Earthlink: Could VOIP be the answer?
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.
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