EarthLink primps for suitors

By breaking off its three-year relationship with Sprint, EarthLink—the nation's second-largest ISP—rolled out the welcome mat for potential partners or even an acquisition.

Earthlink CEO Gary Betty said the previous arrangement—giving Sprint exclusive marketing rights and the option to make an unsolicited bid to buy Earthlink in September—caused the market to believe that “Sprint was the de facto owner of Earthlink.”

Now the ISP is free to pursue other partnerships, according to Lee Adrian, Earthlink's chief financial officer. “What shape or form those can take, I think, is fairly wide open,” Adrian said.

Speculation is shifting to which partner will join up or acquire EarthLink's multimillion-person subscriber base and network agreements, including an important “open access” deal with Time Warner Cable that will begin in June.

“The speculation I've seen is that Microsoft might be interested in—if not buying them—maybe combining their memberships and co-marketing,” said Ty Cottrill, analyst with The Strategis Group.

Microsoft's interest would be a response to the entertainment/technology behemoth created by AOL Time Warner. Microsoft recently ended a rebate offer it was using to attract new subscribers to its MSN service, so combining with EarthLink “would be to build a customer base,” Cottrill said.

Michael Harris, president of Kinetic Strategies, offered more pragmatic reasons for the break-up.

Sprint and EarthLink “both had some exclusivity in there that I think was kind of problematic, particularly if EarthLink was to start doing voice,” Harris said. “If they do increasingly get involved in broadband [with Time Warner, among other cable and DSL providers] that kind of messed [EarthLink] up.”

An outright acquisition is a possibility, Harris agreed, “but who wants to buy an ISP these days?”