Telecomweb writes about recent decisions at EarthLink in an article titled, "EarthLink Crumbles As Second City Ditches Wi-Fi". ELN announced layoffs of 900 employees - half its workforce - to save money.
"The EarthLink executive believed to have been responsible for the muni Wi-Fi efforts has been unceremoniously dumped.... However, in a filing with the SEC, it revealed that "the position of Executive Vice President and President-Municipal Networks, held by Donald B. Berryman, is being eliminated, and Mr. Berryman's employment with the Company is terminating." "
The big shocker from the new CEO is this statement:
"These changes get our cost structure in line, but there is much more to do," says EarthLink President and CEO Rolla P. Huff. "We expect to announce additional steps as we continue our work over the coming weeks and months."
But the rest of the article is equally telling. (Lessons here for everyone!):
The shutdowns will cost between $60 million and $70 million, at least partially offset by between $25 million and $35 million in saving through the end of 2007. Bottom line, EarthLink now expects to lose between $33 million and $43 million in the quarter, and between $79 million a $109 million for the year as a whole. Discussing the conditions that led to its decision to slash staff and closes offices, EarthLink issued a statement saying, "Given current trends in the Internet access industry, management expects industry-wide gross subscriber additions to decelerate in 2008. This will result in fewer gross subscriber additions for EarthLink as it will no longer add new subscribers that do not yield a positive lifetime value for our shareholders. Additionally, as subscriber growth slows, the company expects to realize fewer migrations from narrowband to broadband." Indeed, most analysts point directly at EarthLink's inability to make the transition from the era of dial-up to broadband as the company's biggest problem - just as it was for the ill-fated AOL broadband access business.
The blame is everywhere. ELN lost DSL subs when it terminated the Embarq DSL deal this year. Most Dial-up ISP's are experiencing an increase in churn partly due to a decrease in the price of DSL in many markets ($10 in BST area; $15 in many other places). Without owning the network, it is difficult to offer broadband at a competitive rate. The day of selling just connectivity is kind of over. (How can you even build a network and compete with $15 DSL? There isn't enough there for an ROI on the network and advertising expenses).
So with dial-up cash flow shrinking and the cable and DSL subs flattening, as Gary Kim points out here. Broadband and cellular have flattened because the demand has basically been met. And in a flat market, like TV, you are basically stealing customers from competitors. This makes acquisition (and marketing) costs high.
I don't know if this solves the problem of being UNFOCUSED, but it does partially address the cash-flow game in the short term, maybe. ELN announced it was going to spend $270M to buy back stock, but Just where that $200 million is coming from, though, does remain questionable because, according to its SEC filings at the end of June, it only had $127.6 million in cash and cash equivalents. [telecomweb]
This doesn't answer the questions of the money pit known as Helio and the as-yet unprofitable New Edge. (And Covad probably isn't going to get another cash infusion from ELN). BTW, Helio slashed 15% of its employees, too, according to Telecomweb.
Some ideas for you, Mr. Huff: Move all your DSL customers to New Edge's or Covad's network where available. Bundle voice, wireless and broadband. Helio should be selling wi-fi enabled handsets. FMC for the SMB Market? Let New Edge Agents sell Helio and EarthLink.
Oh, Don't pull a Hook, Huff! ELN hired a new COO. In typical telecom fashion, Huff hire his good friend from Mpower as the new COO.