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Optical/IP

EarthLink Buys New Edge

Ambitious U.S. ISP EarthLink Inc. (Nasdaq: ELNK) is splashing $144 million to buy national VPN service provider New Edge Networks Inc. in an effort to win business from the U.S.'s 1.8 million small and medium-sized businesses.

Earthlink is paying $114.3 million in cash and 2.6 million shares for New Edge, which has 345 staff members and has anticipated its 2005 revenues to be $120 million. The deal is expected to close in the first quarter of 2006.

Earthlink's stock ended Monday at $11.65, valuing the ISP at $1.5 billion. The share price dipped slightly, by 6 cents, to $11.59 in pre-market trading.

Earthlink has more than 1.5 million broadband customers, 3.6 million dial-up Internet access customers, and more than 130,000 Web hosting customers. In its most recent quarter, to September 30, the company recorded net income of $36.4 million from revenues of $317 million.

It recently launched a VOIP service similar to that of Vonage Holdings Corp., and was chosen by the cities of Philadelphia and Anaheim to install citywide WLAN networks. (See Earthlink Joins VOIP Parade, The Philadelphia Experiment, and EarthLink Unwires Anaheim.)

New Edge will add a nationwide network of switches and routers that help it provide a range of services to businesses, including DSL access, T1 lines, Ethernet services, Frame Relay and ATM services, and IP VPNs. It recorded revenues of $115.5 million, and earnings before interest, tax, depreciation, and amortization (EBITDA) of $11 million in 2004. (See New Edge Reports Record Sales .)

During its six-year life, New Edge has raised $350 million in funding from investors such as Goldman Sachs & Co., Accel Partners, Crosspoint Venture Partners, and Greylock Partners.

— Ray Le Maistre, International News Editor, Light Reading


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materialgirl 12/5/2012 | 2:50:54 AM
re: EarthLink Buys New Edge New Edge raised $350M and sold for $144M. Given the magitude of this effort, compared with the relatively sorry state of access in the U.S., it shows something is wrong here. Users do not have bandwidth they want, however independent efforts to provide it, however well funded, end up at a loss. Perhaps it is timing. Perhaps it is a broken market.
jcrawshaw 12/5/2012 | 2:50:45 AM
re: EarthLink Buys New Edge Materialgirl - can you email me on [email protected]? I am writing a Light Reading Insider and wanted to get your thoughts (off the record).
Many thanks, James Crawshaw - Analyst, Light Reading
rjmcmahon 12/5/2012 | 2:50:38 AM
re: EarthLink Buys New Edge I think the access problem is related to a belief system that markets solve all problems. Markets aren't likely to provide for bandwidth abundance and open access in our networks as this combination represents a public good (nonexcludable and nonrivalrous).

I believe it's the market's failure to provision a public good, combined with government failure to recognize the problem, as the reason why companies must turn to some sort of indirect subsidy to pay for infrastructure. In the case of Google it's the ads that subsidize things (search is "free"). In the case of the cable companies and the phone companies it's a subsidy from the video and voice application, respectively. Hence the focus on *a* revenue generating application by organizations who build communications infrastructures.

This model doesn't work very well when it comes to building a long lasting infrastructure which enables yet to be determined and *many* applications. But it's the best we seem to be getting when we have the ideological belief that markets solve all problems. Countries that find a better equilibrium between public and private sector will probably have the advantage.
rjmcmahon 12/5/2012 | 2:50:37 AM
re: EarthLink Buys New Edge But I'm just trying to figure out what is the application that would make the general populace need higher bandwidth than what they can get now. Like what is it that we the taxpayers, or some service providers, should spend $$$B to enable?

Communications would be opened up and decentralized (well, maybe) because anybody could publish in any format at a price that's reasonable. It's also a form of freedom because it decentralizes and distributes power.
turing 12/5/2012 | 2:50:37 AM
re: EarthLink Buys New Edge OK, I'll play devil's advocate. What's so sad about the state of US access? I assume you're talking about only getting 1Mbps to the home, instead of 10-100Mbps? So what? What will you do or need the extra bandwidth for?

I know it would be cool. But I'm just trying to figure out what is the application that would make the general populace need higher bandwidth than what they can get now. Like what is it that we the taxpayers, or some service providers, should spend $$$B to enable?
materialgirl 12/5/2012 | 2:50:36 AM
re: EarthLink Buys New Edge I live in a small town. I use WiFi for Internet access, since I cannot get DSL and am concerned about viruses over cable networks. I am my own IT department and viruses kill me. The WiFi is spotty. It goes out at inopportune times and can slow down to the point my productivity is negaitvely affected.

It would be nice to get fast internet response times on a reliable basis. Is that too much to ask? Apparently so.
paolo.franzoi 12/5/2012 | 2:50:36 AM
re: EarthLink Buys New Edge
rj,

One comment is that you have to admit that your view is simply one possible outcome. Services are quite distant from access. Today even servicing all the DSL Modems and Cable Modems in the US would overwhelm the rest of the network if 25% of the potential bandwidth is activated.

seven
paolo.franzoi 12/5/2012 | 2:50:36 AM
re: EarthLink Buys New Edge
rj,

One comment is that you have to admit that your view is simply one possible outcome. Services are quite distant from access. Today even servicing all the DSL Modems and Cable Modems in the US would overwhelm the rest of the network if 25% of the potential bandwidth is activated.

seven
turing 12/5/2012 | 2:50:35 AM
re: EarthLink Buys New Edge I use WiFi for Internet access, since I cannot get DSL and am concerned about viruses over cable networks.

What is it about a cable network that makes you more concerned about viruses than a WiFi, DSL, FTTH, or any other access network?

The WiFi is spotty. It goes out at inopportune times and can slow down to the point my productivity is negaitvely affected.

Well you chose your bed. You could have chosen cable broadband. And even if it were true of all available technologies to you, you can hardly blame the whole system for that. There will always be some towns or homes with less service than others. The same capitalist "system" brings people incredibly reliable phone service, acceptably reliable cable or satellite tv service, and decent electrical service.

My parents live in a very small town in a remote part of New Hampshire. Last time I visited, they had choices of Cable and DSL. This is a house that shared a party line when they were teenagers!
turing 12/5/2012 | 2:50:19 AM
re: EarthLink Buys New Edge Communications would be opened up and decentralized (well, maybe) because anybody could publish in any format at a price that's reasonable. It's also a form of freedom because it decentralizes and distributes power.

Rj usually your answers are lucid, but this one baffles me. It sounds like some meaningless hand-waving Microsoft commercial. But it makes me think of Wendy's: Where's the beef? Higher access speed decentralizes and distributes power? For gamers maybe. :)
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