Smart move:
EarthLink raises monthly fee to $21.95
By Reshma Kapadia
NEW YORK, June 26 (Reuters) - EarthLink Inc. <ELNK.O>, the No. 2 U.S. Internet service provider, on Tuesday said it was raising the monthly price of its basic, unlimited dial-up service by $2 to $21.95, a month after rival America Online increased its rates.
The price increase, the first in EarthLink's history, came a bit earlier than expected and bodes well for the company's financial performance, Goldman Sachs analyst Anthony Noto said in a research note.
"We are confident that the company should meet our 2001 estimates, with potential for upside surprise, as the majority of the price increase should fall directly to the bottom line," added Fred Moran, an analyst at Jefferies & Co., in a research note. "This move reaffirms the pricing power being achieved by the dominant ISPs."
Shares of EarthLink rose 12.7 percent, or $1.56, to close at $13.83 on Nasdaq on Tuesday. Its shares have climbed about 130 percent year to date, outperforming most Internet stocks, but still down more than 9 percent from year-earlier levels.
EarthLink said in a statement its new rate goes into effect on July 2 for new subscribers and on Aug. 1 for most of the Atlanta-based company's 3.1 million existing customers.
Garry Betty, chief executive of EarthLink, said in a phone interview that it was too early to judge the impact of the price hike.
"We will see some one-time uptick in churn (turnover) if people are upset about the hike. In general, we are going to see what happens and provide a more definitive set of guidance after earnings in July," he added.
Betty said the move puts EarthLink at the same price level as some of its rivals, such as Microsoft Corp.'s <MSFT.O> MSN and AT&T Corp's <T.N> WorldNet, noting that EarthLink still sells its service for less than industry leader AOL, a unit of AOL Time Warner Inc. <AOL.N>.
AT&T WorldNet offers unlimited access for $19.95 and offers bundled Internet access and long-distance for $7 a month for Web access and 7-cents-a-minute for the phone service.
"I think the U.S. access market is healthy. We have seen access go from a boutique oddity relationship with its users to something that is very mainstream," Betty said.
AOL raised its monthly fee to $23.90 from $21.95 in May. At the time of the AOL hike, EarthLink said it was weighing its options and might raise rates. MSN responded by launching an aggressive $50 million advertising and promotion campaign and offering subscribers the option of locking in a rate of $21.95 until Jan. 1, 2003.
Both EarthLink and MSN have been battling to lure away some of AOL's 29 million subscribers to gain respective market shares.
EarthLink said in April it had 4.3 million paying subscribers to its dial-up access service, with about 3.1 million affected by the price hike. MSN claims to have 5 million total subscribers, but does not specify how many are paying customers, and how many receive the service through various rebate programs.
"This move suggests there are and will be little, if any, negative effect on subscriber growth and churn rates for any of the competitors that raise prices," SG Cowen analyst Scott Reamer said in a research note. "EarthLink underscores AOL's pricing power and market dominance."
EarthLink also offered a special deal to customers who sign up for unlimited dial-up service this month, allowing them to pay $19.95 per month for 90 days from the date they sign up.
Improvements in its basic service include more Web storage space as well as being able to add seven more e-mail boxes for home, work or other members of the same household, EarthLink said.
17:37 06-26-01 |
