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Narrowing Loss, EarthLink Seeks A New Strategy

CEO Huff says he's committed to selling off the municipal wireless broadband business, but admits that he hasn't yet found a buyer.

Seeking a path to renewed growth, Internet service provider EarthLink said today that it lost $9.5 million in the fourth quarter, a significant reduction from the same period last year, when it lost $24.8 million.

The Atlanta-based company, which has written off both its failed venture into municipal wireless networks and its investment in "virtual" service provider Helio, saw its revenue drop 14% from the fourth quarter of 2006, to $282 million. The company lost $54.8 million in 2007. And it continues to lose customers, finishing the year with 3.9 million total subscribers, a drop of 27%.

But EarthLink chairman and CEO Rolla Huff, who took over last summer to trim the struggling ISP's losses and shut down unprofitable businesses, was able to portray the quarter as progress. EarthLink produced $22.6 million in operating income, versus a loss of almost $18 million in the same period a year ago. And after repurchasing 10.1 million shares of its own stock, it is forecasting "record income from continuing operations" for 2008.

Whether any of this actually indicates that Huff has devised a strategy to pacify Wall Street and turn the company around remains an open question, but there's no doubt that the company's radical surgery has stabilized its financial position for now.

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

EarthLink saw declining revenue from its core Internet-access business, as many different forms of inexpensive high-speed Web access proliferated in recent years. In response, the company turned itself into one of the leading companies in the rush to build high-speed wireless networks across major cities like Anaheim, Calif., and Philadelphia. But it found itself embroiled in a political struggle over its bid to build a Wi-Fi system to blanket San Francisco, while the business models behind other networks proved unrealistic.

EarthLink's municipal wireless broadband business, which has been tossed in the "discontinued operations" dustbin, lost $32.1 million in the fourth quarter. Huff says he's committed to selling off the business, but admits that he hasn't yet found a buyer.

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