EarthLink woes bring Wi-Fi, Helio into question

EarthLink Inc. has fired 900 employees and closed offices in Orlando, Fla.; Knoxville, Tenn.; Harrisburg, Pa.; and San Francisco. The company said it will also substantially reduce its presence in Pasadena, Calif., and Atlanta.
Billed as a “corporate restructuring,” the company expects to pay out $60 million to $70 million associated with the plan while generating $25 million to $35 million in savings through the end of the year. It expects to see a positive return on the restructuring costs within six months.
Speculation is rampant about the company’s next move.
Multiple media outlets are reporting that Don Berryman, the executive who lead the company’s municipal Wi-Fi division, is among the group of employees fired yesterday. Many see Berryman’s departure as a sign of a company-wide exit from the fledgling municipal Wi-Fi market. A few analysts are expecting a major announcement from EarthLink today, which may shed more light on the situation.
Furthermore, the shuttering of EarthLink’s San Francisco office could be another sign of its Wi-Fi worries. The city’s plan to blanket the entire area with Wi-Fi coverage has been bogged down for a variety of reasons since 2005, when the city’s mayor first announced the initiative.
Indeed, earlier this month The San Francisco Chronicle reported that the San Francisco Board of Supervisors agreed to delay a hearing on the proposed contract between the city and EarthLink at the request of the company. This came just days after EarthLink’s new CEO Rolla Huff said the company was re-evaluating its operations.
EarthLink’s troubles also bring into question the company’s investment in mobile virtual network operator Helio L.L.C. Formed as a joint venture between EarthLink and Korean telecom giant SK Telecom, Helio continues to lose millions of dollars every quarter.
EarthLink did not immediately respond to requests for comment on the issue.
In announcing the job cuts, EarthLink’s chief executive said more is yet to come.
“While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future. These changes get our cost structure in line, but there is much more to do,” Huff said in yesterday’s announcement. “We expect to announce additional steps as we continue our work over the coming weeks and months.”
As a result of the cuts, EarthLink modified its financial outlook for the remainder of the year. Excluding one-time restructuring charges, the company now expects to record a $33 million to $43 million loss for the third quarter and a net loss of $79 million to $109 million for the year.
The company also commented on the business environment it now finds itself in, anticipating subscriber additions to decelerate in 2008 and fewer migrations from narrowband to broadband. Additionally, it said it will “no longer add new subscribers that do not yield a positive lifetime value for our shareholders.”
The company also announced that Joe Wetzel joined the company as the new COO.
EarthLink’s stock was up nearly 5% to $7.69 on the news.