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6/26/2007
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New EarthLink CEO Says He May Use Pruning Shears

Huff says he will spend the next 60 to 90 days reviewing EarthLink's current lines of business, but doesn't know where the company will end up in terms of overall strategy.

Reversing losses and shifting the business model at EarthLink will be a challenge, said new CEO Rolla Huff in an interview, but one made easier by the Internet service provider's 5 million customers and strong brand recognition.

Huff was named CEO on Monday to replace interim chief Mike Lunsford, who took over after the death of previous CEO Charles "Garry" Betty in January. The 50-year-old brings a variety of experience in the wireless industry to the post. For the last seven years he was chairman and CEO of Mpower Communications, a regional provider of voice and Internet service, and he is the former CFO of AT&T Wireless.

Saying he will spend the next 60 to 90 days reviewing EarthLink's current lines of business, Huff said, "I don't know at this moment where the company will wind up" in terms of overall strategy. "What I've told the board is that we will put together a clearly articulated and focused strategy of what EarthLink is going to be and what it's not going to be."

That's a fairly clear implication that at the moment it's unclear just what EarthLink is. One of the earliest nationwide Internet service providers, the Atlanta-based company succeeded by providing reliable and relatively low-cost Internet service to millions of consumers. Though the company still has 5.3 million subscribers (and $1.3 billion in annual revenue), its ISP business is declining fast as broadband options proliferate and it lost $30 million in its most recent quarter. Attempts to diversify, including joint ownership of virtual wireless carrier/handset vendor Helio, along with partner South Korean wireless company SK Telecom, and a series of municipal wireless projects, some in collaboration with Google, have not yet paid off.

Helio has close to 100,000 subscribers, it says, but lost $63 million last quarter and isn't yet on a clear path to profitability. EarthLink's municipal wireless business, meanwhile, has been dogged by lower-than-expected subscriber growth, and in April the company said it would "take a breath" to review the business models of its current municipal Wi-Fi projects and review any future projects before submitting proposals.

"The real question around municipal Wi-Fi is, 'What is the economic model going to look like?' " said Huff. "At end of day, we all have to understand what it's going to take to make money at this."

If he decides the business model is cloudy, Huff said, he won't hesitate to pull the plug -- even on highly visible projects like the Google-EarthLink effort to build a wireless network for San Francisco. "To the extent I don't think we have the capability to get to the point of profitability, I'll make that judgment, too."

EarthLink's strength lies in a fairly loyal customer base, but the monthly-subscriber model is changing, Huff said, for telcos and Internet companies alike. "The model is gradually moving away from monthly charges to a model that rewards those that can deliver very customized content to very well-understood groups of people."

That means EarthLink has to find ways to expand and to market new services to its existing customer base: "There aren't very many companies in the Web space that can talk about 5 million customers who already pay on a regular basis every month."

So far, the evolution of EarthLink has been rocky but not hopeless. The company's share price has actually been on a modest rebound recently. Huff's optimism, though, could be the prelude not just to shifting the ISP's strategy but to an even more drastic maneuver.

"We also note that he played major roles in the acquisitions of Frontier Corp. and Mpower, his two most recent primary employers," Scott Kessler, an analyst at Standard & Poor's Equity Research, wrote after Huff's hiring.

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