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8/29/2007
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EarthLink CEO Devoted To Muni Wi-Fi And Helio

Despite cutbacks in staff and future investments, Rolla Huff said the company is "not exiting" its marquee wireless pursuits.

Saying that he would scale back EarthLink's investments in the municipal Wi-Fi business and in mobile device and service provider Helio, EarthLink CEO Rolla Huff on Wednesday said that the struggling Internet company has no intention of abandoning either venture altogether.

"Our core business has been diluted by new-business initiatives that were begun with good intentions but morphed into larger commitments," said Huff, who took over the company on June 25, in a conference call with analysts. "We are not exiting these growth initiatives; we're scaling back their cost structures to fit the startups that they in fact are."

EarthLink on Tuesday announced a major restructuring that includes the elimination 900 jobs and the closing of four regional offices. The company will no longer pursue new high-churn subscribers to its dial-up or broadband Internet access service through direct marketing, Huff added.

The company also said it expects to lose between $33 million and $43 million in the third quarter of 2007 on revenue of $290 million to $300 million. For the full year, EarthLink will lose between $79 million and $109 million.

Faced with declining revenue from its core Internet-access business as many different forms of inexpensive high-speed Web access proliferated in recent years, EarthLink has made itself one of the leading companies in the rush to build high-speed wireless networks across major cities like Anaheim, Calif., and Philadelphia. It's embroiled in a political struggle over its bid to build a Wi-Fi system to blanket San Francisco. While the company will avoid new projects unless they have a clear path to profitability, Huff said EarthLink remains committed to its existing networks. That means cities like Houston and Chicago, which have been in negotiations with EarthLink for municipal networks, are out of luck for the time being.

Chicago officials said Tuesday they are shelving plans for a citywide wireless network. "We realized -- after much consideration -- that we needed to reevaluate our approach to provide universal and affordable access to high speed Internet as part of the city's broader digital inclusion efforts," Chicago CIO Hardik Bhatt said in a statement.

"We will not devote any new capital to the old model for muni Wi-Fi that has us taking all the risk," stated Huff. "That model is simply unworkable."

He cautioned those who believe that the brief flourishing of citywide wireless networks is already over. "There are several constituencies with a vested interest in seeing municipal Wi-Fi exist," asserted Huff. "The municipalities, the chipmakers, the infrastructure vendors, even the WiMax providers. No one player is going to be willing to front all the capital required to make these networks a reality -- but they could all be interested in a broader sharing of the costs."

Along with South Korean wireless company SK Telecom, EarthLink is also a primary investor in Helio, a so-called "mobile virtual network operator" that's offering innovative service-and-handset bundles in an effort to become an alternative to the major U.S. wireless carriers. While it's gained good press and a small yet enthusiastic user base, Helio is still a high-burn-rate venture with little prospect of near-term profit.

Last month EarthLink and SK Telecom said they had each approved an additional funding of $30 million for the startup, which offers the Ocean mobile device along with cellular and Wi-Fi service, with the possibility of additional cash in the future. Huff declined to predict whether EarthLink will up its stake in Helio, saying that decision will be made in the next few months.

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