Earthlink –Blows an Opportunity – Is Bankruptcy Protection Around the Corner?

Implications: Earthlink underpriced its services and oversold the company’s capabilities.  EarthLink had low balled the cost of the various municipal Wi-Fi deployments in order to get the contracts.   The fact is the success of a technology is often dependent on whether it was deployed in a manner that met operating and financial objectives. You set unreasonable objectives or incorrectly set objectives and your technology and business will fail.

Analysis: Given what Earthlink had been doing since last year, its withdrawal from Philadelphia is not a surprise.  However, I am disappointed in Earthlink.  Despite competition from cable and cellular, there is still a business for municipal Wi-Fi; it is only a matter of targeting the right market.

I have said this in past analyses.  Earthlink started off life as a wired ISP.  Suddenly the company is in the wireless business.  Two different sectors of the telecom sector requiring two different operational skill sets.  EarthLink had been overcome by ambition.  The company wanted the municipal Wi-Fi contracts badly.  Like any carrier or vendor bidding for work there is a tendency to overstate your capabilities, understate the cost and difficulty, and overpromise.

Earthlink’s offer to donate the network to the City of Philadelphia is a slap in the face of the city and its citizens.  On top of all that the company is suing the City of Philadelphia for permission to remove its Wi-Fi equipment from light posts, cap its liability at $1 million and terminate its 10-year contract with Philadelphia. In a word:  OUTRAGEOUS.

Earthlink had an opportunity to demonstrate how to leverage a government relationship in order to deploy a wireless telecom network.  Earthlink had an opportunity to build a network that would have provided services to the government and to the underserved population.  The margins probably were not going o be high but with the right government contract the company would have been cash flow positive in a few years.

Rather than modifying its business/revenue projections to meet the new market environment, Earthlink has left a bad taste in the mouths of many municipalities.

Earthlink will likely be in court for quite awhile with many different cities.  Are we looking at the next telecom bankruptcy?

Bankruptcy protection might be the company’s only way out of this mess.