EarthLink Explores WiFi Revenue Models (ELNK, GOOG)

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 |  Includes: ELNK, GOOG
by: David Jackson

Dow Jones' Riva Richmond reports (via the Miami Herald) that EarthLink Inc. (NASDAQ:ELNK) CEO Garry Betty plans to bid for a second US WiFi city contract with Google (NASDAQ:GOOG), but using a different model from that proposed to San Francisco.

The new EarthLink-Google model would offer a paid subscription-based WiFi service, Ms Richmond says, with free access only to Google's local search service and to local Web sites. Google would split the ad revenue with EarthLink.

That's different from the San Francisco model proposed by Google and EarthLink, whereby residents would be offered free WiFi service with unrestricted access to any web site, supported by Google ads, and EarthLink would offer a higher speed, ad-free $20 per month subscription-based service as an upgrade.

According to the report,

"We still don't believe in the free model much," Betty said, citing the expense of maintaining and expanding a network and providing support services to consumers.

...Free service is more possible in San Francisco than elsewhere, Betty said, because its high population density makes it easier to profit there. Wi-Fi networks involve blanketing an area with signals from radio devices perched on top of light poles and other city property. However, most municipal Wi-Fi networks would likely break even at around $7 per customer per month, a sum Betty thinks would be hard to generate simply through search advertising.

"We're not in business to break even. We're in the business of making money for our shareholders," Betty said.

In the long term, the profitability of municipal WiFi is a crucial issue for EarthLink shareholders. But in the short-run, I suspect that the change in sentiment about the growth prospects for EarthLink's business will propel the stock even without proof that the company can actually make money from WiFi.

One risk to look out for: Google could announce partnerships with other infrastructure providers. Google filed a patent for a technology that pushes targeted ads to wireless users. As Om Malik points out,

...there have been no deals between the two companies [EarthLink and Google] that have been officially announced... Google would be more inclined to partner with anyone as long as it brings in some ad-dollars to the company.

ELNK chart below (click to enlarge):

Related:

  1. EarthLink the Wireless Operator Stock?
  2. Full transcript of ELNK's most recent conference call
  3. More opinion and analysis of ELNK stock

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