EX-99.2 3 a06-5569_1ex99d2.htm INVESTMENT COMMUNITY MEETING PRESENTATION MATERIALS



























































































































































 

Searchable text section of graphics shown above

 



 

[LOGO]

 

2006 Investment Community Meeting

 

February 23, 2006

 

Sofitel New York, New York

 

[LOGO]

 

1



 

Agenda

 

Introduction/Strategy – Garry Betty

 

HELIO – Sky Dayton & Todd Tappin

 

Access & Voice – Mike Lunsford

 

Small & Medium Enterprise – Bill Heys

 

Municipal Wi-Fi – Don Berryman

 

Financials – Kevin Dotts

 

Conclusion – Garry Betty

[LOGO]

 

2



 

Safe Harbor Statement

 

Certain of the statements contained in this presentation are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the Company seeks the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive and regulatory developments and risk factors listed from time to time in the Company’s SEC reports. The lists in the Company’s SEC filings are intended to identify certain of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in the Company’s business, and should be read in conjunction with the more detailed cautionary statements and risk factors included elsewhere in the Company’s most recent filings with the SEC.

 

3



 

Use of Non-GAAP Financial Measures

 

Included in this presentation are certain non-GAAP financial measures that are not determined in accordance with U.S. generally accepted accounting principles. These financial performance measures are not indicative of cash provided or used by operating activities and may differ from comparable information provided by other companies, and they should not be considered in isolation, as an alternative to, or more meaningful than measures of financial performance determined in accordance with U.S. generally accepted accounting principles. These financial performance measures are commonly used in the industry and are presented because EarthLink believes they provide relevant and useful information to investors. EarthLink utilizes these financial performance measures to assess its ability to meet future capital expenditure and working capital requirements, to incur indebtedness if necessary, and to fund continued growth. EarthLink also uses these financial performance measures to evaluate the performance of its business, for budget planning purposes and as factors in its employee compensation programs. Since the elements of these financial performance measures are determined using the accrual basis of accounting and exclude the effects of certain capital, financing, acquisition-related, and facility exit and restructuring costs, investors should use them to analyze and compare companies on the basis of similar period operating performance.

 

4



 

Non-GAAP Definitions

 

EBITDA (referred to Adjusted EBITDA in Earnings Releases and GAAP reconciliations) is defined as earnings before interest; income taxes; depreciation and amortization; net losses of equity affiliate; gain(loss) on investments in other companies, net; and facility exit and restructuring costs.

 

Free Cash Flow is defined as income from operations excluding facility exit and restructuring costs; depreciation and amortization; less purchases of property and equipment and purchases of subscriber bases.

 

Gross margins (referred to Gross margin before sales incentives in Earnings Releases and GAAP reconciliations) as a percentage of total revenues is defined as total revenues less total cost of revenues before sales incentives divided by total revenues.

 

ARPU (Average Revenue Per User) is calculated by dividing appropriate service revenue component amount by appropriate weighted average monthly subscribers for same component. Example would be narrowband revenue divided by weighted average narrowband subscribers.

 

These non-GAAP measures should be used in addition to, not as substitutes for, financial information included in the statements of cash flows and statements of operations.

 

5



 

Reconciliation of Non-GAAP Measures

 

Earnings Before Interest; Income Taxes; Depreciation and Amortization; Net Losses of Equity Affiliate; Gain (Loss) on Investments in Other Companies, Net; Intangible Asset Write-Off; and Facility Exit and Restructuring Costs (Adjusted EBITDA, a non-GAAP measure):

 

 

 

Year Ended December 31,

 

 

 

2001

 

2002

 

2003

 

2004

 

2005

 

 

 

(in thousands)

 

Reconciliation of net income (loss) to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(341,061

)

$

(148,033

)

$

(62,194

)

$

111,009

 

$

142,780

 

Provision for income taxes

 

 

 

 

4,460

 

22,476

 

Depreciation and amortization

 

329,210

 

217,621

 

164,244

 

79,219

 

47,138

 

Gain (loss) on investments in other companies, net

 

10,000

 

650

 

202

 

1,420

 

(2,877

)

Net losses of equity affiliate

 

 

 

 

 

15,608

 

Interest income and other, net

 

(25,469

)

(12,638

)

(4,972

)

(6,131

)

(13,491

)

Intangible asset write-off

 

11,252

 

 

 

 

 

Facility exit and restructuring costs

 

 

3,492

 

36,596

 

28,394

 

2,080

 

Adjusted EBITDA

 

$

(16,068

)

$

61,092

 

$

133,876

 

$

218,371

 

$

213,714

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin (a non-GAAP measure):

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 

 

 

 

 

$

1,382,202

 

$

1,290,072

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of total revenues

 

 

 

 

 

 

 

15.8

%

16.6

%

 

6



 

Free Cash Flow (a non-GAAP measure):

 

 

 

Year Ended December 31,

 

 

 

2001

 

2002

 

2003

 

2004

 

2005

 

 

 

(in thousands)

 

Reconciliation of income (loss) from operations to free cash flow:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

(356,530

)

$

(160,021

)

$

(66,964

)

$

110,758

 

$

164,496

 

Facility exit and restructuring costs

 

 

3,492

 

36,596

 

28,394

 

2,080

 

Intangible asset write-off

 

11,252

 

 

 

 

 

Depreciation and amortization

 

329,210

 

217,621

 

164,244

 

79,219

 

47,138

 

Purchases of property and equipment

 

(69,450

)

(32,533

)

(28,445

)

(29,890

)

(33,879

)

Purchases of subscriber bases

 

(40,688

)

(21,719

)

(11,867

)

(2,419

)

(6,690

)

Free cash flow

 

$

(126,206

)

$

6,840

 

$

93,564

 

$

186,062

 

$

173,145

 

 

7



 

Reconciliation of Guidance Provided in Non-GAAP Measures (amounts are estimates)

 

 

 

Three Months
Ending
March 31,
2006

 

Year
Ending
December 31,
2006

 

 

 

(in millions)

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA:

 

 

 

 

 

Net income (loss)

 

$2 - $9

 

($45) - $0

 

Depreciation

 

8

 

41

 

Acquisition-related amortization

 

2

 

9

 

Net losses of equity affiliate

 

14 - 16

 

90 - 110

 

Interest income and other, net

 

(4)

 

(15)

 

Adjusted EBITDA

 

$24 - $29

 

$100 - $125

 

 

8



 

Strategy

 

 

Garry Betty

 

President & Chief Executive Officer

 

9



 

Executive Summary

 

Manage the existing access relationship with customer to deliver recurring revenue stream

 

                  Delivering stable returns - EBITDA, net income, and free cash flow

 

Re-invest earnings into high-growth prospects

 

                  Wireless – [LOGO]

 

                  Voice – EarthLink trueVoice, DSL & Home Phone Service

 

                  New Access Technologies – Muni Wi-Fi, BPL, etc.

 

                  Small and Medium Enterprise solutions

 

A Total Communications Provider

 

10



 

Track Record of Success

 

Over the past 10 years we have earned a track record of success in the toughest competitive and regulatory environment

 

In 5 years we grew premium dial-up to 4.3 million subscribers, generating $1.0 billion in annual revenue

 

As market matures, realizing gross margins ~ 90%

 

[CHART]

 

Continues to generate great cash

 

11



 

In 6 years we grew broadband to 1.6 million subscribers, generating over $400 million in annual revenue

 

Generating gross margins of over 40%

 

[CHART]

 

Still investing in growth, steady state profitable

 

12



 

PeoplePC acquired in 2002, fastest growing value ISP with 1.2 million subscribers, generating $140 million in annual revenue

 

Generating gross margins of almost 90%

 

[CHART]

 

Still investing in growth, steady state profitable

 

13



 

Next Growth Investments

 

                  HELIO – Expected Launch April 2006

 

                  Muni Wi-Fi – Expected Launch 2nd Quarter 2006

 

                  Voice – EarthLink trueVoice launched in 3rd Quarter 2005 and DSL & Home Phone Service launched in late 4th Quarter 2005

 

                  SME – Expect to close New Edge Networks acquisition in 2nd Quarter 2006

 

Should generate more revenue than the trad’l access business by 2009

 

14



 

EarthLink Mission

 

Anytime, anywhere EarthLink connects people to the power and possibilities of the Internet. We deliver a reliable and personalized experience our customers trust.

 

15



 

 

16



 

Total Communications Provider

 

Built a Network and Internet Back-bone by integrating disparate elements to provide the customer a solution

 

                  Started as an Internet Services Provider in 1994 providing access on Dial-up and then moved to offer Broadband, Wireless, etc.

 

                  Added services to improve the user experience as a differentiator and to monetize the relationship with the access customer

 

We continue to leverage the underlying infrastructure by integrating solutions around ever changing customer needs

 

                  Adding access options such as Muni-Wifi, BPL, etc.

 

                  Expanding the definition of the “market” by including enterprise as well as consumer

 

                  Expanding monetization opportunities by adding voice, video, protection services, etc.

 

17



 

Reorganized to Manage Opportunities

 

Activity Focused

 

Customer
Support

Product/
Marketing

Sales/
PeoplePC

Operations

Finance

Legal

Human
Resources

Strategic
Planning

 

 

 

 

 

 

 

 

Customer Focused

 

 

 

 

 

 

 

 

 

 

Consumer

Business

 

 

 

 

 

 

 

 

 

 

 

 

Access/
Voice

Muni Wi-Fi

SME

 

 

 

Value added Services

 

Shared Services

 

Corporate Support Staff

 

18



 

Access & Voice Organization

 

Mike Lunsford

 

Premium
Narrowband

Consumer
Broadband

Voice

 

Support Functions:
IT, Customer Service, Marketing

 

$1.1B revenues

 

                  Approx 60%/40% Narrowband/broadband

 

3.9 million users

 

                  Approx 65%/35% Narrowband/broadband

 

Strategic Focus

 

                  Return in premium dial

 

                  Profitable growth on PPC and BBD

 

                  Deploy voice services

 

                  Leader in integrated products

 

19



 

SME and Value Organization

 

Bill Heys

 

PeoplePC

Business
Sales and
Web hosting

Aluria
Software

 

$220M revenues

 

                  Approx 82%/18% access/ web hosting

 

1.4 million users

 

                  Approx 98%/2% access/web hosting

 

Strategic Focus

 

                  Grow PeoplePC subscriber base

 

                  Expand SME business

 

                  Grow share of wallet through cross-selling

 

                  Customer-focused product development

 

Revenues will increase to $350M w/ New Edge Networks

 

20



 

Municipal Networks Organization

 

 

Don Berryman

 

 

 

 

Retail

Wholesale

Municipal & Other Services

 

Awarded two markets covering:

 

                  800k households

 

                  185 square miles

 

Strategic Focus

 

                  Expand Muni Wi-Fi footprint

 

                  Grow subscriber base

 

                  Develop products to drive revenues

 

Voice could double the opportunity

 

21



 

Benefits on New Organization

 

Enhances environment for innovation, speed, agility, breakthrough thinking

 

Moves EarthLink toward a converged communications business

 

Better emphasis on packaging technology and delivering services

 

Stronger emphasis on Customer Service

 

Increases focus on the customer and innovative products and services

 

22



 

Total Communications Provider

 

[LOGO]

 

HELIO

 

Access Voice

 

SME

 

Municipal Wi- Fi

 

23



 

Key Takeaways

 

Manage the access business to deliver profitable results and cash

 

Investing cash in growth product initiatives

 

Executing on a coordinated strategy to be a Total Communications Provider

 

Organized for success

 

24



 

Total Communications Provider

 

[LOGO]

 

HELIO

 

Access Voice

 

SME

 

Municipal Wi- Fi

 

25



 

[GRAPHIC]

 

Introducing HELIO

 

Sky Dayton, CEO

 

Todd Tappin, CFO

 



 

Agenda

 

                  Introduction to HELIO

 

                  HELIO Consumer, Brand and Experience

 

                  MVNO Model

 

                  HELIO Financial Model

 

27



 

[LOGO]

 

28



 

[LOGO]

[GRAPHIC]

 

                  Largest mobile operator in Korea – 52% market share

 

                  World leader in wireless technology and services

 

                  Jan. 1996: Launched world’s first commercial CDMA service

 

                  Oct. 2000: Launched the world’s first commercial CDMA1X service

 

                  Feb. 2002: Launched the world’s first CDMA1X EVDO service

 

                  March 2005: Launched world’s first satellite DMB service

 

                  Advanced market segmentation

 

                  Helio benefit

 

                  $200M+ annual SK Telecom R&D investment

 

                  Exclusive US license for advanced service delivery platform

 

                  World’s most sophisticated back-office billing and content-management systems

 

                  World’s most advanced handsets

 

29



 

SKT data services examples from Korea

 

[LOGO]

      Music-on-demand – full tracks and albums over the air to your phone

 

      70% of the country’s digital music sales are to mobile devices

 

      Korean operators expected to ship 10MM music-enabled phones in 2005

 

 

[LOGO]

      3D gaming service launched April 2005

 

      Fully interactive, multi-player games

 

 

[LOGO]

      Largest mobile social network in the world

 

      Upload pictures, texts, check on your friend

 

      Used by 30% of the Korean population and 90% of teens and early 20’s

 

 

[LOGO]

      Satellite DMB service launched in 2005, first in the world

 

      20 channels of clear TV and crisp music delivered directly to your handset

 

Note: These are not necessarily services HELIO will launch, but illustrative of its technology and R&D pipeline

 

Source: Company data

 

30



 

The HELIO consumer                                                                                                                                                                             [GRAPHIC]

 

                  Connectivity is the Holy Grail

                  Need to stay connected - at home, at work, in college, in the car, shopping, partying, on vacation…

                  To social network: online friends, MySpace, family, friends (multiple social groups is a goal)

                  Loss of connectivity means fear of missing out - on communication and, by implication, on life

 

                  The goal is to be busy and multi-tasking is the ultimate proof of busy

                  “… watching TV and you text and you AIM…”

                  Busy means popular

                  Busy means important

                  Busy means alive

 

                  Dead time is the enemy. Even five minutes waiting in line “alone” (severed communication) can be agony

 

                  Multi-tasking, or social “fine slicing”, enables you to feel at the center

                  The more demands, the more access, the more channels of connection, the better

 

                  Less Voice, More Data – data facilitates multi-tasking and enables shorter, more frequent interactions

                  “I always just text my friends. It’s just easier. And you can talk to more people at once that way”

 

31



 

HELIO core segments

 

18-32 year olds, 40K+ household income, replace phone in 12 months = 36MM

 

PRIORITY SEGMENTS = 12MM

 

“FEED ME” 2.5MM

 

Affluent, young adult lead users in technology and cell phones

 

“SPOIL ME” 5.5MM

 

Students with heavy entertainment and communication needs; seeking “cool” image and features

 

“SEE ME” 4MM

 

Trendsetting, multi-ethnic urban dwellers willing to spend on technology

 

32



 

The Korean-American HELIO/SKT consumer

 

2.16 million Korean Americans in the U.S.*

 

Over 80% of Korean Americans live in major 5 cities - LA, NY, Chi, SF, Sea

 

[LOGO]

 

HELIO

 

Core Segments
“Feed Me”
“Spoil Me”
“See Me”

 

400k

 

Young Korean Americans

(2nd Gen.)

Born in U.S.

 

1.4m

 

General KA Market

(1st & 1.5 Gen.)

Korean language
Korean culture

 

300k

 

International Students & Expatriates

Long and short-term dwellers

 


* Korean Foreign Affairs Administration, 2003

 

33



 

The HELIO experience

 

[GRAPHIC]

 

Brand

 

Service

 

Customer Care

 

Distribution

 

Content

 

Product

 

34



 

Fully-loaded devices – Hero

 

[GRAPHIC]

 

Multi-Media Powerhouse

 

                  Speedy 3G: EVDO

 

                  Unbelievable Pics: 2 Megapixel Camera

 

                  Co-Processor Engine: Multimedia Processor

 

                  Beautiful Screen: 2.2-inch QVGA w/landscape

 

                  Loads of Memory: 70MB user memory + T-flash

 

                  Personal Entertainment Center:

                  Music player + full duplex speakers

                  MP3, MPEG 4/H.264 player

                  VOD, MMS, Mobile Flash

 

35



 

Fully-loaded devices – Kickflip

 

[GRAPHIC]

 

Kickflip: Sleek Swivel

 

                  Addictive design: Full auto-hinge & swivel both ways

 

                  Speedy 3G: EVDO

 

                  Unbelievable Pics: 2 Megapixel Camera

 

                  Beautiful Screens: 2.2-inch QVGA w/landscape

 

                  Loads of Memory: 70MB user memory + T-flash

 

                  Personal Entertainment Center:

                  Music player + full duplex speakers

                  MP3, MPEG 4

                  VOD, MMS, Mobile Flash

 

36



 

37



 

Content focus: Discovery and Sharing

 

[GRAPHIC]

 

38



 

MySpace Mobile on Helio

[LOGO]

 

                  Over 56MM users

                  High overlap with Helio core target

 

                  First to launch MySpace Mobile

                  A unique experience optimized for our devices’ high-end capabilities

 

                  Mobile Client Features

                  Take photos on your Helio and post them with your messages

                  Update your profile with events, while they are taking place

                  Read and write emails, blogs and bulletins

                  Keep in touch with your friends activities with optimized profile browsing

 

                  Deep integration into the MySpace.com experience

                  Signed Messages (e.g., - sent from my Helio)

                  Watermarked Images

                  ‘Mobile’ presence indicator for all active Helio users

 

                  Integrated marketing campaign with MySpace

 

39



 

Korean American Services

[LOGO]

 

                  The full Helio experience, plus exclusive services in Korean

                  Korean language SMS

                  SMS to and from Korea

                  Korean language handsets and UI

                  Inexpensive calling internationally and to Korea

                  Korean content – set up pipeline from SKT

                  Korean language service and support

 

40



 

HELIO distribution strength

 

                  Company-owned stores

                  Combines brand experience with high transaction volume

 

                  Branded HELIO stores

 

                  Select national retail chains

 

                  Select agent distribution

                  Mainstream and dedicated Korean-American channels

 

                  Non-trad’l retail

 

                  Web

 

41



 

[GRAPHIC]

 

 

The Business Model

 

Todd Tappin, CFO

 



   

 

The MVNO

 



 

Birth of the MVNO

 

 

 

 

 

What Might the future Hold?

 

?

 

 

 

 

 

Broadcast Video

 

 

 

 

 

Fixed Mobile Integration

 

 

 

 

 

VoIP/ Wi-Fi Integration

 

 

 

 

 

Location-Based Applications

 

 

 

 

 

 

 

 

 

 

 

What Makes the MVNO Model
Potentially Viable in Comparison to
Legacy Reselling?

 

Customized applications integrate Proprietary Content

 

Customized applications with integrated Proprietary Content

Resale

 

 

 

 

 

 

 

 

Data Applications

 

Data Applications

 

Data Applications

 

 

 

 

 

 

 

 

 

 

 

Niche Branding/
Co-branding

 

Niche Branding/
Co-Branding

 

Niche/ Co- Branding Tied to Content

 

Niche/Co- Branding Tied to Content and Channel

 

 

 

 

 

 

 

 

 

Wireless Resellers Business Model failed due to low margins, but established the technical foundation for basic voice resale. Strictly Prepaid

 

Wireless Voice Resale/Resale Only Networks (never fully Built)

 

Wireless Voice Resale With Potentially Realistic Margins

 

Wireless Voice Resale With Realistic Margins, Post-pay Offerings

 

Wireless Voice Resale With Realistic Margins, Post-pay Offerings

 

 

 

 

 

 

 

 

 

1988-1998

 

1995- 2000

 

2000-200?

 

2003 -?

 

?

 

Source:  Deloitte & Touche

 

44



 

Types of MVNO Models

 

MVNO Models

 

[CHART]

 

Source:  Deloitte & Touche

 

                  The degree of control over the content, infrastructure, and operations drive the type of MVNO model and level of investment

 

45



 

MVNO Wireless Subscriber Projections

 

US Wireless Market

 

[CHART]

 

 

 

Source: Deutsche Bank, Merrill Lynch, Wireless Week

 

Note: 2005 represents 3Q 2005 Actual Subscribers

 

                  MVNOs projected to reach 29M MVNO subscribers and generate over $10B in revenues by 2010

 

46



 

MVNO Market Opportunity

 

MVNO Market Opportunity

 

[CHART]

 

Source:  Frost & Sullivan, Yankee Group, RCR Wireless,

 

                  MVNO growth is projected at a 27% CAGR in five years

 

47



 

Power of Switchers

 

US Wireless Market

 

[CHART]

 

 

Source: Company 10-Qs, Press Releases, Goldman Sachs, Deloitte Consulting Analysis

 

                  US is rapidly approaching flattening of the wireless subscriber growth curve with Switchers represent $23 Billion annual revenue opportunity

 

Source:  BCGI

48



 

US Wireless Revenues – Voice vs. Data

 

Total US Wireless Services Revenues

 

[CHART]

 

Source:  Deloitte & Touche, Telecom WordlWire

 

                  Data revenues projected to compose over 30% of all wireless service revenues by 2010

 

49



 

Increasing Popularity of Data Applications

 

Penetration of Data Applications in US Wireless Market

 

[CHART]

 

Source:  IDC

 

                  Increased adoption of multi-media services in the next few years will drive overall data revenues

 

50



 

MOU Volume Increasing, but Cost Declining

 

MOU and Voice Costs

 

[CHART]

 

Note: Voice costs estimated by using total service costs of Verizon and Cingular (excluding depreciation) with industry MOU

 

Source: Company Reports, Merrill Lynch

 

      Early voice network capacity nearing full depreciation

 

•     Advent of VoIP and WiFi increasing low cost competition

 

51



 

 

[GRAPHIC]

 

Helio Financial Drivers

 

52



 

Key Success Factors in Launching an MVNO

 

Key Success Factors

 

HELIO’s Capability

 

Provide end-to-end services

 

Leveraging SK Telecom’s wireless platform and EarthLink’s customer service to provide a customized end-to-end solution

 

 

 

 

 

Offer differentiation in superior product quality via technology to deliver content and service

 

Revolutionizing the user experience with full access to SK Telecom’s R&D innovation, supported by a unique and customized portfolio of content for our subscribers

 

 

 

 

 

Brand development

 

Uncompromised focus on our target our demographic (18-34 year olds)

 

 

 

 

 

Superior customer service

 

Proprietary best in class customer care and billing solutions coupled with EarthLink’s award winning customer service

 

 

 

 

 

Speed to market

 

Thoughtful and deliberate staged approach to roll out of deep product road map

 

 

Source: BCGI

 

53



 

Korea vs. the US

 

Services in Korea Today

 

Today in the US

 

Personalization (ringtones, wallpaper, and ringbacktones)

 

High penetration

 

Location Based Services (Buddy Finder, navigation)

 

Low penetration

 

Community Services

 

None

 

Idle Screen Services

 

Low penetration

 

Music Service (OTA and Streaming)

 

Low Penetration with Only Streaming available

 

Video Services (Television & Streaming)

 

Low Penetration

 

Chatting & Dating Services

 

Low Penetration

 

Financial services

 

Low Penetration

 

Home Surveillance

 

None

 

International Roaming

 

Low Use

 

 

54



 

Helio Revenue Structure

 

Total
Revenues

 

 

Voice
Revenue

 

Data Service
Revenues

 

Other
Revenues

 

 

 

 

 

 

 

Voice Plans

 

Content

 

Data Plan

 

Equipment
& Accessories

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contra Revenue Subsidies, Credits

 

 

55



 

Helio Cost Structure

 

Total
Costs

 

Voice
Costs

 

Data Service
Costs

 

Operating
Expenses

 

Other
Costs

 

 

 

 

 

 

 

 

 

Network Costs
Cost per minute

 

Network Costs
Cost per MB

 

Products &
Services

 

Equipment
& Accessories

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales &
Marketing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G&A
&
Customer Service

 

 

 

 

56



 

Helio Investments and Return

 

      2006

      Over 50% of costs are going toward subscriber acquisition

•     Other costs are building infrastructure

•       Customer care

•       Billing

•       Platform

•       Back end systems

•       New product and service development

 

•     Return on investment at the end of 2009

•     Over $2B in revenue

•     Nearly 3M subscribers

•     Cash flow positive

 

•     Additional detail to be provided over time as the business scales

 

57



 

Total Communications Provider

 

[LOGO]

 

HELIO

 

Access
Voice

 

Municipal
Wi- Fi

 

SME

 

58



 

Access and Voice

 

Mike Lunsford

 

Executive Vice President & President,
Access and Voice

 

59



 

Executive Summary

 

State of EarthLink’s Trad’l ISP Business

 

Becoming a Total Communications Provider

 

EarthLink’s Voice Strategy

 

60



 

State of the Access Market

 

[CHART]

 

Source: Forrester Research & Jupiter Research

 

61



 

EarthLink Subscriber Base

 

[CHART]

 

Expect flat overall access subscriber growth, while the subscriber mix will continue to shift

 

62



 

Dial-up Services

 

[LOGO]

 

PRICE:

      Introductory rate: $5.47 for 3 mos.

      Regular monthly rate: $10.95

      Paid Support

 

DIFFERENTIATION:

      PeoplePal Toolbar

      POP & Web Mail with: Spam Controls, Email Virus Protection, and 2 Email Addresses

 

[LOGO]

 

PRICE:

      Introductory rate: $9.95 for 6 mos.

      Regular monthly rate: $21.95

 

DIFFERENTIATION:

      Built-in EarthLink Accelerator

      Customizable My EarthLink Start Page

      Protection services

      Parental Controls

      FREE, award-winning 24/7 customer support

 

63



 

High-Speed Services

 

[LOGO]

 

PARTNERS/COVERAGE:

      Covad, Sprint and all major RBOCs

 

PRICE:

      1.5 Mbps $19.95/mo. for 6 mos. and $39.95/mo. for service thereafter $44.95/mo. for 3.0 Mbps

 

DIFFERENTIATION:

      EarthLink Protection Control Center

      Award-winning customer service

 

[LOGO]

 

PARTNERS/COVERAGE:

      Time Warner Cable/Bright House Networks and Comcast Cable

 

PRICE:

      Time Warner/Bright House:

- Up to 5.0 Mbps - $29.95/mo. for 6 mos. and $41.95/mo. thereafter

- Up to 8.0 Mbps service - $72.95/mo.

      Comcast:

- Up to 6Mbps - $29.95/mo. for 3 mos. and $45.95/mo. thereafter

 

DIFFERENTIATION:

      EarthLink Protection Control Center

      Award-winning customer service

 

 

EarthLink has the largest high-speed coverage area of any high-speed provider in the U.S.

 

64



 

Advertising and Value-added Services

 

Partners

 

[LOGO]

 

Value-Added Services

 

[LOGO]

 

65



 

Advertising and Value-added Services

 

[CHART]

 

Increased ACC revenue over 250 percent since 2001

 

66



 

Total Revenues

 

[CHART]

 

Stable trad’l access services

 

67



 

Gross Margins

 

[CHART]

 

Today both retail broadband and premium narrowband are generating around $15 gross margin per customer per month

 

68



 

Headcount Reductions

 

[CHART]

 

Operational effectiveness and outsourcing are driving headcount efficiencies

 

69



 

Monthly Operations Expenses per Sub

 

[CHART]

 

Reduced per subscriber expenses by 34 percent while increasing quality and customer satisfaction

 

70



 

Operating Efficiencies drive Free Cash Flow

 

[CHART]

 

Expect flat to slightly down Free Cash Flow

 

71



 

ISP to Total Communications Provider

 

[CHART]

 

Anytime, anywhere,
EarthLink connects people to the power and possibilities of the Internet.
We deliver a reliable and personalized experience our customers trust.

 

72



 

Total Communications Provider

 

[CHART]

 

Access

 

We will seek to differentiate and grow our existing access business by virtue of our communications Services and integration Tools

 

Communications Mgmt.

 

We will offer a suite of services related to consumers’ interpersonal communications activities, including email, voice, IM & SMS

 

Integration Tools

 

We will provide a suite of tools and clients that integrate the user’s key Internet activities (address book, favorites, pictures, files, etc) into an easy-to-manage portfolio

 

We will integrate with key, relevant third-party offerings in the market

 

EarthLink will build, buy or develop partnerships as appropriate

 

73



 

EarthLink Target Audience – ISP and TCP

 

 

 

 

 

 

 

Primary life motivation

 

 

 

 

 

 

 

 

Career

 

Family

 

Entertainment

 

 

Technology optimism

 

Optimist

 

High Income

 

Fast Forwards are timestrapped, driven and top users of technology

12%

 

New Age Nurturers are underserved – but serious believers in technology for family and education

8%

 

Mouse Potatoes are dedicated to interactive entertainment, especially on the PC

9%

 

Early Adopters

29%

 

 

 

 

 

 

 

 

 

 

 

 

 

Low Income

 

Techno-Strivers are up-and-coming believers in technology for career advancement

5%

 

Digital Hopefuls are family-oriented technology lovers – a promising market for low-cost PCs

6%

 

Gadget Grabbers are focused on low-cost, high-tech toys like Instant Messaging

7%

 

Fast Followers

18%

 

 

 

 

 

 

 

 

 

 

 

 

 

Pessimist

 

High Income

 

Handshakers are successful professionals with a low technology tolerance

7%

 

Traditionalists are suspicious of technology beyond the basics

10%

 

Media Junkies are visual, TV lovers and interested in TV features like video-on-demand

6%

 

Cautious Onlookers

23%

 

 

 

 

 

 

 

 

 

 

 

 

 

Low Income

 

Sidelined Citizens are technophobes and technology laggards, the least receptive audience for any technology

29%

 

  Represents the percentage of US households in each segment in 2004

 

Source: Why Technographics Still Works, Forrester Research Inc., December 2004

 

[LOGO]

 

74



 

EarthLink Brand Proposition

 

Brand Promise: People Looking Out For You

 

Tagline: “We Revolve Around You”

 

Core Principles:

 

PROTECTION

 

PERFORMANCE

 

INNOVATION

 

 

 

 

 

 

 

 

 

Emotional Benefit:

 

Safe, cared for, and confidently secure

 

Excitement, aspiration and connection to what is important

 

Ahead of the curve and in the know

 

 

 

 

 

 

 

 

 

 

 

Functional Benefit:

 

Powerful protection
tools for a safe
Internet experience

 

A fast, quality connection, award- winning support, and the tools you need to have a rich Internet experience

 

Access to the latest advancements

 

 

75



 

Advertising

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

 

 

 

 

 

 

[ WATCH ]

 

[ WATCH ]

 

[ WATCH ]

 

 

 

76



 

EarthLink Network – Backbone / Advance Services

 

[GRAPHIC]

 

77



 

State of the Voice Market

 

[CHART]

 

Source: IDC, 2005:  Forecast reflects consumers who use analog terminal adaptors

 

78



 

EarthLink Voice Products

 

[GRAPHIC]

 

79



 

Free Voice Products  – MindSpring

 

Service: Free computer-to-computer unlimited talk

 

[GRAPHIC]

 

 

Equipment Needed: Broadband connection, PC with a microphone
and speakers, or an analog telephone adapter and router.

 

80



 

Free Voice Products – Coming Enhancements

 

PHASE I

 

      Conference Calling

      Chat Conference

      Video Conference

      Voicemail Notification

      Custom Sounds / Ringtones

 

PHASE II

 

      Pocket PC Version

      Inbound Calling

      Vista Support

      Import addresses from Outlook

 

PHASE II

 

      Mac version

      Integration with ETV

      Message Center

      Business Version

 

81



 

Fee-Based Voice Services

 

[LOGO]

 

CORE PRODUCT:

 

      Pricing as low as $14.95 or $24.95/month

      Up to 500 minutes or unlimited air time

      CPE required

      Principally targeting Cable customers

 

[LOGO]

 

CORE PRODUCT:

 

      Pricing as low as $49.95, $64.95, or $69.95/month

      DSL speeds up to 1.5 Mbps or 8 Mbps

      Up to 500 minutes or unlimited air time

      Partnering with COVAD

 

 

Calling Features Included: Enhanced voicemail, call forwarding, call
waiting, call blocking, caller ID, award-winning 24/7 customer service,
enhanced 911 service, and myVoice portal for online account mgmt

 

Additional Services Available: Enhanced call forwarding for $4.95

 

82



 

Home Phone Service Build-out

 

[CHART]

 

83



 

EarthLink Home Phone Service: Picking a Market

 

[GRAPHIC]

 

84



 

Subscriber Profitability Potential – Voice

 

 

 

Home Phone

 

trueVoice with
Cable Broadband

 

 

 

 

 

 

 

Revenue

 

$

68.50

 

$

66.50

 

 

 

 

 

 

 

Communications

 

38.50

 

34.50

 

 

 

 

 

 

 

Gross Margin

 

$

30.00

 

32.00

 

 

 

 

 

 

 

Percentage

 

45

%

48

%

 

 

 

 

 

 

Operating Expense

 

10.00

 

11.00

 

 

 

 

 

 

 

Operating Contribution

 

$

20.00

 

$

21.00

 

 

Positive customer life time value (LTV) by managing acquisition cost and churn

 


* Before Sales & Marketing expense

 

85



 

Voice: Wi-Fi and Wireless

 

[GRAPHIC]

 

[GRAPHIC]

 

 

 

Wi-Fi Phones

 

Dual Mode Phones

 

 

Home-Based VoIP Will Go Mobile

 

86



 

Total Communication Provider

 

Integrated
Communication

 

[GRAPHIC]

 

Centralized Storage
& Management

 

Television

              Information

              Video

 

[GRAPHIC]

 

Telephone Services

              Information

              Video

 

[GRAPHIC]

 

Desktop

 

              Information

              Video

              Voice

 

[GRAPHIC]

 

Mobile

 

              Information

              Video

              Voice

 

[GRAPHIC]

 

87



 

Transforming to Revenue Growth

 

[CHART]

 

88



 

Key Take-Aways

 

Trad’l ISP Business & Customers

 

      Remains robust and continues to drive future growth opportunities

 

IP Infrastructure

 

      Continue to leverage our network to drive narrowband, broadband, voice and some day video

 

Experience

 

      Continue to take advantage of our core IP expertise to integrate the user experience regardless of application, device or network

 

89



 

 

[ BACK ]

 

90



 

[GRAPHIC]

 

[ BACK ]

 

91



 

[GRAPHIC]

 

[ BACK ]

 

92



 

Total Communications Provider

 

[LOGO]

 

HELIO

 

Access
Voice

 

Municipal
Wi- Fi

 

SME

 

93



 

Small-to-Medium Enterprises

 

 

Bill Heys

 

Executive Vice President & President,

Value and Small-to-Medium Enterprises

 

94



 

Executive Summary

 

EarthLink has an existing very profitable $70 million enterprise business

 

      DSL, T-1, Frame Relay, Web hosting, etc.

 

The acquisition of New Edge Network will provide a platform to invest in a >20% growth market

 

Synergies in data, voice, and security

 

 

An exit rate of $200 million revenue annually in 2006!

 

95



 

Complementary Product Offerings

 

Building a Portfolio of SME Products in Attractive Growth Markets

 

Market
Segment

 

Access

 

Value Added Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single
Site
Soho <5

 

ELNK Small
Biz

 

VPN

 

Web
Hosting

 

Security
(Aluria)

 

Voice
(VoIP)

 

On-site
Services
(2006)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi Site
Small/Medium
Enterprise
<200

 

New Edge
Networks

 

2006

 

2006

 

2006

 

2006

 

 

96



 

Fast Growing Market

 

[CHART]

 

Source: Compass Intelligence 2004

 

97



 

“Edge” Agnostic Product Suite

 

Wide Area Networking

 

      Managed Network Services

      Virtual Private Networks

      Private Networks

      Managed VPNs

      Frame Relay

      Frame over DSL

      ATM

      Private Line

 

Internet Access

 

      DSL

      xDSL

      SDSL

      T-1

      DS3

      OCx

      Ethernet

 

Wholesale Solutions

 

      DSL

      T-1

      IP Transit

 

 

Expertise and systems to handle variety of technologies across multiple Incumbent Local Exchange Carriers

 

98



 

New Edge Networks

 

New Edge Networks builds complex wide area networks for carrier and business customers.  Unique national facilities-based Managed Services Provider (MSP)

 

      Largest XDSL, FR/ATM, IP footprint in US

 

      Nearly 100% US business coverage

 

      focus on business and carrier networks

 

      Wholesale and retail

 

      EDI provisioning with all carriers

 

      Multiple, scalable sales distribution channels

 

99



 

Balanced Distribution… Retail and Wholesale

 

Retail

 

      100 Internal Quota Carrying

      1000+ alternate channel partners such as VARs, agents, equipment vendors, ISOs, etc

 

Wholesale

 

      Large, national partners - MCI, AT&T, SBC, BellSouth, etc.

•     300 smaller ISP partners

 

[GRAPHIC]

 

 

Benefits to New Edge

 

      Using retail and wholesale channels increases growth

      Largest customer (SBC) represents less than 15% of revenues

      67% of all recurring revenues billed directly to the end user

 

100



 

Market Size – Most Major US Carriers Use New Edge

 

 

 

 

 

Retail Carriers

 

 

 

End-User Revenue
(2002 Estimate)

 

 

 

Major “Incumbent”
Providers

 

Major Competitive
Providers

 

Wholesale Providers
(“carrier’s carrier”)

 

 

 

 

 

 

 

 

 

 

 

$

298

B

Business LD Voice

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

47
30

 

Consumer LD Voice

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

$

50

 

Business Data

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

19

 

Consumer High Speed Internet

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

71

 

Wireless Voice

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

39

 

Business Local Voice

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

$

41

 

Consumer Local Voice

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

 

101



 

Some New Edge Enterprise Customers

 

[LOGO]

 

102



 

Customer Examples

 

Wholesale – BellSouth

 

      New Edge Network Solution - out-of-region, out-of-franchise DSL/frame relay access

      Ex. North Carolina Court System – Sprint territory

      384kbs DSL @ $ per location

      Two year term

 

Retail – Build A Bear! – signed 1/16/06

      200 retail locations growing by 30-50 stores a year

      Current network - Sprint 56k frame relay

      New Edge Network Solution – Network VPN with Dial Back-up and Managed Network Services package

      384kbs DSL @ $ per location

      Two year term

      Applications – point of sale

 

103



 

Bigfoot – “King of T-1 and below”

 

Total U.S. Central Offices Providing Last Mile Access: 22,000

 

[CHART]

 

Majority of today’s branch applications require T-1 or less

 

10,000 COs cover 95% of US business locations

 

New Edge Network has DSLAMs and Network to Network interfaces (NNIs) that reach  9,500 of these COs

 

New Edge Network Frame Relay covers all

 

We are “edge agnostic”

 

No other national carrier has coverage this broad or deep unless they buy from New Edge Network

 

Bigfoot ....A Hard Asset to Replicate

 

104



 

Diversified Market Opportunity

 

Segment

 

HQ

 

Sites

 

Avg.

 

 

 

 

 

 

 

 

 

Retail

 

7,015

 

233,087

 

33

 

 

 

 

 

 

 

 

 

Bus. Services

 

5,415

 

70,129

 

13

 

 

 

 

 

 

 

 

 

Prof. Services

 

4,998

 

41,686

 

8

 

 

 

 

 

 

 

 

 

Banking

 

4,785

 

72,293

 

15

 

 

 

 

 

 

 

 

 

Medical

 

1,330

 

19,217

 

14

 

 

 

 

 

 

 

 

 

Lodging

 

479

 

6,456

 

13

 

 

Source: D&B Spectrum

 

Many attractive channel opportunities

 

105



 

Broadband Networks – Customer Types

 

Fortune 1000

AT&T, MCI,

Sprint

 

Regional / SMB

Enterprise

 

SOHO / Telecommuter / Branches

5-500 locations

 

Consumers

 

 

ARPU/

Complexity

“Stickiness”

Margins

Multiple Sites

 

 

 

+

+

+

 

 

 

 

New Edge Networks

 

 

 

 

 

EarthLink

 

 

 

 

-

-

-

 

106



 

Retail is current focus…

 

Segment

 

HQ

 

Sites

 

Avg.

 

 

 

 

 

 

 

 

 

Retail

 

7,015

 

233,087

 

33

 

 

 

 

 

 

 

 

 

Bus. Services

 

5,415

 

70,129

 

13

 

 

 

 

 

 

 

 

 

Prof. Services

 

4,998

 

41,686

 

8

 

 

 

 

 

 

 

 

 

Banking

 

4,785

 

72,293

 

15

 

 

 

 

 

 

 

 

 

Medical

 

1,330

 

19,217

 

14

 

 

 

 

 

 

 

 

 

Lodging

 

479

 

6,456

 

13

 

 

Source: D&B Spectrum

 

...but we will be investing to drive deeper in retail and expand into the other verticals

 

107



 

How do they do it...

 

[LOGO]

 

Example:  the “Retail Broadband Alliance”

 

New Edge has created a nationwide alliance of Retailers to focus on their specific needs for

      Software, Hardware, Security, Payment processing, applications, networks, etc.

 

Creating these best-practice sharing groups provides insight into the latest technology developments and helps to marry them to the latest customer needs

 

Keeps New Edge on the forefront of opportunities

 

108



 

The Retail Profile

 

Why do they buy?

 

[LOGO]

 

Email

 

Faster transactions

 

Expand payment options

 

In store ATM and Kiosks

 

Market basket analysis

 

Real-Time inventory

 

Workforce Management

 

Online training

 

Video security

 

Cheaper than dial-up!

 

109



 

What Do Telecom Customers Really Want?

 

ROI ...this is the easy part!

 

100% coverage, low cost, QOS and high availability

 

Don’t know / understand telecom ...and don’t want to

 

One Neck to Grab

      Want to make one call – Professional Services

      Want to work with people that they like and trust

 

Do not want to feel “ripped off” ...they will pay a premium

 

Low entry (capex) cost ...make it easy

 

110



 

Transforming to Revenue Growth

 

[CHART]

 

 

111



 

Key Takeaways

 

Fast growing, attractive market

 

Difficult to replicate national broadband network “Bigfoot”

 

Logical extension of existing EarthLink business

 

Significant cross-selling opportunities

 

Leveraging combined strengths in a fragmented, fast growing market

 

112



 

Total Communications Provider

 

[LOGO]

 

HELIO

 

Access Voice

 

SME

 

Municipal Wi-Fi

 

113



 

Municipal Networks

 

Don Berryman

 

Executive Vice President & President, Municipal Networks

 

114



 

 

115



 

Muni Wi-Fi Demand Drives Market

 

Overlooked – Under invested communities

 

      Scottsburg, IN – April 2004

      Chaska, MN – October 2004

      250-300 small towns do it themselves

      Philadelphia Issues RFP – April 2005

 

116



 

Executive Summary

 

EarthLink is the leader in this fast growing market

 

Most feasible “last mile” technology

 

Product is in demand

 

Competition is fragmented

 

Technology is stable and reliable for consumer use

 

Partnering for success

 

Positioned for growth

 

117



 

Why Wi-Fi?

 

Wi-Fi devices have proliferated the market

 

Metro-Mesh Wi-Fi technology has rapidly advanced

 

Wi-Fi technology WORKS today!!!

 

118



 

Why Wi-Fi?

 

Customers can use a broad range of Wi-Fi products (IEEE 802.11 standards based)

 

Collective R&D knowledge from the global Wi-Fi alliance

 

Wi-Fi offers high-speed, secure connections

 

Ability to upgrade and enhance network functionality

 

By 2007, Gartner Dataquest estimates that 90% of all business laptop PCs will be Wi-Fi enabled and 68% of all new portable / mobile devices shipped will include Wi-Fi.

 

[CHART]

 

119



 

Why Wi-Fi Mesh?

 

Underlying infrastructure for rapidly developing applications that don’t exist today

 

Changes the way business, government and consumers do business….

 

Disruptive technology

 

120



 

Why Muni Wi-Fi?

 

Cities want choices for citizens beyond the cable and phone companies

 

The technology is proven and is now cost-effective to deploy

 

Technology is becoming increasingly mobile

 

For municipal workers, Wi-Fi solutions enable them to be more effective and efficient, reducing the cost of government services

 

Cities have the vision but need a partner that can execute

 

121



 

EarthLink Network – Backbone / Advance Services

 

[GRAPHIC]

 

122



 

Wifi Network

 

Municipal Mesh Wi-Fi Network Solution

 

[GRAPHIC]

 

123



 

Total Muni Wi-Fi Opportunity

 

EarthLink Wins

700k Households Passed

185 Square Miles

 

[GRAPHIC]

 



 

Muni Wi-Fi Opportunity

 

[CHART]

 

Poised for continued growth

 

125



 

Fragmented Competition

 

Municipality

 

Bid Competitors

 

Market Competitors

 

 

 

 

 

 

 

 

 

Comcast, Verizon, Verizon

Philadelphia

 

HP, AT&T, Clearwire, MCI

 

Wireless

 

 

 

 

 

 

 

Echostar, Sprint, Qwest, US

 

Time Warner Cable, Qwest,

Minneapolis

 

Internet

 

Verizon Wireless

 

 

 

 

 

 

 

None, EarthLink only bidder

 

 

Anaheim

 

after RFI process

 

Adelphia, SBC

 

 

 

 

 

Long Beach

 

Unknown

 

Charter, Verizon

 

 

 

 

 

 

 

Cingular, Ericsson, Cisco,

 

 

 

 

MCI, Motorola GEMS ,

 

Comcast, SBC, Verizon

San Francisco

 

MetroFi (26 Total

 

Wireless

 

 

respondents)

 

 

 

126



 

Municipal Product Roadmap

 

Phase 1

 

Retail

 

      EarthLink 1 Mbps Wi-Fi

 

      DigiBridge

 

Wholesale

 

      Monthly 1 Mbps for Commercial, Institutional Service Providers

      Municipal Field and Safety

      Inbound Roaming

 

Transactional

      Occasional Use –1 hour, 24 hour, 3 day

      Parks and Public Spaces

 

Phase 2

 

EarthLink Wi-Fi with National Roaming EarthLink “Limited” Wi-Fi PC / TV2 bundle

 

T-1 Alternative for Municipal Government T-1 Alternative for Commercial ISPs

 

Prepaid Variations on Occasional Use

 

Phase 3

 

Wi-Fi Phone

T-1 Alternative for Small Business T-1 Alternative for Residential Consumer

 

Bulk Wi-Fi Access QoS and Speed Tiers

 

Local Search, Content and Utilities

 

127



 

Profitable Subscribers in a Mature Market

 

 

 

Retail

 

Wholesale

 

 

 

 

 

 

 

Revenue

 

$

20.00

 

$

10.00

 

 

 

 

 

 

 

Communications

 

4.25

 

4.25

 

 

 

 

 

 

 

Gross Margin

 

$

15.75

 

$

5.75

 

 

 

 

 

 

 

Percentage

 

79

%

58

%

 

 

 

 

 

 

Operating Expense

 

4.00

 

1.75

 

 

 

 

 

 

 

Operating Contribution

 

$

11.75

 

$

4.00

 

 

Strong customer life time value (LTV) with low fixed costs

 

128



 

Attractive Subscriber Levels

 

Operating Breakeven

 

[CHART]

 

Targeting operating breakeven within 1 – 2 years

 

129



 

Improvements in Cap Ex

 

Operating Breakeven

 

[CHART]

 

Could reach breakeven faster

 

130



 

Partnering for Success

 

[LOGO]

 

131



 

Google Partnership

 

Agreement is to test different business models in two markets

      San Francisco (low speed free & high-speed pay tier)

      An additional market (local garden & high-speed pay tier)

 

EarthLink

      Design, build, maintain and own the network

      Sell a premium service at higher speeds

      Offer an “open access” model for other ISPs to sell premium products

 

Google

      Provide the “Free, low speed” and local garden content that will be supported by search and advertising revenue

      Contribute to the capital investment, on-going operational costs

      Share the ad revenue with EarthLink

 

132



 

Network Alliance Vision

 

Leverage Existing EarthLink Network Development

      Network architecture and deployment experience

      Volume pricing for equipment and services

      Existing EarthLink products and support infrastructure

      Seamless roaming & EarthLink customer experience

 

Faster Deployment with Less Risk

      Use partners to expand footprint to additional cities more rapidly

      Take advantage of partners’ local sales capabilities

 

Provides incremental revenue opportunities to EarthLink model

 

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Muni Wi-Fi Market Opportunity

 

[CHART]

 

Poised for continued growth

 

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Possible Wi-Fi Access Opportunity

 

[CHART]

 

…about 35% market penetration – a significant market potential

 

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Possible Wi-Fi Access & Voice Opportunity

 

[CHART]

 

…but adding Wi-Fi voice to network access makes it even more attractive

 

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Transforming to Revenue Growth

 

[CHART]

 

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Key Takeaways

 

Significant market opportunity with fragmented competition

 

Efficient capital deployment

 

Attractive customer economics

 

Muni Wi-Fi Voice opportunity

 

Wi-Fi networks lay the foundation to deliver novel applications (that drive high value to network stakeholders)

 

EarthLink leads this market and is uniquely positioned to capitalize on the opportunity

 

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Financials

 

Kevin Dotts

 

Executive Vice President & Chief Financial Officer

 

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Executive Summary

 

2005 was a year of delivering on our goals

 

Delivered Great Financial Results

 

•     $1.02 EPS or $143M of Net Income

 

•     $173M of Free Cash Flow

 

      Acquired over 20M shares of EarthLink. In total repurchased 28% of shares outstanding as of August 2002

 

Positioned Ourselves For Profitable Growth

 

Voice

 

– EarthLink trueVoice

 

 

 

– DSL & Home Phone Service

Wireless

 

– HELIO

 

 

 

 

Access

 

– Muni-WiFi

 

 

 

– SME – New Edge Networks

 

Managing trad’l access to invest in growth

 

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Premium Dial-up Revenues

 

[CHART]

 

Back in 1996 they said, “You can’t grow a Dial-up business…” ...well, we did...

 

141



 

Broadband Revenues

 

[CHART]

 

In 1999 they said, “You can’t build a broadband business…” ...but we did, and...

 

142



 

Value Dial-up Revenues

 

[CHART]

 

...then we acquired PeoplePC …and grew that product too

 

143



 

Total Company Revenues

 

[CHART]

 

...and meanwhile we managed the business by adding complimentary products and profitable value added services like advertising and search

 

144



 

Net Income Improvement

 

[CHART]

 

….and while growing this business, we managed our cost structure to drive to free cash flow generation, EBITDA expansion, and net income growth

 

145



 

Profit & Free Cash Flow Improvement

 

[CHART]

 

The trad’l access business has grown to be a very profitable, cash generating business that will continue to perform for the foreseeable future

 

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Current State

 

Over the past several years when asked, “… are you a growth company… or value...”, we’ve consistently said ‘Growth!’

 

But how….

 

      Wireless -HELIO

      Voice – DSL and Home Phone Service and EarthLink trueVoice

      Muni-WiFi-Alternative Access

      Small and Medium Enterprises

      Other Complimentary Products…Aluria, New Edge Networks, etc.

 

Growth initiatives will drive future revenue, EBITDA, Net Income, and Free Cash Flow growth…

 

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Investing EBITDA in Growth

 

[CHART]

 

The trad’l access products and value added services will “fund” our growth initiatives

 

148



 

Growth will Pressure Net Income in 2006

 

[CHART]

 

We will fund HELIO with planned contributions ~$80 million in 2006 as it launches its products starting at the end of 1Q’06

 

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How to Fund Investments

 

EarthLink finished 2005 with $422M of cash, cash equivalents and investments

 

Since August 2002, we acquired 50.5M shares for $422.2M

      As we have visibility to the growth investments we are re-evaluating our use of cash, but meanwhile we will suspend the existing Share Repurchase Program

 

Likely Uses in 2006

      $75M -$100M Growth spending

      $114M New Edge Networks

      ~$80M HELIO funding

      $50M -$70M for Muni-WiFi capital expenditures…very dependent upon speed with which cities award licenses

      Possible other strategic uses of cash

 

While…

•     $30M -$40M of maintenance capital expenditure for trad’l access services

      ~$200M of trad’l access margin generation

 

150



 

Beyond 2006

 

[CHART]

 

151



  

Beyond 2006

[CHART]

 

152



 

The Focus is Growth

 

[CHART]

 

153



 

Summary Guidance & Targets

 

ELNK 1st Quarter 2006 Guidance

 

 

Net subscriber additions

(25)K – 25K

 

Revenue

$310M - $315M

 

EBITDA

$24M - $29M

 

Net Income

$2M - $9M

 

 

 

 

ELNK Full Year 2006 Guidance

 

 

Net subscriber additions

(25)K – 25K

 

Revenue

$1.3B

 

EBITDA

$125M - $100M

 

HELIO

$(90M) - $(110M)

 

Net Income

$(45)M - $0M

 

 

 

 

Beyond ‘06... Targets

 

 

ELNK Revenue

10% - 15% CAGR

 

ELNK EBITDA Margins

17% - 19%

 

HELIO Revenue … 2009

$2.0B

 

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Conclusion

 

Garry Betty

 

President & Chief Executive Officer

 

155



 

Executive Summary

 

Manage the existing access relationship with customer to deliver recurring revenue stream

      Delivering stable returns - EBITDA, net income, and free cash flow

 

Re-invest earnings into high-growth prospects

      Wireless  – [LOGO]

      Voice – EarthLink trueVoice, DSL & Home Phone Service

      New Access Technologies – Muni Wi-Fi, BPL, etc.

      Small and Medium Enterprise solutions

 

A Total Communications Provider

 

156