EarthLink optimistic about customer retention

In a presentation at the Chase H&Q Technology Conference in San Francisco, company president Mike McQuary said EarthLink's customer churn rate has decreased since January.

"That's a huge positive," said analyst David Levy of Chase H&Q, who covers the company. "(Customer churn) was our biggest concern."

EarthLink posted a churn rate of 5.5 percent in January and 4.3 percent in April, McQuary said. He said that the company identified broadband access via digital subscriber lines (DSL) and cable modems as the main reason customers left the service.

McQuary said EarthLink will aggressively promote its own broadband service, which currently comprises about 1 percent of the company's subscribers. The company, which has more than 3.5 million customers, also will pitch the service to customers through partnerships with several retailers.

Levy said EarthLink will expand its broadband customer base from 45,000 to 150,000 by the end of the year.

Much of today's presentation focused on the company's efforts to close the gap between itself and giant America Online, which has more than 22 million subscribers. McQuary noted that EarthLink customers spend 42 hours a month online, compared with 32 hours for AOL customers.

McQuary said EarthLink's strong customer support helped the company retain customers. Its support center received 5.2 million phone calls or emails during the previous quarter, and the average wait time on the phone was two minutes.

EarthLink also is eyeing the market for wireless Net access. As McQuary put it, the "gadget" market will grow as more people seek to access the Net without PCs. He said the company will soon make announcements detailing EarthLink's entrance into this market.

On the financial front, Levy expects EarthLink to report a positive cash flow by the end of this year. Some analysts expect the company to generate $1 billion in revenues this year.

EarthLink, which is still digesting its merger with MindSpring, has about $1.1 billion in cash.

McQuary expressed faith in his company's prospects for profits in the future but said that others will be less fortunate. Borrowing a line from the clairvoyant boy in the movie "The Sixth Sense," McQuary said, "I see dead companies, but they just don't know they're dead yet."

For its first quarter, EarthLink said it lost $108.5 million, or 95 cents a share, compared with a loss of $27.8 million, or 29 cents, a year ago. Revenues rose 69 percent to $219.7 million from $129.9 million.

Excluding losses from its acquisition of MindSpring, EarthLink reported a loss of $50.9 million, or 43 cents a share, compared with a profit of $3.2 million, or 3 cents, a year earlier. Analysts surveyed by First Call expected the company to lose 49 cents per share.