Earthlink bails from municipal Wi-Fi, casts its net for AOL dial-up

After putting several of its municipal Wi-Fi partnerships on hold last year, Earhlink has decided to escape from this market entirely, concentrating instead on dial-up Internet access and partnerships with broadband carriers.

And now that Time Warner wants to spin off its Internet access business, Earthlink is placing itself in a position to acquire the access lines and customer base of Time Warner's AOL division, or perhaps some other current dial-up providers.

In a conference call last week, Earthlink CFO Kevin M. Dotts pointed out that, back in November, Earthlink announced it was considering "strategic alternatives" related to its municipal wireless networks. "Based on that analysis, as of December 31st, the company had committed a plan to sell its municipal Wi-Fi assets," Dotts elaborated.

Even back in November, municipal Wi-Fi initiatives in San Francisco, Chicago, and Houston had already temporarily bitten the dust, with several of them on hold. A project in Philadelphia was in jeopardy, too, for instance.

"We will not devote any new capital to the old munitipcal Wi-Fi model that has us taking all the risks. In my judgment, that model is simply unworkable," vowed Earthlink CEO Rolla P. Huff, in a written statement last November.

At this point, though, Earthlink officials do think the Internet access model continues to be workable -- for Earthlink, at least.

"We intend to be a home for US households that don't have a need for or are unable to afford the broadband hurdles that are currently being marketed. When they do have a need for or have the ability to have high-speed connectivity, our array of broadband partnrships give us greater flexibility to transition them to broadband in a more customer friendly way," said Huff.

"We believe that, not unlike the paging industry, there will be a meaningful segment of US households that will have a dial-up service connection for many years to come," he predicted.

"While we are not an organic growth story today, we are demonstrating that this business can generate substantial free cash flow. Given the markets we are all looking at today and probobly for the foreseeable future, being in a position to generate substantial cash flow with an unleveraged balance sheet doesn't seem like a bad place to be. Being positioned to scale the business through access line acquisitions makes it feel even a little bit better."

Also last week, Time Warner cited plans to spin off AOL's Internet access business -- including dial-up accounts -- while hanging on to the AOL.com "audience and advertising" platform.

"I have no doubt that Time Warner and AOL are both extremely conscious about how their customers are taken care of and that will be important to them in the future," Huff told one analyst last week. "And the reality is that we do what we do every single day, so I feel very confident that this is the type of business that we would do very well with."

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