthLink is launching with Korean mobile provider SK Telecom. As CEO Sky Dayton, EarthLink’s founder, explained to analysts, the spring launch of this venture will focus on post-paid customers, targeting the 18- to 34-year-old market and Korean-Americans.
• New Edge Networks, the data CLEC EarthLink is acquiring. When the deal closes in April, EarthLink will provide new funding for marketing and sales to enable the company to post double-digit growth in the SMB market, and add EarthLink’s Web hosting and security products to its successful VPN sales.
• TrueVoice and Home Phone, EarthLink’s two VoIP offerings. The company is actually offering free PC-to-PC calling, a la Skype, then hoping to move those customers up market to trueVoice, which is more Vonage-like and requires an ATA, and then to Home Phone, the line-powered ADSL 2+-based service EarthLink is trialing with Covad Communications in four cities and will be rolling out across its markets later this year.
• Satellite video resale. The company earlier this week announced distribution deals with both DirecTV and EchoStar, owner of Dish Networks, to resell their video services, and it could add content of its own, such as video-on-demand, going forward.

Helio will no be a me-too MVNO service, Dayton insisted to analysts, because unlike other MVNOs such as T-Mobile, it is focusing on the post-paid market and is leveraging SK Telecom’s extensive video, gaming and community services in Korea to introduce a very different type of product that will have great appeal to the late-teens, early twenties crowd that thrives on new technology.

“SK is the largest mobile operator in Korea, with over 50% market share, and now viewed as the most advanced mobile operator in the world,” Dayton said. “SK is the new DoCoMo. It has been the first to launch every CDMA technology. Almost four years ago, it launched EV-DO, which Sprint and Verizon are just now rolling out. More recently, in March of 2005, SK put up satellite to send TV and radio directly to your phone.”

Targeted to hit 3 million subs and $2 billion in revenue by 2009, Helio will launch with two exclusive devices--Hero and KickFlip--designed as much for music and video downloads, and text messaging, as for telephony. Helio has already partnered with the popular MyPlace community Website to enable younger customers to stay in constant contact.

“My Space is a phenomenon--they just reached 57 million users,” Dayton said. “We will transform MySpace from what you did last night to what you are doing right now. Young people will be instantly uploading pictures, uploading with events and messages immediately.”