EarthLink In Major Restructuring

EarthLink , one of the earliest national
Internet service providers, is in a world of hurt. Today,
the company announced it would restructure, cutting 900 jobs and
shuttering several regional offices.

The company’s announcement said the move, to be completed by the
end of the year, would reduce losses, while implying it might go in a
new direction.

In a statement, Rolla P. Huff, EarthLink president and CEO, said,
“While we see this as an important first step in unlocking the
underlying value that we believe is in our company, we are only eight
weeks into the process of repositioning EarthLink for the future.”

The news follows a dismal second quarter for the company, in which
consolidated revenues decreased to $312.2 million, or 6 percent
year-over-year, as consumers dropped dial-up and broadband
subscriptions. Consumer Internet
access revenue fell 10.2 percent, although the sale of
security-related products and other value-added services contributed
$32.4 million in revenue.

The company expects to continue to bleed subscribers well into
2008, in line with the rest of the industry. However, the company did say this would ultimately lead to better

Instead of shelling out millions to acquire customers
who don’t stay long enough to pay back that investment, EarthLink’s subscriber base will eventually be composed of long-term subscribers
who are, presumably, happy with the service.

EarthLink has struggled to find revenue streams beyond broadband
subscriptions. In March, it announced
a deal with Tivo to bundle Internet and TV service with the TiVo
Series2 Dual Tuner DVR. The new bundle, including the TiVo service
and EarthLink dial-up, DSL and digital voice, went on sale in April.

It also launched a mobile virtual network operation (MVNO)
with SK Telecom. The service, built around innovative
devices such as the Helio
, passed the 100,000-subscriber mark, but the venture
remains a cash drain. In July, EarthLink said it and SK would each
kick in another $30 million, with a possible total of $100 million
needed to keep Helio afloat.

Helio lost $40.1 million, or $0.32 a share, last quarter.

In 2006, EarthLink teamed up with Google in a controversial plan
to provide free, ad-supported wireless for San Francisco.
The partnership won
the bid
in January, despite concerns that Google would track user
behavior and that the quality of the free tier of service would be
too low.

But in August, the project stalled after EarthLink
reportedly did not respond to requests for changes in the contract to
address these concerns. The San Francisco Board of Supervisors tabled
a vote that would have given final approval to the project.

According to MuniWireless,
the city of Chicago announced today that it had killed a similar
proposed deal; both EarthLink and AT&T were in the running to provide
Chicagoans with free municipal Wi-Fi.

A Google spokesman said in an e-mail sent to “We continue to hope that
EarthLink and the city will reach an agreement that will enable all
San Franciscans to enjoy a free Wi-Fi network. Google is committed
to promoting alternative platforms for people to access the Web no
matter where they are, and we encourage others to think creatively
about how to address access issues in their own communities.”

CEO Rolla Huff joined in June, after the sale of Mpower Communications,
where he was chairman and CEO. His former Mpower crony, Joe Wetzel,
joined EarthLink as COO in July. If past is prologue, the duo may plan to shop the company
around, looking for a replay of the sale of their previous company, a
regional provider of broadband data and voice services to business
customers, for $204 million.

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