With the new partnership for Muni Wireless and the Helio deal there is a lot of chatter about Earthlink’s future. The joint Earthlink Google SF bid is online too.
“Like America Online, Earthlink has been in a desperate fight to make itself over, using any and every broadband technology. Broadband over powerlines, Fixed Wireless, MuniWireless, Broadband MVNO, and Voice over IP – anything to get off its dependency on incumbent – DSL or cable – access pipes.
Earthlink is currently planning WiFi networks in five cities, and the total cost of building networks in these cities will be in the $50 million range, according to informed industry insiders. Municipal Wireless is the easiest way for Earthlink to get out from under the yoke of large incumbents, and it has no option but to aggressively chase these opportunities. And to turn it into a viable business, many think the company needs to play in at least 20 cities, including some NFL towns.
It certainly has past history of spinning out businesses. Helio, their MVNO was spun-out and has received backing from SK Telecom of South Korea. So why not Muni Wireless Business? In recent days I have heard fleeting rumors about Earthlink spinning off the muniwireless business as a separate entity, including an investment from a big investment bank.”
“This leads to Om’s prediction that the company will spin off the muni-WiFi efforts, to see if it can be valued at a higher rate. This is the type of thing that could make sense from the Wall St. point of view where they seem to hate businesses that have multiple lines that are valued very differently. It’s part of what leads to the “build ‘em up, break ‘em down” mentality of Wall Street (who, of course, gets fees at each step of the process).
However, as we discussed in that link, these types of deals may be good for shareholders in the short-term, but kill off much of the strategic value for companies in the long term. Where it makes sense for a company trying to transition its business to invest in separate lines, Wall Street doesn’t seem to have the patience to understand that this actually does make sense, and would rather break things up and set them afloat alone immediately.”