EarthLink's Push Leaves AOL in Low-Cost Vise

Watch out, America Online. EarthLink's (ELNK Quote) thriftiness shows signs that pricing pressure in the dial-up Internet business is getting stronger.

EarthLink, the nation's largest independent Internet service provider, said Wednesday that it was moving forward with the rollout of a discount ISP brand. News and details about the debut, which will be built on the PeoplePC business that EarthLink bought last year, came a day after EarthLink announced it was cutting costs by laying off 1,300 employees, or about one-quarter of its workforce.

The moves, which came as EarthLink released fourth-quarter financial results and forecast further cost-cutting for 2003, illustrate how the subscriber base for AOL Time Warner's (AOL Quote) America Online service continues to be nibbled at from above and below -- from low-cost alternatives such as United Online (UNTD Quote) and from high-speed Internet services offered by cable TV companies. AOL Time Warner, whose Internet service has been suffering from slowing subscriber growth and plummeting ad sales, is slated to report fourth-quarter earnings after the markets close Wednesday.

EarthLink's focus on expense-cutting also sheds light on the challenge EarthLink faces in making a transition from a narrowband business that is profitable but is leaking subscribers, to a broadband-based retail business that is growing but is not yet profitable.

Following Wednesday morning's release of financials from EarthLink, shares in the company fell 35 cents, or nearly 6%, to trade at $5.62. AOL Time Warner rose 3 cents, to $13.69, while United Online rose 82 cents, or more than 6%, to $14.06.

Straight, Narrow

For the fourth quarter ended Dec. 31, EarthLink performed in line with analysts' estimates, reporting $347.9 million in revenue, $1.2 million better than the three-analyst consensus forecast from Thomson Financial/First Call. The net loss for the quarter was $32.9 million, less than half the fourth-quarter 2001 net loss of $73.9 million.