Forbes.com
Wall Street Applauds Qualcomm Stake In NetZero
By Betsy Schiffman
A year ago, the notion of giving away free Internet access was laughable. But laughter is giving way to serious interest as free Internet service providers (ISPs) pave paths toward real market share.
CMGI's (Nasdaq: CMGI - news) free ISP, 1stUp, announced today it garnered 3.5 million registered users in just seven months. Bluelight.com, a venture between Softbank and Yahoo! (Nasdaq: YHOO - news), had one million users in March, just three months after launching. And since its introduction in October 1998, Pasadena, Calif.-based NetZero (Nasdaq: NZRO - news)--the pioneer of free access--has registered 3 million users. In contrast, mega-ISP America Online (NYSE: AOL - news) has 22 million registered users.
After Qualcomm (Nasdaq: QCOM - news) announced today it is buying 10% of NetZero's outstanding stock for $144 million, investors sent NetZero shares up nearly 40% to $11.44. The drive-up was especially dramatic considering the recent crash of Internet stocks. NetZero still hasn't regained its lofty high of $40 at the end of January. The two top for-pay ISPs, America Online and EarthLink (Nasdaq: ELNK - news) closed lower today, AOL falling $2.75 to $57.25, with EarthLink losing 88 cents to $13.19.
A major reason the Qualcomm deal won investor approval is that it could help NetZero get a foothold in the wireless space. After AOL announced a slew of distribution deals in February with Sprint PCS (NYSE: PCS - news), Nokia (NYSE: NOK - news), Motorola (NYSE: MOT - news) and BellSouth (NYSE: BLS - news), all eyes turned to wireless as a huge potential market for Internet access.
Based on the today's announcement, ING Barings analyst Youssef Squali upgraded NetZero to buy from hold. In a research note Squali wrote that the deal helps NetZero ``strongly position itself in the emerging market for wireless Internet through the combination of NetZero's free Internet access with Qualcomm's wireless CDMA [code division multiple access] technology.'
NetZero Chief Executive Officer Mark Goldston says the deal is about more than just wireless strategy; it's just as much about broadband strategy.
``Another reason why we did this deal with Qualcomm is that they have a technology called HDR [high data rate], a high-speed wireless technology. It's a small plug-in to your laptop that could give you access faster than DSL [digital subscriber line] rates,' Goldston says.
Squali cautioned that NetZero will have to announce a broadband strategy soon, noting that ``companies that don't have a broadband strategy are going to lose out.'
If NetZero applies the same strategy to broadband that it has used with dial-up access, it probably will roll out a high-speed service subsidized by on-screen advertising. ``It won't be for free, but it will be very affordable,' Goldston said.
And if the rest of the market follows NetZero's lead, consumers could soon have a choice of low-priced, high-speed connections. |
