EarthLink Improves Consumer Churn, Anticipates Growth in Business Revenues

By Josh Long

EarthLink Inc. on Thursday reported an improvement in its consumer subscriber churn for the first three months of the year as broadband revenues made up a larger percentage of its residential sales.

In the consumer segment, which is now responsible for about 24 percent of the company’s total revenues, EarthLink reported subscriber churn of 2.5 percent. Churn was better compared to both the previous quarter (2.6 percent) and year-ago period (2.7 percent).

Consumer revenues totaled $84 million, down 4 percent from $88 million in the fourth quarter of 2011. “Consumer quarterly sequential declines will continue to decrease over time,” EarthLink said in an accompanying investor presentation.

Total revenues at EarthLink decreased 2 percent sequentially to $344.4 million, but rose 42 percent year over year thanks to the acquisitions of One Communications and five IT service companies last year. EarthLink’s profit declined significantly from $16.4 million in the year-ago quarter to $7.3 million.

Atlanta-based EarthLink once was a consumer-focused Internet service provider known for its inexpensive dialup service. Through a number of acquisitions, the company has transformed into a more business-oriented communications and IT service provider. Meanwhile, its’ consumer business today is much less reliant on dial-up service.

EarthLink revealed broadband services in the consumer segment grew from 64 percent in the year-ago quarter to 67 percent of consumer access revenues. In the investor presentation, EarthLink noted that consumer dial-up Internet revenues now comprise just 6.9 percent of its total revenues. That’s down considerably from 20.5 percent in the fourth quarter of 2010.

Business Revenues

EarthLink said business services revenues now comprise 76 percent of all revenues. That’s more than double the percentage from the fourth quarter of 2010 (36.4 percent).

But to date, EarthLink has been unable to grow its business services revenues organically. In fact, such revenues were down $2.3 million from the fourth quarter of 2011 in a continuing pattern of shrinkage.

EarthLink, though, anticipates that business services revenues will grow sequentially by the end of the year.

The company cited a number of developments in support of its guidance, including an improvement in the quality of its sales force and the fact that its sales team can now sell a nationwide product suite. EarthLink also is bullish on the IT services sector and noted that nearly 30 percent of its first-quarter sales comprised MPLS, hosted voice and IT services.