In announcing his company’s earnings today, EarthLink President and CEO Rolla P. Huff said there is “a lot of inherent goodness” in the municipal wireless market but his company is not getting an acceptable return on its investment in it. He says munis working with EarthLink need “to step up and become a meaningful anchor tenant on completion of a build.”Huff made that announcement in EarthLink’s second quarter earnings call this morning, apparently putting his company on a path that is similar to what MetroFi has been pursuing in which anchor tenant commitments from the municipalities help to make the build-out economically for the service provider.
Anchor tenant commitments have worked well in communicities like Riverside, California, where the city partnered with AT&T to provide a variety of city services (for which it pays) as well as a free tier for community residents. Anchorage, Alaska, and Corona, California, however, recently decided to review plans for muni Wi-Fi projects after being unable to reach agreements with MetroFi on anchor tenancy questions.
One thing is clear, however. Muni wireless is not, and never should have been regarded as, a gift horse. Business plans, such as the one which was carefully developed in Toledo, Ohio, can be identified to produce cost savings that insure deployments with minimal financial impact on a city budget. Others with unique demographics, such as Ocean City, New Jersey, can even produce revenue streams for a city. But, however it is done, service providers cannot be expected to bear all the risk and not share in the rewards.
Huff’s remarks today are the first indication of EarthLink’s new direction in its ongoing evaluation of the muni wireless market. At its last quarterly earnings report, EarthLink indicated it was re-evaluating its approach to muni wireless. At that time, I suggested that EarthLink and its fortunes should not be confused with the market itself. Today’s earnings call, along with a new report from Datamonitor predicting tremendous growth in the muni wireless market over the next five years, reinforces that.
Huff, who said he spent 4th of July driving around Anaheim to observe the results of that WiFi deployment, heartily endorsed the future of municipal Wi-Fi while, at the same time, acknowledging his company’s current approach to the market was flawed.
“The access business has been delivering substantial cash flow for some time,” he noted, adding that “as we recognize that our growth platforms are not performing as expected we need to be prepared to change the underlying business models and cost structures and we’re prepared to do that.”
Huff said “in my mind there can be little question that a bypass technology which allows us to access customers with high-speed data connectivity just has a lot of inherent goodness. We can also feel great about the fact that the number of Wi-Fi-enabled devices in the marketplace number in the hundreds of millions and is growing‚Äö?Ñ¬?As Apple and AT&T recently announced to the world(a reference to the release of the iPhone), Wi-Fi doesn’t have to simply compete with other wireless technologies, it can compliment them. All of these things point to a business that we should be interested in if, and that’s if, we know how to scale it in a way that provides a return to our shareholders for the money invested.”
Huff said that EarthLink is doing a detailed review of its muni business model and is “beginning a dialog” with the municipalities it has partnerships with and is considering partnering with “to explore ways we can bring this exciting technology to their communities while still providing a return for EarthLink shareholders. As in all of our businesses, we expect a return on this investment. The Wi-Fi business as currently constituted will not provide an acceptable return. We’re actively exploring ways to scale this business more economically. We’re going to look for municipal government to step up and become a meaningful anchor tenant on completion of a build. That would go a long way in our being able to get an acceptable return on this investment. Until we’re convinced that we can build new networks and get an acceptable return we will delay any further new build-outs.”
His statement came in the company’s second quarter earnings call this morning where EarthLink reported consolidated revenue of $312.2 million and income from operations of $20.2 million for a net loss of $16.3 million or 13 cents per share.
Click here to read the press release on EarthLink’s earnings.
Click here to hear the Webcast of EarthLink’s earnings conference call.