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Friday, October 20, 2006

Expensive business - the MVNO Game

From Earthlink’s 3Q Report:
During the third quarter of 2006, EarthLink's wireless joint venture, HELIO, significantly increased operating activities. Specifically, HELIO increased distribution to over 2,500 retail doors and initiated a national television and print marketing campaign. As a result of the increase in HELIO's operating activities, EarthLink recorded an equity loss of $26.2 million in the quarter, compared to an equity loss of $4.6 million in the third quarter of 2005.

Also during the quarter, EarthLink invested $39.0 million of cash in the HELIO wireless joint venture.

For the fourth quarter of 2006…including an expected equity method loss of $30 million to $35 million attributable to EarthLink's proportionate share of the losses of the HELIO wireless joint venture.

Remember the Earthlink’s figures are only half of the total losses, since they own 50%. It looks like the burn rate on the original US$440m commitment from SK Telecom/Earthlink is pretty high at the moment. It was mentioned that capital contributions for 2007 is expected to fall to US$20m. I must stress, according to Earthlink everything is going according to plan.

Helio are only targeting a 12m slice of the US population which are 18-32 years with household income over US$40k/annum. They are claiming ARPUs of US$100/month which is double Cingular & Verizon levels with Data ARPUs of US$25/month which is around four times the Cingular levels. Interestingly, an incredible 80% of Helio users are using WAP to access MySpace.

In total Earthlink has recorded cumulative losses of US$64,724k in Helio (US$15,608k in 2005 and so far in 9 months of 2006 US$49,116k) that is a lot of money for a reseller to max. 12m people. Until Earthlink releases overall revenue and cost figures, people are going to question the logic of the business model. The jury is still out.