This all reminds me of how the analog C-band satellite television industry was considered 'dead' back in 1994, when Ku-band mini-dish players like PrimeStar, DirecTV and DishNet started. Today C-band technology is still a reliable viable and cost effective solution for several hundred thousand homes and businesses.
How long will Dial-up survive? 10 years? 15 years?
Thomas William
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The Atlanta Journal-Constitution
Published on: 07/28/08
EarthLink invested for years in potential replacements for its once-thriving dial-up Internet business: a mobile phone service aimed at teens, citywide wireless high-speed Internet and broadband that runs over utility power lines.
None of them worked.
Plagued by an eroding customer base, EarthLink has managed to stay afloat — and even turn a profit in the first quarter after losing $135 million in 2007 — by slashing its work force in half and abandoning two failed ventures. Now, it's crunch time. CEO Rolla Huff is banking the company's future on the very thing that has caused trouble in the first place: dial-up.
Hello?
Huff has been saying for months he is serious. He has argued that he can't stop losing customers to broadband but what he can do is buy dial-up subscribers from other companies that don't want them and build a critical mass.
It's unclear whether that strategy will work.
"The old core Internet service provider business that was central to EarthLink and AOL is really fading away and drying up," said Lydia Leong, an analyst for Gartner, an information technology research company in Stamford, Conn. "They are a company with declining fare and declining brand equity."
EarthLink is scheduled to release its second-quarter earnings Tuesday . Executives declined to be interviewed saying the company was in a quiet period and could not speak to the media ahead of the earnings announcement. The company made a small profit of $54.4 million during the first quarter, and executives raised their full-year forecast to between $245 million and $260 million.
Analysts are hoping for some answers Tuesday on EarthLink's strategy for the long haul.
"What's the long-term solution to the challenging business model? I don't think they have figured it out, and it may not exist," said Mike Paxton, an analyst with In-Stat, a technology and communications market research firm based in Scottsdale, Ariz. "Relying solely on dial-up Internet access is not a good story for their customers, their employees or Wall Street."
A recent addition to EarthLink's board may provide a clue about the company's intentions: telecom industry veteran M. Wayne Wisehart has been either chief financial officer or CEO of a number of phone, wireless or Internet business that eventually were bought by larger companies, giving him plenty of experience in navigating through an acquisition.
Though troubled companies are often prey for prospective buyers, analysts said none would probably be interested and that EarthLink has time to pursue the purchases Huff seeks.
"We see EarthLink as an acquirer," said Scott Kessler, an analyst with Standard & Poor's in New York. "If you think about what they've done, they've basically gotten out of these other businesses and have done that so they can focus on dial-up."
EarthLink rose and fell with the Internet boom, but while major telecom companies such as AT&T and Comcast were throwing money into high-speed Internet, the company tried branching out into other ventures as a way to survive. It dabbled in Internet telephony, partnered with Duke Power to launch broadband over power lines, or BPL, on a trial basis and paired up with satellite TV providers DISH and DirecTV to market its Internet services.
Then EarthLink and SK Telecom invested about $440 million into Helio, a wireless company aimed at teens, with the hopes of capturing 3 million subscribers by 2010. Virgin Mobile bought the joint venture — and its 170,000 customers — in June for about $39 million in stock.
The company shut down another troubled venture, a municipal wireless network in Philadelphia, one month before. The $17 million effort that was part of a larger nationwide project, which is being phased out.
During EarthLink's first-quarter conference call in April with analysts, Huff acknowledged that while the company continues to lose dial-up subscribers, he sees a "long and profitable tale" in that market by buying those customers from other companies.
Huff was optimistic, telling investors that he considers such acquisitions one of EarthLink's core competencies. In fact the company has bought more than 120 groups of dial-up Internet subscribers since 1999.
During the conference call he said there is a "constant list of people that we are talking to on a consistent basis," but would not give any names. Analysts, including Jim Friedland at Cowen & Co., say the ones being courted are Time Warner's AOL and Microsoft's MSN.
Huff told analysts that AOL, MSN and United Online each have to determine how important the dial-up business is to them.
"At some point, scale will matter as much to them as it does to us," Huff said. "And we're better positioned all around to be that consolidator. We're going to try really hard to continue to acquire dial-up customers. We just want to make sure we're going to make money off of them."
Friedland, an analyst with Cowen & Co., is skeptical.
"We continue to believe that the company's dial-up base, which generates the majority of its (earnings), will decline to zero in five to six years," he wrote in a research note based on the company's first-quarter earnings.
Other analysts are less dramatic.
"While dial-up Internet access is a dying business, it is hardly a dead business," Kessler said. Companies such as EarthLink, however, have to work hard at maintaining a critical mass of customers to stay profitable, he said.
Huff has said he is bullish about the company's long-term prospects.
"I believe we can make our company better than it is today," he told analysts.
