EarthLink’s dump of its municipal wireless business is almost complete. It walked away from Alexandria and Arlington, Virginia, in April; handed its Milipitas and Corpus Christi systems over to the municipalities; and is set to shut down wireless service to New Orleans on May 18. That leaves just Anaheim and Philadelphia.
Tourist-rich Anaheim is an anomaly. EarthLink’s one-page contract with the city can’t be much of a burden. But there is most certainly a resolution in the works for Philadelphia.
As I argued in a previous post, I believe the best option for Philadelphia is for EarthLink to pass the system to a nonprofit organization with network management experience. EarthLink was not able to find an interested buyer for its New Orleans system, so there’s still no reason to think that is an option for Philly. But I don’t think anyone in Philadelphia, even in the Nutter administration, wants to see the system simply dismantled. So I believe nonprofit intervention is also the most likely scenario. I believe it will happen this quarter, in time for the MuniWireless conference in Philadelphia.
EarthLink is highly motivated. The walk-aways, shut-offs, and give-backs with the cities listed above all happened in this quarter. EarthLink wants to close out Philadelphia this quarter, too. Losses from these soured deals will be offset by $50.8 million of incomeEarthLink received in April from the sale of its share of Covad to Platinum Equity.
As it dumps its municipal wireless business, EarthLink has found that its strongest profits are to be found not in broadband service but in dial-up. The dial-up customers, while declining, are relatively stable and highly profitable, while new customers are expensive to acquire and quick to exit. This strategy has allowed the company to cut the cost of marketing for new customers. EarthLink has also laid off more than half its work force, outsourcing all of its tech support, which probably has helped it get rid of costly customers.
This streamlining yielded first quarter profits of $57.8 million, a huge turnaround from the $30 million it lost in the last quarter of 2008.
EarthLink now sees potential profits in our stagnant digital divide. CEO Rolla Huff has his eye on the remaining 8.5 million subscribers to AOL dial-up service, which Time Warner has said it wants to slough off, as well as United Online, which owns Juno and NetZero, and Microsoft’s MSN subscribers. EarthLink is the second largest dial-up service provider with 2.6 million customers. Huff estimates the total number of commercial dial-up subscribers to be 15 million to 18 million. Consolidating all of those customers would generate a lot of cash.
EarthLink still has the same problem that motivated it to dive headlong into wireless deployments, as I explained in The Philadelphia Story: without its own infrastructure, its DSL days are numbered. But now, instead of pushing forward to build new infrastructure, it is retreating to the old phone lines that are still protected by common carriage.
In other words, EarthLink, once the harbinger of digital inclusion, is becoming the enemy of broadband.