Sprint, EarthLink revise relationship

(Telephony) While not necessarily breaking up, mega-ISP EarthLink and Sprint have agreed to cool their relationship and give EarthLink the freedom to court – and be courted by – other suitors.

"The new deal frees us up in three places," said EarthLink president Mike McQuary. "The co-branding goes away; we each market our own service. Second, while we'll still work with each other on a wholesale basis, we don't have an obligation to do so exclusively. We can go out and do deals with other partners."

The third part could be the crux of the deal.

"It takes away the bulk of the governance agreement so Sprint is really on an even footing with everybody else in terms of any possible larger deal that could happen," McQuary continued.

Sprint’s governance agreement said any time EarthLink did a transaction that involved issuing more stock, Sprint had the right to put cash into the company and have new shares issued to maintain its 27% ownership position.

"They also had the right, this coming September, to make an unsolicited offer to buy the company," that EarthLink would be required to accept if market analysis deemed it fair, McQuary said.

"In addition, in the old agreement Sprint had a right of last refusal if somebody else came in to buy the company," he added.

Sprint maintains its 27% EarthLink share for now, but the ISP is free to dance with other suitors who, in the wake of the AOL Time Warner merger, are gathering up the courage to cut in.

Ironically, EarthLink helped create the acquisition atmosphere by being the first major ISP to sign an open access agreement with AOL Time Warner. That agreement was a key factor as the Federal Trade Commission (FTC) approved the merger of America Online and Time Warner.

"The AOL Time Warner deal really changes the whole landscape, but that wasn't really a factor in this," McQuary insisted.

Nevertheless, by clearing its decks of Sprint, the ISP is now able to entertain offers from other Internet media companies looking to compete with the merged behemoth. Key among these, analysts have speculated, is Microsoft, which would benefit by adding a powerful ISP like EarthLink to its MSN Internet service.

MSN recently replaced its $400 rebate on Internet service, fueling some speculation that other deals might be in the works.