EarthLink's mix shifts toward broadband

Lucky break

ComputerWire: IT Industry Intelligence

EarthLink Inc yesterday reported that during the second quarter its dialup subscriber base declined, hitting its top line, but that it is seeing good growth in its broadband access market, spurred primarily by a lucky break it got from federal regulators when rival America Online Inc bought Time Warner Inc,

Kevin Murphy writes

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In the three months to June 30, the Atlanta-based ISP reported a net increase of 72,000 broadband subscribers, or 13% growth, over the first quarter. The quarter ended with 604,000 subscribers, up almost 75% on last year. At the same time, EarthLink's dialup subscriber base shrunk 6.6% on last year to 4.08 million.

The company said in a statement the shrinkage of dialup users could largely be attributed to "the maturing of the premium dial-up access market, the effect of last year's price increase, and the continued migration of customers to broadband access". The decline reflects a trend that has been going on almost a year.

For the second quarter, the company reported a net loss of $34.8m, compared to a net loss of $90.5m a year ago, on revenue that was up 10.4% on last year at $335.5m, but which missed April estimates by a few million. The company had expected revenue to come in between $338m and $342m.

The company uses earnings before interest, tax, depreciation and amortization as its primary bottom line indicator. EBITDA was $12m in the second quarter, versus a loss of $8.2m a year ago, partly due to the fact that broadband is more profitable and EarthLink's dialup prices went up in the second half of last year.

"In the second quarter, EarthLink continued to grow its broadband product line aggressively, driven particularly by the strong expansion in its retail cable service over the Time Warner Cable system," EarthLink CEO Garry Betty said in a statement.

When the Federal Trade Commission approved the merger of AOL and Time Warner in late 2000, a condition of the consent decree obliged AOL to let EarthLink offer broadband access over its cable networks before it could do so itself. The firms have been deploying such services in tandem for almost a year, now covering 39 US markets.

EarthLink's outlook for the full year now includes bringing in $1.4bn in revenue, with EBITDA of between $60m and $70m. The company expects to add 250,000 to 300,000 new broadband subscribers in the second half, ending the year with 5 million to 5.2 million paying subscribers. That implies dialup subs will be flat to down about 200,000.

Betty also pointed to the company's recently acquisition of budget ISP PeoplePC Inc as a growth engine. The company will inherit about half a million subscribers who sign up for three-year contracts, paying $25 per month for a PC rental, unlimited dialup and tech support.

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