EarthLink CEO Betty Finds Way Into Cable

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As CEO of EarthLink Inc., Charles "Garry" Betty quickly has become a broadband agnostic, attempting to break into the digital subscriber line, cable, satellite and fixed-wireless sectors almost simultaneously. Most recently, EarthLink launched its first full-market, high-speed cable rollout in Time Warner Cable's Columbus, Ohio, system. It signed on its first customer there Sept. 10. Additional EarthLink rollouts are planned for Time Warner systems in Syracuse, N.Y., Raleigh-Durham, N.C., and Tampa, Fla. Those will top off the company's participation in multiple Internet-service provider trials conducted by AT&T Broadband, Cox Communications Inc. and Comcast Corp. Betty discussed these issues with Jeff Baumgartner, assistant editor of CED, a sister publication to Multichannel News. An edited transcript follows:

MCN: Cable ISPs such as High Speed Access Corp., Excite@Home Corp. and ISP Channel have fallen on hard times. How has EarthLink been able to weather the storm and remain a top player?

Betty:
I think one of the great benefits we've had versus the three you mentioned is that we have a direct relationship with the end user. We are the brand they associate with the use of the Internet. As we started building our broadband business, a very high percentage of our early customers came from that installed base. So, where HSA and and ISP Channel relied on others to help drive business to their network, all we ever wanted was the right to have access, and we were confident we had the marketing ability to drive demand and have relationships with customers good enough to gravitate to our services, if we had them available.

MCN: The "plain-vanilla" ISP era is clearly over. To survive today, providers must continue to raise the bar to compete with a company like America Online. How is EarthLink addressing that today, and what's on deck for the future?

Betty:
We compete the same as we always have, and we lead with a simple concept called service. Sixty percent of our staff still today [is] customer technical support. The actual physical connection is important, but as important or more important is what the customer is trying to do once they get connected. This is where we've done a better job over time than our competition. It's been our principal point of differentiation versus AOL, and it's the reason why we consistently rank so high in any customer-satisfaction survey, particularly against AOL.

We've always been the underdog. When I joined EarthLink, we were 1 percent [of] AOL's size. Today we're about 17 percent their size. We've grown from nothing to having broadband in 10 percent of our member base — it's projected to be by the end of this year. That's without having the benefit of putting our customers on cable yet. As this era of open access becomes reality, I think you'll see that growth rate even accelerate more.

MCN: In which other directions are you looking to remain competitive, or to add value?

Betty:
We never thought we had to be in the content business, per se. We don't see EarthLink as a destination site, but rather [as] a true portal. We generate non-access incremental revenue [and] we have our own start page, but we see that as a jumping off point for our customers to consumer content that others have created.

We have partnerships with the likes of [The Walt] Disney [Co.], ABC, ESPN, CNN [Cable News Network], health channels, CBS Marketwatch, Amazon.com [Inc.] — all the top content partners. We have a very comprehensive set of partners that we drive traffic to. We focus on those things that we control: propagation, delivery, authentification within the network, not getting busy on our dial-up network or getting a high-speed connection consistently with broadband. I think we've done those basics a lot better than our competition, which is why we continue to grow.

MCN: So you haven't fallen into the same trap as Excite@Home, which put its focus on content?

Betty:
Not only did they put it on content, they put it on building out this regional data-center network, which is underutilized to a great extent. When you have a lot of [capital expenditure] invested in infrastructure where you don't control the creation of the primary demand, it's tough to get balance. I think that's the same type of problem that [DSL providers] Covad [Communications Group Inc.] and NorthPoint [Communications Corp.] and Rhythms [NetConnections Inc.] had. They went very wide very quickly, [and] not very deep, and [they] didn't have enough money to execute their business plan.

MCN: There's a mention in your bio that you're "hell bent" on the ultimate destination, which is "AOL and beyond." What does that mean?

Betty:
I think, fundamentally, we provide a better service than AOL. As more customers become aware of our company and what we do and how we're doing it, they have less need of AOL's walled garden or their training wheels.

We are going to continue to gain traction. We had an objective at one time to be the largest ISP in the world, which means we had to be larger than AOL. Do I think we'll get there in the next couple of years? No. But this is a destination or a journey; it's not something that's going to happen overnight. As long as we stay true to the premise that our life exists because we are providing this great service to our customers each and every day, then I think that is going to be the platform [with] which we ultimately overtake AOL.

MCN: Obviously one of the goals is to grow your subscriber base. With an expansion into the commercial sector, how will EarthLink continue to complement its consumer offerings?

Betty:
Our commercial offerings really are for consumers who own small businesses, the SoHO [small office-home office] market. About 20 percent of our customers would designate themselves as such. We do simple things, unlike AOL, like providing [customized] domains. If you wanted to be JeffB@acme.com, we do that each and every day. If you wanted a small business Web site hosted, you can do that at www.acme.com. We provide those services to customers, transparently for them.

MCN: As far as looking for new areas of growth, in September you did a deal with Dialpad Communications Inc. to offer discounted voice services over IP. While a lot of ISP attention is still given to data, how do you expect customers to respond when voice enters the picture?

Betty:
It's an interesting product. You're going to see us do a lot of these things. I don't know, ultimately, how many people are going to buy it, but the Internet will be the low-cost, ubiquitous transport just about for anything that happens, prospectively. Voice is one of them. As a percentage of the overall traffic on the Internet, voice is going to be a pretty small affair.

The reality is, our business rates have come down so rapidly that the financial benefit of doing voice over the Internet is not as great as it used to be.

MCN: But this would be a second-line type of arrangement.

Betty:
Yes, that's right. If you were calling India or the Far East, and you were talking to the same person all the time, it's pretty good. There's a little bit of a delay, but not much, and the quality is pretty good at this point.

MCN: EarthLink has managed to boost its involvement with cable operators as the open-access era emerges. As a cable "outsider," what were some of the biggest obstacles you've had to overcome to gain acceptance?

Betty:
I think the biggest obstacle was getting them to recognize that it's not [about] them losing something by having us be able to provision customers over their plant. It is one plus one is greater than two. These are customers who, by and large, they might not have ever gotten, because if I don't have the ability to sell an EarthLink service in Time Warner [Cable] service territories, I'm going to sell DSL, right? Now that I have alternatives to offer to the customer, we can give the customer the most cost-effective platform on the market.

The more people who are selling to fill up AOL Time Warner [Inc.]'s plant, you're going to achieve a greater level of penetration than they would've on their own.

I've seen some industry reports, one from Morgan Stanley in particular, that they believe there's an upside as much as 100 percent in terms of the number of new customers [Time Warner] can provision next year because of open access. That will have very real, contributory bottom-line results for that operating unit.

MCN: With respect to the actual deployment with Time Warner, or the trials with Cox or Comcast, how fair were the MSOs in putting these agreements together? Are there some concessions than you had to make that you normally wouldn't make?

Betty:
I think most of what happened, at least in the case of Time Warner and EarthLink, was getting a better understanding of what each other's objectives were. MSOs have their own lingo and their own way of doing business, and we had to understand what some of those imperatives were in order to craft an operating arrangement that fits their needs and ours. We were able to do so with them. They've been wonderful to work with.

Independent of the corporate agreement, we've been working with the different regional management as we began to roll out our service, and we've been embraced warmly. I'm very complimentary of AOL Time Warner and I think that they'll hit the ground running.

MCN: Can you say what kind of a cut EarthLink gets on the cable side?

Betty:
One of the things we wanted in that agreement was the ability to buy access to their cable network for a set price, per member, per month. Buying at a set price means I can price it any way I wanted to. Whether I price it higher or price [it] lower than others in the market is something that we could make a decision on from a market-to-market basis. We're able to do that. Time Warner, similarly, wanted the ability to resell EarthLink's service because not everyone wants AOL, despite what they say in the press.

Are you an AOL customer?

MCN: Yes, I am.

Betty:
You're a wannabe graduate, I promise you. If someone was on AOL, then on EarthLink, and they don't want to go back on AOL, then Time Warner wanted the ability to provision those customers over our service. We're allowed to do that, as well.

MCN: Since you're the new guy coming in on the cable side, how do you plan to market the service there?

Betty:
Our primary emphasis is making sure we upsell our installed base. We will be aggressively marketing to our existing customers and, like we do in the narrowband, we'll also make it known that our service is available to others in those given areas. We'll do a combination of direct marketing, broadcast to general-purpose media and [electronic] mail.

MCN: Where do you see the most growth occurring in the next year or two?

Betty:
Clearly our growth today has been in the [asymmetrical digital subscriber line] arena. I think we'll see more balanced growth as we start rolling out cable. DSL will still be larger than cable if all we have access to is Time Warner, but as we are successful in adding other open-access agreements I would think cable can potentially become, from a new-customer installation standpoint, the largest platform for us, followed by ADSL, satellite and fixed wireless.

MCN: What's the future for dial-up at this point?

Betty:
I've grown from 25,000 to 500,000 customers the last two years. [Broadband] is still only 10 percent of our customer base. Ninety percent of our customers are still premium dial. I think in 2005, 65 percent of our customers will be dial-up customers.

MCN: How did your management strategy change during the time in which EarthLink evolved from a small, regional ISP to one of the sector's leaders?

Betty:
The first couple of years, we were in survival mode. Raising capital was always a challenge. We were growing, at one time, [by] 10 to 15 percent a week. When you're growing at that rate, you don't have the internal systems that really allow you to do that.

We had to work extremely hard to overcome one, experience for some of our folks; and two, having to put in these bulletproof systems that save time and maintain rapid growth. I think we've managed a great balance. From the middle of 1998 to early 2000, our focus primarily was on process improvement. We became a more substantial customer company, and were able to successfully conclude some pretty large financing. If that wasn't eating a lot of time, the outlook was more on growth. You saw us get into things like broadband and the wireless initiatives.

Going forward, my primary focus will be growth. I'm spending most of my time now worrying about [whether] we are positioning ourselves in the right way and how we can drive incremental growth and improve our competitive position versus the large companies we compete against.

MCN: Business-wise, what keeps you up at night these days?

Betty:
Understanding the environment, the markets that we serve and how we're doing things makes my job, from an operational standpoint, a lot easier. The thing I worry about most is that we would lose focus and lose sight of the things that have made us such a great company. Each of our individual customers counts.

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