EarthLink's rough road to success

Not only is EarthLink losing dial-up customers, but its broadband business took some blows earlier this year on the regulatory front. First, the U.S. Supreme Court ruled that cable companies don't have to share their networks with ISPs. Soon after, the Federal Communications Commission said the same thing about DSL providers. For EarthLink, which depends on access to these networks to sell its broadband Internet service, the news was bad.

Betty has been with the company since 1996. He helped steer it through an initial public offering as well as a merger with former competitor MindSpring. He recently spoke with CNET News.com about the changing Internet landscape and what that will mean to EarthLink. He also had a message for critics ready to count the company out of the game: We still have a few tricks up our sleeve.

Q: With the Brand X Supreme Court decision basically saying that cable operators don't have to share their networks and the FCC changing its classification of DSL, it seems like it's getting harder for EarthLink to compete in broadband Internet service.
Betty: It hasn't gotten any more difficult. It just hasn't gotten any easier. We expect to continue negotiating commercial agreements with DSL providers because it's good business. I've got 400,000 retail DSL customers in the U.S. That's a big chunk of business, and our relationship with these providers has never been better.

But it's important for you to own some infrastructure yourself, right?
Betty: It's important to have an alternative to broadband and cable in order to create some real competition. For 75 percent of the country, I can't provision an EarthLink service over the cable plant. With networks like the one Philadelphia is developing, we'll have another option beyond the telephone network to give consumers a choice, where that choice today doesn't exist.

Is that why EarthLink has chosen to build the wireless network in Philadelphia instead of just leasing capacity from another provider, like Hewlett-Packard?
Betty: We've been so disenchanted with our ability to get access to broadband pipes that we felt like we needed to take a more proactive stand. We would prefer to be a nonfacilities-based provider. But if you don't have the people who own the network willing to sell it to you at a price where you can make a living, you have to change the name of the game. This is part of changing the name of the game.

But I thought you said that your relationships with access providers are going well.
Betty: They are. But it's a hard living. It's like being a sharecropper. They are basically selling (access) to me almost for what they are selling it to consumers. It's hard to tell the consumer, "Hey! I've got a better service, but you're going to pay me $10 dollars more a month for it."

So, why be in this business at all?
Betty: Because it's the business we're in, and we have 1.5 million broadband subscribers. We're probably getting about 20 percent of the relative market share in broadband. But we're not getting what I believe, ultimately, we can get in terms of market share, if we had a level playing field.

Do you anticipate having to fight any more regulatory battles?
Betty: Oh Yeah! The telephone and the cable companies never quit. They will continue to take every

Would you say Wi-Fi is essential to EarthLink's strategy going forward?
Betty: It's a piece of the strategy, but Wi-Fi isn't going to displace a very high-speed connection. As a very cost-effective alternative to entry-level broadband and as a way to provide customers a better always-on higher-speed solution, this very much fits the bill.

What about broadband over power line?
Betty: That's a very important technology. There's been a lot of testing over the past 10 years. Soon you'll start seeing some large-scale commercial deployment of broadband over power line in the United States.

What do you think about plans from companies like Google that say they want to offer municipal wireless access for free?
Betty: Free sounds great, doesn't it? But you just can't run a network, roll trucks and provide customer support and all the other back-end services for free. Every other ad revenue model for providing (free) service has failed in the past. It would take somewhere in the neighborhood of $5 or $6 a month just in ad revenue to cover your costs. And that's not even getting a return. It's a tough model.

Does it bother you that Google got so much attention for the San Francisco bid?
Betty: I thought it was pretty interesting, since it was supposed to be a closed bid. We put in a proposal, just like 28 other companies did.

Do you view Google as a competitive threat?
Betty: We've got a great partnership with Google. We've integrated their search technology into the core of our services. They will be prominently part of what we do in Philadelphia.

But everybody is a competitive threat. We compete against Yahoo, Microsoft, AOL and Google. In certain instances, we partner with them. We compete against the telephone companies, but we have to rely on them to provision DSL. We compete against the cable companies, but again, we rely on them, too. In this world of convergence, I think it's inevitable that in certain instances, your interests are not going to be perfectly aligned. But that doesn't prevent you from continuing to have very cordial, very beneficial business relationships.

How are EarthLink's services evolving to stay competitive?
Betty: In the early days, we had great customer support and provided software that made it easier for people to get connected. Over the last three or four years, it's been about providing protection, getting rid of pop-ups, spam, viruses, and not allowing our customers' identities to get stolen.

We've been an undisputed leader in protecting and enhancing what users can do on the Internet. That has paid very big dividends, and quite frankly, it has allowed me to sell my product at a premium. For the future, I think voice is another example of where EarthLink can differentiate our product offering.

What do you think is going to happen to traditional voice players? There's a lot of competition now. Will they go away?
Betty: I don't think they're going away. But their business is going to continue to shift. Phone companies are trying to get in the video business, and cable companies are getting in the voice business. You've got independent players like Skype and Vonage, and people like EarthLink. So I think it's just going to be more fragmented.

Won't that just create chaos in the market?
Betty: I don't know if I would say chaos, but it creates opportunity. The great thing about where we are is that these markets are so large, it doesn't take a huge amount of business to be very meaningful for EarthLink.