October 11, 2005 10:00 AM PDT
EarthLink aims to evolve
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on DSL, simply because the phone and cable companies benefit from EarthLink's traffic on their networks, analysts say. But DSL providers especially have been turning up the heat in their quest to win customers. For example, Verizon Communications and SBC Communications have each slashed prices on their DSL services to $14.95, far below the prices Earthlink can offer its customers.
What's more, cable companies and DSL providers have been bundling broadband with other services to offer a "triple play" package that includes TV, high-speed data and telephony.
To combat these trends, EarthLink is also getting into the bundling game. The company will soon launch its voice over IP, or VoIP, service, called TrueVoice. The service is similar to ones offered by Vonage and AT&T, and it will be available to all EarthLink broadband customers throughout the country. EarthLink plans to aggressively price the offering. TrueVoice, plus an 8mbps DSL service, will cost around $70 per month.
The company is also launching a line-powered voice service over DSL provider Covad's network. This service differs from other VoIP offerings because it doesn't require a special adapter to sit between the phone and the broadband connection. Instead, phones simply plug into any phone jack in the house. Voice calls run over the traditional local telephone network (whose copper lines are leased by EarthLink at regulated rates) until they get to Covad's central office, where they're turned into a VoIP call.
EarthLink is not completely new to the voice business. It has been reselling Vonage's VoIP service to its broadband customers since 2004. And in June, it launched a free Internet calling product called Vling. The service is very similar to one offered by Skype, which was recently bought by eBay for $2.6 billion.
Plenty of broadband contenders
But competition in the Internet phone business is stiff. Aside from Skype-eBay, there are other new competitors EarthLink has to worry about. AOL has announced its own free Internet voice service, and the company also plans to offer a phone-based VoIP service in early 2006. And Google and Yahoo also have IM-based VoIP.
EarthLink plans to take VoIP one step further by adding a Wi-Fi component into the mix. In 2006, the company will introduce a dual-mode wireless phone, which will allow people to automatically switch between a Wi-Fi-based VoIP network and the regular cell phone network. This service could prove to be a boon in Philadelphia, where residents could use the Wi-Fi network EarthLink is building to bypass the cell phone network when they are talking on their mobile phones within the municipal Wi-Fi coverage area.
EarthLink isn't stopping with VoIP and municipal broadband. It's also getting into the cell phone business. In April, it invested in a wireless joint venture with SK Telecom of South Korea. The new service, which will use the networks of other carriers like Sprint and Verizon Wireless, will launch in 2006. While most Mobile Virtual Network Operators have focused on providing low-cost prepaid cellular service, EarthLink is targeting a high-end demographic. The plan is to bring new cutting-edge services and devices, like the ones SK Telecom has deployed in South Korea, to the U.S. market.
"Basically, we're targeting kids with money," Betty said. "The see-me, feed-me, spoil-me kids are who we are going after. We think they'll find our service something they absolutely can't live without."
But analysts have concerns about EarthLink's strategy to diversify. They think the company may be spreading itself thin.
"My worry is that by placing all these small bets on all these different things that EarthLink won't end up being able to be a national player in any one of them," said Joe Laszlo, an analyst with Jupiter Research.
But Betty argues that all the markets the company is going after are large enough that even if EarthLink gets only a small fraction of the total business, it will still be significant. For example, there are roughly 200 million mobile users in the U.S today, and 40 million of them fit into SK EarthLink's target market. Betty said if the company hits its estimates it will have 1.5 percent of the market, which would translate into $2 billion in revenue by 2009. For EarthLink, 3 million new customers and $2 billion in revenue is huge, but it's a drop in the bucket compared with the rest of the industry, he said.
"If you look at some of the analyst reports out there, we won't have any customers in three years," he said. "But we've got some exciting initiatives under way that I think will continue to transform and evolve our business over the next two to three years. EarthLink of the future will look very different from EarthLink of today and in the past."
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