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September 7, 2007

EarthLink CEO Bullish on the Right Kind of Municipal Wi-Fi

EarthLink CEO Rolla Huff said in an interview earlier this week that EarthLink is still open to building Wi-Fi networks across cities: What he wants, he told me Wednesday, is to get the right stakeholders in city-wide Wi-Fi to sit down and talk strategy. EarthLink's two-year-old Wi-Fi strategy, now effectively repudiated, was to go it alone. No longer. "The conversation can't begin with, 'You put up all the money.'" he said.

I hadn't spoken to Huff before, and he was very on message about this topic; it's tricky for the heads of publicly held firms these days to be frank, because anything new they disclose can be seen as material and affect filings, stock price, and so forth. Still, I was impressed by the intensity of his interest in charting a plan to make the municipal networking idea work, and his honesty in stating that EarthLink doesn't know if there's a way to make it work.

Huff stated in no uncertain terms that EarthLink hasn't closed the door on future networks. But he wants buy-in. "I think there are a lot of constituencies out there that have a reason to see Wi-Fi networks exist. And I'm one of those constituents. I'm absolutely a proponent of doing them," Huff said. Huff wouldn't comment on the remaining staff size in their municipal division following layoff announcments, which included the termination of Don Berryman, that division's head.

While Huff wouldn't discuss specific firms or strategies--he noted that what has "really hurt Wi-fi is that so much of the debate has been in the media"--he did say generally that a number of parties could be involved. "I'm getting to the people I believe would like to see Wi-Fi networks exist, and having a rational thoughtful conversation with them how we, we as a group of people who would like to see this happen, and how to make it happen."

In an analyst call last week, Huff noted that could include hardware makers, WiMax providers, municipalities, and chip makers. The EarthLink chief said that the company needed to find out "How many are interested in it, and interested in it enough to make commitments around it." Likewise, EarthLink would bring customers to other Wi-Fi networks that were built.

On the WiMax front, Huff wouldn't confirm or deny speaking with Sprint Nextel or Clearwire, but he did make clear that WiMax providers have a lot to gain from Wi-Fi, which I'd have to agree with. "The WiMax providers will never say publicly that there's a place for Wi-Fi; it's almost a religious thing," Huff said.

But Huff started building a WiMax network in Las Vegas while at his previous company, Mpower, and he said that led him to understand how Wi-Fi could help balance network load with a WiMax system. "Wi-Fi can't do a lot of the things that WiMax does, but the flip side of the story is that Wi-Fi in very confined areas can put a lot of bandwidth in a very targeted area," he said. (I've long argued that the Wi-Fi edge, which can deliver 20 Mbps in G or 50 to 100 Mbps in N over the local network could have a real potential beyond the 1 Mbps to 3 Mbps speeds typically provided across a metro-scale network when dealing with caching and media delivery.)

One of the items on the table for discussions with municipalities is working to shape cities' expectations of what a network buildout would look like. I always thought it was rather restrictive to require service providers to offer 95 percent coverage, given that cities have areas in which coverage makes no sense, in which broadband penetration is complete--nearly everyone who wants access has broadband--or where there's no audience for service.

"Should we really be spending the money to have picocells covering municipal parks? Is that the right way to do it to begin with? Or should we be focusing our capital dollars where people are -- where there are going to be the densest number of users?" Huff asked.

"We were providing coverage to cattle. It didn't make good business sense," Huff said. Those expectations, of course, were encoded in requests for proposals (RFPs), and service providers like EarthLink accepted them. That in turn prevented organic growth and may have led to the current crisis in which cost structure overwhelmed the true potential of network revenue.

Huff didn't suggest redlining--the old practice in which minorities were steered to de facto ghettoes or districts when purchasing houses. Almost the reverse. "EarthLink's model is not to cherrypick the highest-income areas. We want to get this to people who aren't necessarily looking to spend $100 to $150 per month for a voice, video, data combination," he said. Huff said EarthLink has always seen the municipal Wi-Fi customer as a $20 per month customer, the rough price they set for Wi-Fi in their markets.

A fundamental problem for EarthLink now, one that Huff alluded to in last week's analyst call and spoke about in our interview, is the cost of acquiring new customers. EarthLink's long-term customers have a good staying power, but customers they spend a lot to acquire also tend to churn faster, making them highly unprofitable. Huff seemed to make the point that EarthLink needs a way to bring on board many customers cheaply, which implies partnerships with firms that have existing customer bases that those firms can inexpensively provide information to.

I had heard and see the statistics that the U.S. dial-up market, while declining is also maturing--that it's likely we'll hit a stable point at which the people who cannot obtain faster service or aren't interested in broadband will remain a relatively constant pool. Huff said there is an inflection point.

"We look at our customer base, we've got a lot of customers who have been with us multiple years. The churn that you see are really people who are just coming into the category, who quickly roll out of the category. Which drove a lot of our restructuring," he said. Most importantly, though, "It's not a growth business, and it shrinks a little bit every year, but it generates huge amounts of cash."

Huff said that the problems facing EarthLink in the municipal market aren't unique. "Anybody who things this is an EarthLink issue is missing the point completely...If it were an EarthLink issue, there would be people lined up to be doing this. There would already be models just rocking."

And he's right: None of Huff's competitors are out there knocking on the doors of networks that are in abeyance in San Francisco and elsewhere. Many of those firms are walking away from networks themselves. "There's plenty of liquidity to invest money on things that will provide a return," he said. "The old model of Wi-Fi was not one of those things that would provide a return. People can vilify the company, but to me that's just a simplistic notion."

Fundamentally, Huff sees the restructuring effort as a way to bring EarthLink back to its roots, which was "bringing the power of the Web to everyone, not just those that could afford it. That was the principle that EarthLink was founded on. The municipal initiative was very supporting of that idea. And it's still a relevant idea. But it can't be an idea that gets funded on the back of shareholders that don't get a return."

What Huff needs to do now is re-inspire a certainly demoralized, and depleted workforce at EarthLink; convince financial markets that the firm has a way to increase revenues across all lines of business; and find the right stakeholders to make existing commitments to muni-Fi work while sorting out a new model.

If EarthLink walks away from all new municipal Wi-Fi networks, they're also walking away from the only pipe they could own outright.


Rolla Huff hits the right notes on how to go about building a third pipe into the home. Organic growth and buildout is the name of the game here, serving the right communities at the right price points with the correct product. Building a new network edge today is much the same as building a new utility, but without the political aids of monopoly protection and universal access to real estate that were given the electric and phone companies when their grids were first constructed. There will be wireless networks built that can compete with the existing wireline providers, but they have to be built out sensibly, and with the right mix of technology, at the edges and the middle

If my experience with earthlink is any indication of the quality of thier wifi product, it is no wonder they are failing. Earthlink is the wifi provider in my city. I bought in on the first wave.. and have not been able to connect to the internet using the service, even though they show I am connected to the service.

The customer support is spotty at best and it is impossible to speak with a person in authority in the United States. First level is India, working from scripts. They cannot problem solve. 2nd level is in Manila. They are accomidating, but have no follow through.

I cannot cancel my account without paying for the entire year, and cannot appeal to anyone at earthlink without sending a certified letter to an unnamed department in Atlanta.

It's not a wonder they are failing.