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Technology Stocks : EARTHLINK (ELNK) -- Ignore unavailable to you. Want to Upgrade?

To: Oeconomicus who wrote (2512)	3/20/2004 9:05:50 PM
From: Glenn Petersen	Read Replies (2) \| Respond to of 2553

Against All Odds forbes.com Chana R. Schoenberger, 03.29.04 Time is running out for EarthLink to prove broadband pays. Cable and phone companies just about own the Internet connection business. The top sellers of high-speed service are all companies that had wires going into homes before there was any Internet. The two biggest Internet service providers that don't own wires, AOL and Microsoft's MSN, have given up selling monthly broadband, resorting to hawking software alone. The slower, dial-up access business that remains is shrinking by 10% a year. The dour outlook doesn't faze Charles (Garry)Betty. The 47-year-old chief executive of EarthLink is staking his company on making a profitable switch from dial-up to broadband. Research firm IDCsays EarthLink is the number four ISP. The company has always positioned itself as the reliable choice for surfing sophisticates, sparing them the pandering and carnival barking that AOL inflicts on its subscribers. But that positioning has done little for EarthLink's finances. It has lost a cumulative $1.2billion since 1994. Only by laying off 1,800 of its 5,100 employees last year (outsourcing customer service jobs to places like Manila and Hyderabad)did EarthLink manage to show its first-ever profit--a meager $14.2million--in the second half of 2003. For the year it lost $67 million, 60% less than in 2002, on $1.4 billion in revenue, pretty much unchanged from the year before. This quarter EarthLink will fire another 1,300 workers. The company has $500 million in cash. Betty has stopped the bleeding, but has to do something radical about the stubbornly lousy economics underpinning EarthLink's 1.1 million broadband customers. Roughly speaking, of a typical $45 monthly broadband bill, $33 or so goes to networking costs and access fees for the cable and telephone companies. Of the remaining $12 gross profit, $8 goes to customer service, billing costs and overhead, according to analyst Youssef Squali of First Albany Capital. After $4 to $5 in marketing costs to acquire new customers, there's nothing left. In 1996, when Betty arrived, EarthLink lost $1 per month on every dial-up user. Now it makes a profit of $10 on each of its 4 million dial-up subscribers, who pay an average $20. How?Line charges have gone down, customers don't call and gripe as often, and back-office costs have dropped. That, says Betty, is the model for the broadband strategy. Those trends will continue, but maybe not fast enough. EarthLink's digitally literate customers are four times as likely to switch to high-speed as AOL's. If the 4 million users go broadband before it starts paying off, EarthLink is finished. Forget picking up customers totally new to the Web. Research firm Parks Associates says just 10% of Americans are still waiting to become Web users. Since the telcos and cablers have no incentive to help Betty by dropping their wholesale rates much, he is looking for another route to users. The company has funded trials of high-speed fixed wireless and power-line networks, including a test that began last yearwith Con Edison in New York. The new technologies could go commercial within two years, says Michael Lunsford, head of EarthLink's product development. EarthLink is fighting the cable guys and cheapo ISPalternatives by beefing up its software. In the last two years it has launched 16 applications, including pop-up and spam blockers and Web e-mail. If subscribers ask for Internet call waiting ($4 a month), reps are encouraged to push wireless networking ($10) and voice-over Internet service through Vonage ($35). Next to launch is ScamBlocker, a free service that restricts access to shady "phisher" sites, which mimic real sites but are hacker creations for stealing credit card data, user names and passwords. Every time a new phisher site comes out, it costs EarthLink $100,000 in angry or confused service calls. "Our biggest challenge today is getting users acquainted with what we're providing them," says Betty. He's offered a free download that lets dial-up users connect at five times the normal speed, but only 11% have downloaded it in the last year.