EarthLink, SK To Form National Wireless Provider

The new entity will focus on data, rather than voice services, EarthLink and SK officials said at a press conference Wed. They said the venture would beat competitors by introducing advanced features that aren’t available otherwise in the U.S. “In South Korea, kids on the street are using their mobile phones to listen to music, watch TV, video conference, locate their friends and access the Internet -- as well as make voice calls -- as opposed to the U.S.,” said SK-EarthLink CEO Sky Dayton: “Americans are living in the past. Utilizing emerging 3G networks and harnessing the explosive growth of Wi-Fi, SK- EarthLink will take the wireless experience in the U.S. to a new level.”

But U.S. wireless carriers didn’t seem impressed. “We had resellers around in wireless for a long time and it’s difficult to be a reseller in that business,” an SBC official said at a separate event Wed.: “We'll have to see how that develops. We have a lot of parties interested in being able to resell wireless and I think it will be challenging for them to do that… When you focus on that you can be successful but when you try to bundle it, it can be difficult because you don’t control” the network facilities.

“I don’t think they [SK-EarthLink] will be a huge competitor to the major carriers,” an industry analyst said: “There is a bunch of similar MVNOs -- Sprint, for example.” The analyst said the venture would probably appeal to younger adults, while most national carriers are popular among older ones. “Any features they may have will appeal to kids,” he said: “In terms of data services, they are leasing the networks of Sprint and Verizon, [and] they won’t be able to offer services as broad until the carriers they are going to use upgrade their network to 3G.”

Sprint doesn’t see the new venture as a competitor, a spokeswoman said: “It’s simply a further validation of the data wireless market.” She said Sprint viewed the announcement as “very positive,” because that was “a way to bring attention to the increasing popularity of wireless data services. We will continue to work toward bringing data services to our customers.”

The venture is the first step in transforming EarthLink into “something different,” Dayton said: “I've been very vocal lately about how I see the market for the Internet service changing.” He said a lot of EarthLink business became very integrated with voice: “I think in 4-5 years, consumers will expect an ISP to seamlessly offer not only a wireless service but other voice services as well… Over time, consumers won’t even see the difference between an ISP and a voice service provider.”

Under the agreement, EarthLink and SK will each own 1/2 the venture and appoint 3 members to the board. The company, which will initially have about 100 employees, will have presence both in Atlanta, where EarthLink is based, and Korea, and will have operations “in a lot of different places,” including Cal., officials said. “We already have between the 2 companies about 60-70 people that have been working on this for some time,” Betty said, noting that the employee base was expected to grow over time. The agreement is expected to close in March, officials said. They said they would make further announcements about the timetable for product launches “in the coming months.”

Officials said they expected the initial capitalization would satisfy future funding requirements until the venture is cash-flow positive. They said they expected the company would generate about 3 million net subscribers and revenue of about $2 billion by 2009. EarthLink isn’t new to wireless. The company was the first ISP to become an MVNO, beginning with a wireless data service in 2000 and the launching a wireless data/voice solution in 2004. SK is the biggest wireless provider in Korea. Officials said the U.S. wireless market was expected to grow by 40 million customers the next 5 years and the venture expected to capture some of that growth.

SK-EarthLink will use a CDMA network at first to provide services, Betty said, adding: “Our objective is to utilize both 3G and Wi-Fi in an integrated way and we will disclose further details in the future.” Betty said “one of the greatest things” about the approach EarthLink took was that “we don’t own the network and we will be able to utilize different networks depending on what’s best for the customer experience.” For example, he said Wi-Fi could serve consumers well at home where they may not have good cellphone coverage. But he said Wi-Fi wouldn’t best to use in a car or walking down a street: “It’s really a combination of these things that brings the best experience… EarthLink brings the legacy of [putting] different types of networks into a seamless experience. It’s not only great for users, but also reduces costs over time.” Dayton said the venture already had some finalized agreements with network partners in place. “SK has a compete wireless platform that is agnostic to the underlying transport and provides a full range of capabilities from billing to managing video, music, locations-based services,” Betty said.

Officials said the venture would start with EarthLink’s existing wireless business, which has 30,000 customers, and would initially market existing services. They said the advanced services were expected to be launched closer to year-end. Betty said the venture’s only handset partner was SK itself, but he said: “We are working with a number of other handset providers and will disclose them later.” Dayton said he hoped to also offer a bundle of wireless and broadband: “There is a segment where customers find bundles very attractive and one of the benefits of establishing this venture is the ability to offer a more complete communications service to our existing customers at EarthLink.”

The U.S. will be the venture’s main market, officials said. “The U.S. market is the largest wireless market in the world that is expected to grow,” Betty said: “When we look at this market, we see that becoming multiple markets, we see it segmenting into different categories that offer specialization in devices and services. That happened in Korea. The same thing is going to happen here.” Betty said the new company would target “a very specific part of the market where we think these services will be very appealing.” He said there were a lot of services in S. Korea that were “directly translatable to the U.S.” For example, he said location services would become “incredibly appealing here if they are executed right.” Other examples include music and video, he said.