Mike McQuary

It's understandable if EarthLink President Mike McQuary keeps a bottle of Pepto-Bismol in his desk drawer.

McQuary's stomach is bound to be queasy these days, what with the roller-coaster stock market, the bumper-car strategy of being an ISP in an era when those initials stand for “Internet's a Strange Place” and the unsettled feeling that comes from trying to digest another company's culture efficiently, as EarthLink is doing with MindSpring.

The stock market is, for McQuary, a thrill a minute, and while he would just as happily settle for a smoother ride, he's not complaining. “Everything is still on line there,” he insists. “From a market/value perspective, we did roll down the roller coaster with everybody else. But since Jan. 1 the stock is up something like 100%.”

When it comes to the stock market, McQuary's policy is simple: “Keep our heads down and continue executing on our strategy, even with the backdrop of some of the carnage that's going on in other companies.”

Some of that carnage has tainted EarthLink. Despite generally optimistic earnings reports and an improved loss, the company is still shedding more jobs than it's adding. In fact, it dropped 12% of its work force — about 900 jobs — after acquiring rural ISP OneMain.com.

“They were scattered in something like 27 different locations,” McQuary says. “We did consolidate operations and close down a lot of those rural offices.”

EarthLink has also had a tougher-than-expected time digesting the parts of its merger with MindSpring. “Whenever you do a large merger, there's just a lot of internal items that need attention. It's just a large resource allocation issue,” he says.

Those were the low points. The coaster ride swung upward in two other areas, one through happenstance and the other by design. First, despite its push into broadband, EarthLink didn't get bogged in the mire with NorthPoint and its spectacular DSL failure.

That, says McQuary, was “sort of luck and circumstance. They weren't one of our vendors. The reason was we were somewhat worried about their financial stability.”

The other move was more deliberate: EarthLink restructured its deal with Sprint, effectively removing Sprint from owning EarthLink and freeing both companies to pursue separate Internet strategies.

“When we originally put that agreement together three years ago, the landscape was very different and there were some mutual exclusivity clauses in there that, as the data and Internet markets evolved, really hindered both of us from being able to do what was best for our respective companies,” McQuary says.

EarthLink, he emphasizes, is not a company that is comfortable with restrictions — especially speed limits. It's been very active in the “open access” broadband cable space with cable providers Cox Communications, Comcast Cable, Charter Communications and, particularly, AOL Time Warner

“It's going well,” McQuary says. “A lot of it is still in the technical trial stage, but we do expect, with Time Warner in particular, we'll be launching service to most major markets between now and the end of the year. You're going to see us focus a lot of time and attention on cable access in the next six to 12 months.”

Banking on the belief that subscribers will pay more for broadband, EarthLink has already jacked monthly DSL rates to $49.95. Dial-up could be next. “Supply and demand will dictate what rates are,” McQuary says. “We certainly don't feel any downward pressure.”

Maybe he should, suggests Keith Kennebeck, an analyst with The Strategis Group.

“We're going to see a lot of consumer sensitivity to the price points, [especially] to the $40 price point for high-speed access,” he says. “If you're going to stay at the $40 price range or even raise it like some of the RBOCs are doing with DSL, I don't see anything happening there in terms of growth.”

McQuary will take the chance, especially with dial-up, where he'll follow the example of the industry leader AOL, which “has inferred several times that there's probably going to be a price increase for their dial-up business near the end of the year, and that also can make a lot of sense for us.” After all, he says, “it's a tough business to make money at $19.95 for unlimited access, and certainly we'll want more profitability on that equation.”

Profitability is in the company's future this year, McQuary insists. Losses are being cut and a positive EBITDA will happen by the fourth quarter. On top of that, there's money available.

“At the end of the year we publicly reported we had $675 million in the bank,” he says. “We don't need any financing, which sort of puts us in an envious position vs. a lot of other competitors.”

Now McQuary is looking small.

“The one area that is an important area for us is the non-PC access world. Between the PDAs, different hand-held devices, PCS and cellular phones, you're going to see us transport what you get on your desktop from EarthLink onto multiple different wireless devices,” he says. “That will really be a core focus for us.”

And that should keep the company firmly entrenched in second place, despite what Microsoft might say or think, he says.

“Microsoft announced they passed the 5 million subscriber mark, but what they didn't announce is that 2 million of those are free,” McQuary says. “In terms of paying subscribers, we're far and away the number-two provider.”

And growing?

“We'll remain ambitious going forward,” he says. “When the market's in distress there are bargains to be had. You just have to make sure that you're buying good companies that are undervalued, not companies that are valued at a low price. We certainly don't want to take on somebody else's hardships.”

That would be a sure way to get heartburn.