EarthLink has begun selling smartphones, a move that makes it the first Internet service provider to offer its own cellular service. But the company may have a hard time getting consumers to call.
The new phone, made by Research In Motion, is the color BlackBerry 7750, an all-in-one device that allows access to e-mail, the Internet and phone calls. EarthLink has offered data-only BlackBerry devices since December 2000.
"In a way, it's a little bit of an odd match," says Yankee Group analyst Roger Entner. BlackBerry devices are typically used in corporate enterprises, and usually don't appeal directly to the consumer Internet subscribers who constitute the majority of EarthLink's customer base. Entner says the company could be using the device as a stepping stone towards a broader wireless effort, which eventually may include selling lower-cost phones, with billing bundled into customers' monthly invoices.
"I think it's just clearly them trying to broaden their portfolio a little bit, so they're not just one trick," says Technology Business Research analyst Chris Foster. "These guys need to have multiple irons in the fire, because some of their areas are disappearing."
In recent months, EarthLink has seen declines in its dial-up Internet access business. While it continues to post good growth in subscribers to its broadband services, the numbers are not as high as hoped. When the company posted its second-quarter earnings in July, it cut forecasts, saying it would add 300,000 to 400,000 total paying subscribers in 2004, not the 300,000 to 550,000 predicted earlier in the year. EarthLink currently has a total of 5.3 million subscribers. In its most recent quarter, the company posted a profit of $49.7 million, or 31 cents per share.
Virtual operator
To launch the voice network, EarthLink will become a mobile virtual network operator, an increasingly popular business model that allows companies to sell cellular service without spending billions of dollars constructing and maintaining the physical infrastructure. Virtual operators handle the sales, support and service for a network, but leave the actual network operation to an existing cellular vendor.
EarthLink did not specify what it will cost to launch the network. It also won't disclose the name of its network provider, saying it wants to prevent confusion for customers. But the calls likely will be routed over the Sprint PCS network, since Sprint owns a 13 percent equity stake in EarthLink and is home to other virtual operators, including Virgin Mobile USA.
Virgin's mobile effort has been a great success, passing the 1.75 million subscriber mark in March, only a year and a half after launching. But some observers are skeptical about whether EarthLink can make the mobile virtual network model work -- and wonder why it isn't advertising its link to Sprint, like Virgin did.
"[Its] brand is as an ISP, and I don't know if people can make the connection between EarthLink and voice services in particular," says Foster. "Making the leap is difficult.... I've got this dial-up Internet connection, and now I want these guys to be my voice carrier? As a consumer off the street, I don't know what their network is. I'm familiar with Verizon and Sprint, but it might be hard to make this leap of faith that EarthLink has a network that works."
