EarthLink scaling back, not leaving muni Wi-Fi

EarthLink is not exiting the municipal Wi-Fi business, but it will no longer invest in building out Wi-Fi networks on its own, in hopes of signing up consumer customers, the company’s CEO, Rolla Huff, said today. Instead, EarthLink will treat its municipal Wi-Fi business and some of its other businesses as “the start-ups that they in fact are,” with greatly reduced cost structures, he said.

On the heels of a major restructuring announced yesterday that included 900 job cuts and major facility closures, Huff said EarthLink will also rein in its pursuit of voice customers and even narrowband and broadband access customers to focus more on maintaining and expanding long-term customer relationships and less on simply adding numbers.

The restructuring is the result of a “bottom-up” review of all of EarthLink’s business that Huff concluded in his first eight weeks as the company’s CEO, he said. Where Wi-Fi is concerned, EarthLink is not willing to shoulder the entire cost of building out municipal networks but will still build networks where other partners help shoulder that burden, he said. That can include municipalities themselves as anchor tenants or chip and equipment makers, Huff said.

“We have repositioned the Wi-Fi business to have real option value without the high cash spend that we were incurring,” he said. “I believe there are several constituencies that have a vested interest in seeing municipal Wi-Fi networks succeed, and that includes municipalities themselves, chipset makers, equipment manufacturers — and, yes, even WiMAX providers have a desire to see Wi-Fi networks exist. No one player will be willing to front all the capital required to make these networks a reality.”

In cities such as Anaheim, Calif., Philadelphia and Corpus Christi, Texas, where EarthLink has already committed to building a Wi-Fi network, it will complete those buildouts, using capex already committed for 2007. Going forward, the company will look for a different kind of relationship with municipalities before committing new capital expenses, officials said this morning.

EarthLink and others have found the mass-market Wi-Fi business to be much rougher going than initially thought, leading the industry in general to shift to requiring cities to be anchor tenants and commit up front to using the wireless networks for public safety, meter reading, video surveillance or other applications. Those problems were detailed earlier this summer in a Telephony series on municipal Wi-Fi.  

The other major EarthLink cuts relate to reducing expenses associated with courting what Huff called “marginal customers” across the business.

“The marginal subscribers we have been spending substantial resources on to acquire were adding little or no value because their early life churn characteristics are very high,” he said. “Significant churn comes from new customers who churn early.”

The job cuts come largely in the “downstream support infrastructure” for those sales efforts, including finance, legal, human resources, and IT support.

Huff, who came to EarthLink with a CLEC background, having run Mpower Communications, also hinted at changes coming to New Edge Networks, the CLEC EarthLink acquired two years ago.

“We are still evaluating our investment in New Edge,” Huff said. “We know we can do better. Getting it to an acceptable level of profitability will be the first priority for that business.”