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A few days ago Earthlink (ELNK) announced a big restructuring that includes 900 layoffs and a rethinking of its fledgling business building WiFi networks with cities. A lot of news outlets and bloggers are raising questions about the future of so-called Muni WiFi. But what about the future of Earthlink?

The company started in the days of dial-up Internet access as a more sophisticated alternative to AOL (which, like The Browser, is part of the Time Warner (TWX) family). As consumers migrated to broadband services offered by phone companies and cable operators, Earthlink, like AOL, got squeezed. AOL, of course, is trying to become an ad-driven portal, like Yahoo! (YHOO) or Microsoft’s (MSFT) MSN, but remains challenged.

Earthlink, meanwhile, pursued various growth strategies, including the Muni WiFi play and Helio, a struggling wireless joint venture with SK Telecom. A less high-profile partnership involved an investment in Covad Communications Group (DVW) that helps Earthlink offer its own voice-over-IP phone service to consumers over Covad DSL lines. (Covad mainly targets small and medium-sized businessess.)

With the demise of SunRocket and the troubles at Vonage, it seems like madness to suggest Earthlink put its eggs in the residential VOIP basket, but if Earthlink could find a way to make the financial model work (and that’s key) the company could find some success in this area. First, consumers are looking for a trusted company from which to buy VOIP. SunRocket’s woes have made people leery of upstarts in the VOIP space. Earthlink, for all its troubles, always had a pretty good reputation with its customers. Second, its offering is a bit different from the others: It uses a variation of what’s known in the industry as “hosted VOIP,” which means the customer doesn’t need any special devices or routers in the house: the intelligence for routing calls and delivering packets all resides in equipment housed at Covad’s operations. Such an offer would be appealing to customers who want the features and cost savings of VOIP, but remain intimidated by the technology.

Of course, the Earthlink voice offer is only available in a limited number of cities, and if it wanted to make a go of VOIP it surely would have to scale to be a nationwide operator, a costly expansion Earthlink seems disinclined to pursue amid its current restructuring.

Readers, what do you think: What is the right strategy for a former dial-up access provider such as Earthlink, or AOL for that matter?

Filed under VOIP, earthlink
Posted by stephaniemehta 2:51 pm 45 Comments comment | Add a comment

I’ve been spending 6 months in Stockholm, Sweden which meant 6 months of exellent phone service. High Speed Internet, VoIP, mVoIP,3G, its everywhere. Back home my internet connection is a slow DSL connection while in Sweden, I was plugged into a 100mbit connection.

Bought a Nokia E61, the Swedish Administrator hooked me up with a (free of charge) mVOIP account from Challenger Mobile making it possible for me to recieve and place free calls while connected to either a WiFi hotspot (at home, hotel, airport etc) or over the 3G. US Telecom, Wake up and smell the coffe!

Posted By Daniel Sears, Dallas, TX : September 15, 2007 9:36 pm

I switched both my voice phone and my DSL from AT&T, who still treat customers like there’s nowhere else to go, to Earthlink. Phone service is adequate for my needs & cheaper, and DSL is cheaper, too. I pay half what I used to, and the people are POLITE. With a deal like that, Earthlink can rule the world– but unlike AT&T, they won’t act like it. They can’t lose.

Posted By Mike Chandler, Dallas TX : September 14, 2007 9:15 am

The first thing earthlink needs to do is to bring their customer service back to the good ol’ USA….

I am fed up calling a bunch of idiots who cannot understand basic english. They NEVER know when they are having phone trouble

Brian

Posted By Chicago, IL : September 13, 2007 4:42 pm

EARTHLINK AND VONAGE GREAT COMBINATION, THE BOTH NEED EACH OTHER .

Posted By CHEEZO -CALIFORNIA : September 10, 2007 11:08 pm

they should roll out voip with 802.16

Posted By james wagner carol stream il : September 10, 2007 5:18 am

I think earthlink’s problem is lack of clarity of what the future holds. This is the case in their line of business as Technology is rapidly changing and improving, another thing that changes is the consumer mind set which marketing might just work for. It might be the solution, but its time they start thinking diversification looking at other lines of business and they may or may not their VOIP as an added service.

Posted By Tolu Olowu Lagos Nigeria : September 10, 2007 5:06 am

I like Rick’s take on this. I think Earthlink should really push the bounds of what is considered VOIP, WiFi, and even an ISP. If they don’t do something drastic, and do it right, they’re going away.

For instance, try a P2P WiFi net that rewards collaborators with free VOIP over the network (as long as they buy the hardware and keep their nodes open to traffic). With stretegically placed nodes and the encouragement necessary to have home users set up their own infrastructure, Earthlink would be poised to hold the key to the gate of an almost singularity-esc network. With a little ad-revenue and more incentives for early adopters of WiMax, they could be fiercely competitive and profitable.

Really, they could get the user to feel all warm and cuddley about setting up their network, as long as no one feels taken advantage of.

Would it take venture capital? Maybe. Would it be scary? Most definitely. But if Earthlink tries hard and looks deep into their heart-of-hearts for what we all hope the internet is and could be, they could make something spectacular. Or they could go out in a blaze of glory and Web 2.0 goodwill. But if you have to go out . . .

Posted By Josh, Topeka Kansas : September 8, 2007 10:29 pm

Earthlink was using the cities to pay for the research and development of WiMax knowing full well the cities didn’t want to pay billions for it. They’d have better odds with two way HDTV instead. Sortof like freeview+.

Posted By Hid Hisam, LA, CA : September 8, 2007 2:03 pm

get pure VOIP, if you don’t you are supporting an outdated infrastructure. I have cable isp and DON’T use their phone service.. it sucks this VOIP can be used with any ISP and its less expensive. You do the math.

Posted By Nick IL : September 8, 2007 10:56 am

Has anyone ever thought about using Packet 8 as a VoIP provider. Their service is reliable and there is no “extra” equipment. Their phones have a built in router.

Posted By Don, San jose, CA : September 7, 2007 9:34 am

In regards to the Post by George Pajari

Please make sure you have your facts before blasting someone. The LPV service offered by EarthLink DOES NOT require an ATA on the customer side. It only requires a phone connected to a phone jack….and now you have a clue

Posted By Chris, Pasadena, CA : September 5, 2007 1:09 am

VOIP and dial-up internet access should be free to all, like broadcast TV. They will not become profitable because they are archaic technologies. Earthlink should liquidate itself and shut its doors forever.

Posted By Yadgyu, Harkeyville, TX : September 4, 2007 11:51 pm

Is Earthlink toast because they’re cutting there force in half and buying back there stock? Long term: Probably, but not for the next 5 or so years.

Being a former employee for a telco that Rolla Huff was CEO for and also having worked for Joe Wetzel, (Earthlinks new COO )I know how these guys work. Joe was brought in to help streamline and cut operational costs.

Rolla and Joe both know VOIP very well and have extensive experience in WiMax. Don’t be surprised if they get involved with either of these technologies.

For any of you that don’t know Rolla, do some homework. This guy was born to run a company and will not only get Earthlink into new technologies but will position Earthlink to make several aquisitions and then sell the company for an unheard of amount of $$$. Get on board while it’s under $8 a share!

Posted By Rolla Fan, St. Louis Mo : September 4, 2007 6:21 pm

Muni wi-fi, and helio are just two more ways to bleed money. Unless you can tie all the operations together, no one will bother. maybe if one of those fancy new phones from Helio had the capability to roam off the cellular network onto the Wi-Fi network using Voip? Nah! too obvious…

Posted By Brianm0122, Bedford, Tx : September 4, 2007 5:38 pm

Earthlink had its run. It’s time to sell the company, or just close down the business.

Posted By DB, Los Angeles : September 4, 2007 5:17 pm

Chris said: “Interesting idea, or speculation. One thing to factually correct - calling Helio a “struggling” JV. It has over 100,000 subscribers and launched 2 great products so far this year with Ocean and Fin; plus 12 industry firsts in its first 18 mos of business…”

Spoken like a true twenty-something early adopter of high tech gadgets with no grasp of numbers ;)…

100k subscribers. $400 million invested and spent and more on the way. Let’s see, so if you can pull in revenue of only $100/month/subscriber, you could get that back, break even, and start making money in only, what, 4 years? Oops, no, wait. That would have to be $100 of pure profit with no operating costs ;). Ok, well, we can charge the subscribers $150-$200 a month for service, they won’t mind…

“Struggling” was being generous ;).

Posted By Brian Sinclair, San Jose, CA : September 4, 2007 3:59 pm

Earthlink and Covad really can provide a VOIP service without requiring any customer equipment other than a regular old analog telephone. The LPV (Line Powered Voice) service uses a DSLAM in the telco central office that provides -48v DC powered POTS (Plain Old Telephone Service) and line shared ADSL on the same copper pair. All a customer has to do is plug a regular phone into the jack, and the dialtone works. ADSL, of course, does require a modem, but only for the internet data service

Posted By Shawn, Portland, OR : September 4, 2007 1:50 pm

Any possible merger with Covad should be towards building an attractive takeover target. We all know that Google is looking to circumvent the “Old Skool” telecom boys. Using WiMax as that mechanism may be a winner.

Posted By Jason Ridgedale, New York, NY : September 4, 2007 1:14 pm

I think that Earthlink should pursue a moderate expansion of this VOIP service. It solves a number issues including increased reliability and has a clear market position. I think that as the other providers fail, they could be left with an impressive market share in the regions they service.

Posted By David, Columbus, Ohio : September 4, 2007 9:49 am

EarthLink does not use VOIP from Covad. This is a different product. They use a product called Line Powered Voice Access or LPVA from Covad. This means that the voice portion does not depend on the data to function as VOIP does. Calls are not managed over the public internet and service is not lost because of a power outage. I would also like to see them roll this out nationwide over the Covad network.

Posted By Mark Grimes, Dallas, TX : September 4, 2007 9:24 am

EarthLink does not use VOIP from Covad. This is a different product. They use a product called Line Powered Voice Access or LPVA from Covad. This means that the voice portion does not depend on the data to function as VOIP does. Calls are not managed over the public internet and service is not lost because of a power outage. I would also like to see them roll this out nationwide ovewr the Covad network.

Posted By Mark Grines, Dallas, TX : September 4, 2007 9:23 am

EarthLink does not use VOIP from Covad. This is a different product. They use a product called Line Powered Voice Access or LPVA. This means that the voice portion does not depend on the data to function as VOIP does. Calls are not managed over the public internet and service is not lost because of a power outage.

Posted By Mark Grimes, Dallas, TX : September 4, 2007 9:20 am

If they aren’t on talks yet, they should be. One buying the other immediately increases market share and cut costs - layoffs are an unfortunate necessity.

Posted By John Turnall, Foster City, CA : September 4, 2007 8:58 am

I think that the VOIP battle has already been won in most cable-served cities. Earthlink should focus on their core competency: functioning as a ’sophisticated’ ISP. They should expand the areas where they’re re-selling DSL and differentiate themselves by using only 2nd level or better tech support based in North America. I think that plenty of people would pay a little more a month for Internet if they believed Earthlink’s Internet was ‘better’….

Posted By Matt, Central, IL : September 4, 2007 8:04 am

Why can’t a DSL provider like Earthlink offer a special family package which would connect extended family members with unique multi-point video/audio conference features - an Earthlink Family Package designed to keep family connected.

Posted By NYCPaul, Manhattan, NY : September 4, 2007 7:27 am

Whomever wrote this has precious little understanding of VoIP. “Hosted VoIP” is a concept that applies to business services in which the PBX equipment/services are hosted by the service provider. It has no relevance to residential VoIP which never had the option of (or need for) a PBX (whether at the customer’s premises or hosted).

Furthermore, the comment “‘hosted VOIP,’ which means the customer doesn’t need any special devices or routers in the house: the intelligence for routing calls and delivering packets all resides in equipment housed at Covad’s operations” is such crap as to cause one to seriously doubt that the writer has a clue with respect to VoIP.

I’d like to see any residential service that doesn’t require, at the very least, an Analog Telephone Adapter (ATA) (A “special device” in the limited vocabulary of this article.)

Scrap the article and start again.

Posted By George Pajari, West Vancouver, BC : September 4, 2007 1:09 am

EarthLink and Aol as all old, out dated technologies will go the way of high tech Darwanism.

Posted By Triad : September 3, 2007 8:18 pm

Earthlink needs to capitalize upon its existing brand equity, leveraging its long (in Internet terms) experience in providing Internet services, relative to the telecoms. It still has a great reputation, and that’s worth a lot!

Posted By Michael Kniat, New York, NY : September 1, 2007 11:25 pm

I think your right voip is the way to go for elink, i am a vonage user, but if i would have known there was such a thing as hosted voip I would have jumped on that, i hate having another box in my house

Posted By Anonymous : September 1, 2007 9:52 am

With a 50 % payroll cut, they are a attarctive buyout candidate.

Posted By Amit,Atlanta,GA : September 1, 2007 12:34 am

Only someone who had not bothered to do their homework would speculate in this direction. Earthlink and the entities that merged to make it up have already tried to make inroads in VOIP *many* times going back to Netcom days, when ICG Netcom released the first nationwide VOIP network in 106 cities at 7 cents a minute…in 1998. Earthlink will never be a telecom competitor. The company knows how to be an ISP, and that’s what they are good at. Every attempt they have ever made to become a “total communications carrier” has been a dismal failure. Having seen Earthlink’s 130-page VOIP PRD a year or two ago…I am here to tell you they will not be turning that around anytime soon.

As for the above poster…ummm, you can’t aggressively market broadband service that costs $10/month more than your competitors unless you want that money to simply flush down the proverbial toilet. Some people are willing to pay a premium for better service, but not the average joe, and when you “aggressively market”, you are hitting the average joe. Earthlink had larger TV campaigns in the past, and they produced…near zero growth. Please do a modicum of research, people :).

Posted By Brian Sinclair, San Jose, CA : September 1, 2007 12:22 am

They should seriously consider partnering with packet8.net They have a lot of VOIP related patents, unlike Vonage that is in trouble with the Verizon. Packet8 also has a great Video Phone which would a distingushing feature.

Posted By Anonymous : August 31, 2007 11:49 pm

Oh lord, Earthlink is DONE.

They have been trying to do VOIP for years now, that proved to be unprofitable. On every front for years Earthlink has been a late to the game, “ME TOO” player. Late on an Webmail, late on an IM service, late on a personal start page.. it goes on and on and on. ELNK hasn’t been innovative on one front.

ELNK will continue to drain the rest of the life out of its dialup base.. then it will die.

Posted By Cowmix, Phoenix AZ : August 31, 2007 11:31 pm

Covad has an excellent set of products that when comined with aggressive marketing by Earthlink should be the core of Earthlink’s strategy. High speed access and rock solid line powered Covad voice products are a winning combination.

Posted By Tom Paterson, Orlando FL : August 31, 2007 11:14 pm

I own DVW. Go for it. Advanced technology only hurts for a nano.

Posted By Rick, Texarkana, TX : August 31, 2007 10:00 pm

Break it up and sell off the parts.

Posted By R. Huff, Atlanta, GA : August 31, 2007 9:27 pm

If Earthlink does not move on Covad someone else might.

Posted By Rico Chicago,Il : August 31, 2007 8:01 pm

Earthlink should go for it, a lot of the cable companies offerings, do not live up to their claims, and often the consumer is left with only 2 choices, neither of them good. I would be glad to be a beta tester!

It would seem like a good idea for Earthlink to expand into the more densely populated areas; my only concern is Covad up to the task ?

Posted By Richard, Piscataway, NJ : August 31, 2007 7:31 pm

Earthlink should back off of the muni-wifi for now(wait to see how Wimax develops) and go after the VOIP customers. Voip has been fumbled, whoever grabs the ball will benefit greatly from it…especially running it on a setup like Covad has to offer.

Put another 50 million in expansion and start signing customers up. I wish Covad backed VOIP was available in my area.

Posted By Dave, Ohio : August 31, 2007 6:46 pm

Earthlink has to reduce their Permanent prices a bit and yes aggresively market their broadband. AOL on the other hand should stop workin on their service because they are the laughing stock of the internet world

Posted By Andrew, Aurora IL : August 31, 2007 6:22 pm

I think if Earthlink will merge with Covad, that would make a bigger and stronger company with more products to offer which will make it very competative in the market place. Go ahead talk merger.

Posted By Abraham, N.Y. N.Y. : August 31, 2007 6:03 pm

I like your strategy of Voip. The Voip market is lacking a trusted brand and Earthlink has that. Earthlink should pursue a P2P, residential, business, and mobile voip strategy. They could jump on Wimax with Covad to own the pipe.

They’ve got to invest to build a new business. They need a niche and mover advantage. Maybe the executives can think of something original that also works.

Posted By Rick Irving, TX : August 31, 2007 4:53 pm

Having Earthlink focus on residential VoIP is like telling them to drink the Cyanide faster as it would hurt less.

Earthlink does not have any competitive advantage (and lots of competitive disadvantages) in the consumer voice space.

They might be able to do better on the business VoIP space which is less susceptible to regulatory swings or the good will of the RBOCs. Better yet — they should double down on muni-WiFi where at least they have some control over the destiny and have a competitive advantage long-term.

Here is a link to my own blog posting on the subject and ideas on why Earthlink is doing so badly.

http://www.ipbusinessmag.com/blogs.php?blog_id=686&author_id=3

Posted By Scott Wharton, Rockville, MD : August 31, 2007 4:11 pm

Interesting idea, or speculation. One thing to factually correct - calling Helio a “struggling” JV. It has over 100,000 subscribers and launched 2 great products so far this year with Ocean and Fin; plus 12 industry firsts in its first 18 mos of business…

Posted By Chris, Los Angeles, CA : August 31, 2007 3:58 pm

I believe EarthLink should aggressively market all of their broadband services, right now ! This action will generate cash and firm up their subscription business.

Posted By George Henry, Houston, TX : August 31, 2007 3:26 pm

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