Earthlink is adding eight more cities where it will now sell line-powered voice and 8 megabits per second DSL connections. Good news for Covad, as well. EarthLink has agreed to provide Covad with $50 million in debt and equity financing to fund additional network build-outs. Big question…. why not just by Covad? At $467 million in market cap, an all stock deal is still going to be cheaper… in the long run. They did about $440 million in sales last year, and lost about $15 million. And while they are at it, why not just scoop up some of the smaller DSL players. Like Speakeasy. Time to be aggressive Earthlink? –
10 thoughts on “Earthlink Needs To Be More Aggressive”
Om, these are 2 companies really trying to find their true identity in similar ways. Covad has floundered around in the pure telecom area while Elink has done the same in ISP. Both are competitively disadvantaged by the incumbents in their respective markets. Maybe they can help each other out of their woes.
Given the current anti-competitive regulatory regime, to survive, Earthlink needs to own the last mile to its customer. Margins on wholesale DSL and Cable access are too slim and the agreements will expire and they will be cut off from their customers. Covad and other CLECS that rely on renting pairs to CO’s are alive only as long as it is expedient for ATT and VZ to keep them alive.
Earthlink’s strategy of building its own last mile in customer dense areas is its best long term shot at survival.
sure getting their own last mile via wireless (or whatever) is good long term strateggy.. but how does investing $50 million in someone else’s infrastructure help earthlink. i agree, they are all basically slaves to the man, but in the end, they need to spend money wisely.
EarthLink ended 2005 with 1.2 million PeoplePC Online subscribers, 2.3 million premium narrowband subscribers, 1.6 million broadband subscribers, and 127,000 web hosting accounts.
Overall, the average monthly churn rate was 4.4 percent. A tiny decrease from previous quarter/years. [Not sure about bimodal churn].
The problem is they have been use to spending only 40>30 million per year in Capex, but in 2005, EarthLink invested $82.0 million of cash [equivalents] in the HELIO wireless joint venture.
Conversion to wireless could cost a Billion to start. But they have/had 422 million in cash.
Future strategy plan slides 2/23/06:
Throw some [loan] money on the walls of alternatives and see what sticks approach, that occurs when you are desparate for answers. Buys some decent press and time to sort thru the choices [persuade the internal desenters of the wireless strategy] while you look for a Big richer partner.
“how does investing $50 million in someone else’s infrastructure help earthlink.”
I agree Earthlink needs to be more aggressive. When AT&T was first split up Bell South was one of the largest ILECs. They then sat on the hands and did not buy or merge with anybody. As the other ILECs merged they became the 2nd smallest. Now they are being bought by AT&T. It could have been the other way around. Earthlink has the same situation. They can sit around and end up being bought by someone or they can go out and buy other companies and grow.
IMHO, spending money fighting the Brand-X case would have been better spent fighting for the last-mile use provided by the TA 96.
By taking some of those millions and putting it into the hands of some key lobbyiest, may have been a wiser investment.
Look at the [their]margins with dial up [90%] vs broadband reselling [40%]. The dial up will go away – no way to stop it.
Selling an enhanced commodity without a way to lockdown the massive churn [50% per year]…you must control the access infrasctructure to reduce exposure to competitors.
As a Speakeasy customer, I could not possibly see how having my DSL provider being snapped up by Earthlink could be good. Speakeasy has the absolute best technical support of any organization I have ever dealt with (Apple is maybe #2). There is only 1 way to go from there – down.
In the end someone else nailed it – the last mile needs to be not DSL. WiMax is an obvious replacement, but things seem to be happening slowly, so my guess is a newer technology will eclipse WiMax before it ever gets popular enough to enjoy economies of scale.
“By”ing Covad would be throwing away about 2/3s of Covad’s value. If GM bought Goodyear, it might make vertical sense, but soon GM’s competitors would stop using Goodyear. Earthlink is but one of many large partners Covad has. If Earthlink bought Covad, you can bet AT&T, Speakeasy, AOL, Verizon and more would seriously reconsider how much business they do with Covad. Finally buying Covad would destroy a lot of Earthlink shareholder value making it even more unlikely.