I think ditching the Phillie meeting was the first balloon that ELN was getting out of the Muni Wi-Fi Business. (ELN lost $32M during the last three months of 2007 on its Muni ventures. OUCH!) By exiting Helio and Muni, ELN hopes to have positive cash flow this year (better to sell with cash than Money Pits in your portfolio like Helio and Muni Wi-Fi).
"We ended the fourth quarter of 2007 with $289 million of cash and marketable securities, a decrease of $106 million compared to the fourth quarter of 2006." [seekingalpha]
"We’re accounting for our WiFi assets as a discontinued operation. We’ll continue to provide service to people currently on the networks until disposition of the assets in the various communities has been accomplished."
"Dial access is not an organic growth business and we no longer try to run it like it is. It’s a mature business that if run correctly will generate meaningful cash flow for many years to come, so we run it around contribution margin."
ELN is actively looking to buy subscriber base in access lines (dial-up and DSL). Asked point blank about AOL and Rolla side stepped. So maybe they will buy the AOL sub base (IF they have enough cash).(I'll post about this later).
CHURN: ELN puts out churn numbers based on how long the subscribe has been a subscriber. The longer they are with ELN, the lower the churn. DUH! No kidding, wunderkind!
EarthLink narrowband subscriber base declined by 235,000 subscribers in the quarter while the consumer broadband subscriber base declined 21,000 during the quarter. .... EarthLink ended the quarter with 1.1M broadband subscribers, 2.6M narrowband subscribers split evenly between premium and value, and 100,000 web hosting subs. ... Consequently, the annualized revenue contribution from the premium subscriber base is almost $210 million while the value subscriber base annualized revenue is almost $120M.[seekingalpha]
One point made by an analyst is that dial-up modems are not standard issue on PC's and laptops any more. Rolla said they had agreements with Dell and others and the analyst should go check. But I have been shopping for a new laptop -- most do NOT come with modems. 56k Modems went the way of the floppy.
Rolla's plan is more cost-cutting, although even he acknowledges that you can't cut payroll forever with out adverse effects. I guess, he is plotting where the Tipping Point is, since there were more layoffs prior to the 4Q07 earnings call.
So where else did they cut costs? "EarthLink has greatly reduced sales and marketing activities." Customer Acquisition costs for dial-up, VoIP, and broadband were too high.
Line Powered Voice (powered by Covad) was being re-worked. Now ELN is in a marketing test-and-measure approach with one NFL city as the market. Provisioning problems and LNP issues made LPV difficult.
BTW, ELN stands to get a check for $60M when Covad is bought by Platinum Equity. And ELN is still using Covad LPV. When asked, Rolla answered:
We are. We are. Donna, as you know, part of our investment in them was to build out a co-lo infrastructure in the NFL cities with a technology that allowed us to do this. So that is a partnership that if we can get line-powered voice where we want it to be, we’ll leverage. But in any case, we’re not going to roll out line-powered voice aggressively until we know our business model works on it.
"New Edge became EBITDA positive in December and more importantly, we expect New Edge to contribute $4 million to $7 million in positive EBITDA in 2008." Rolla was questioned about New Edge growth. He didn't rule out acquisitions, but he has not found any in 7 months that make any sense to the shareholders.
"the sweet spot for New Edge is our multi-location customers that are on the small to medium size level, so for example, we’ve just signed a recent deal -- I don’t know that it’s been announced so I’m not going to give you the name, but it’s 450 locations across the country and what they are looking for is combinations of DSL and T1 connectivity" ... As far as broadband growth, you know, most of our broadband growth comes from helping our current customers migrate to higher speed platforms. We’re not out aggressively trying to stimulate growth on the broadband side. For us, it’s part of our -- what we try to do for our customers and we try to make their experience with the web a good experience. So if our customer tells us that it’s time for them to move to high-speed, we try to help them with it as opposed to giving them a hard time about it. So I think our growth in our core business will be through strategic acquisitions. I think the business model today, unless we can sort out how to bring in customers with a different acquisition cost model, what you’ve been hearing all along is that the churn profile, the early life churn profile of new customers in this category make it very difficult for us to get returns on what we were historically paying to acquire new subs. So to the extent that we can get that model changed, and we’re certainly -- we think about that but the fact that we are not spending a lot of money suggest that we haven’t figured out how to bring a lot more new customers in and get a pay-back before they churn off. [seekingalpha]
This is an IMPORTANT lesson. They don't grow the market -- they take from others.
Some 4Q07 financials:
- EarthLink's income from continuing operations was $23 million.
- EarthLink generated a net quarterly loss of $9 million
- EarthLink lost $9.5 million on revenues of $22.6 million
- Helio: ARPU = $85; 180,000 subscribers by end of 4Q07; $56M in quarterly revenue.
Shore up Rolla's stock: "During the fourth quarter, the company repurchased a record 10 million shares of its outstanding common stock for $69 million. ... Since the initiation of our repurchase program, the company has purchased 77 million shares for $611 million at an average price of $7.92 and we ended the quarter with 110 million shares outstanding." Also, Helio and Muni Wi-Fi losses are off the books, so their stock and numbers will look better ever quarter.