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Running From Dial-Up Access

By Leslie Walker
Thursday, February 3, 2005; Page E01

The nation's two top dial-up Internet providers are jumping into different lifeboats as the broadband Internet wave threatens to sink their leaky business models. It remains unclear whether either lifeboat will float.

EarthLink Inc., the scrappy No. 2 player in Internet dial-up access, is trying to remake itself as an uber-broadband provider, buying wholesale high-speed connectivity from all kinds of network operators and reselling it under its own name.

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America Online Inc., the leader in dial-up access, largely abandoned that broadband strategy last year and is counting on advertising to keep it afloat as dial-up customers defect to rivals selling faster or cheaper Internet connections. AOL is partnering with high-speed network operators, hoping to snag a sliver of their subscription revenue, while trying to remake itself in the image of ad-centric Yahoo.

"AOL is abdicating access and really wants to compete with Yahoo," said Sky Dayton, founder of EarthLink, who announced last week he is leaving as chairman to start a new wireless venture. "We think access is what we do."

Dayton will become chief executive of a new company representing EarthLink's strongest thrust yet into broadband -- a $440 million joint venture with South Korea's largest cell phone operator, SK Telecom, that plans to sell advanced mobile phone and data services in the United States this summer. Each partner will put up $220 million in cash and other assets over three years, with a goal of signing up 3 million customers by 2009.

In an interview this week, Dayton said SK-EarthLink will exploit the blurring lines between the wired and wireless Internet, offering services, for example, that integrate cell phone service with WiFi networks that beam wireless data over short distances. It also will offer "cool" multimedia services not yet available in the United States, he said, using cutting-edge handsets and behind-the-scenes technology pioneered overseas by the South Korean operator.

"In South Korea they are watching television on their cell phones, they are doing video conferencing, they are finding their friends with location-based services," Dayton said. "If you ask people in Santa Monica how they use their cell phones, they say 'I make calls' or 'I have pictures of my dog.' "

EarthLink hopes its move into the cell phone market will help it fashion a new type of communications provider. Already, EarthLink is buying broadband connections from traditional phone and cable companies, and then reselling DSL and cable Internet access as EarthLink services.

AOL started down that path, too, selling DSL service under its own name by using connections purchased from the regional phone giants. But the Dulles-based division of Time Warner Inc. discontinued that strategy last year. In November it gave all AOL DSL customers in the BellSouth territory until January to find a new broadband provider or sign up directly with BellSouth. This year it likely will make similar moves with DSL customers elsewhere, said spokeswoman Anne Bentley.

Instead, AOL is pursuing a strategy similar to Yahoo's. To reach new audiences and sell more ads, AOL is planning a revamped Web site at AOL.com this summer. For the first time, it will offer a lot of content to nonmembers.


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