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EarthLink Sinks on Narrowband Setback

The company keeps losing dialup customers and can't replace them fast enough with broadband users.

Shares of



tumbled after the fourth-largest Internet service provider reported that the decline in its dial-up business wasn't offset by a gain in broadband customers.

EarthLink lost 193,000 dial-up subscribers and added 49,000 broadband subscribers in the quarter, the Atlanta-based company said in a statement. The company had third-quarter net income of $36.4 million, or 27 cents a share, down from $37.7 million, or 24 cents, during the year-earlier period. Results were affected in the current quarter by a lower share count. Revenue fell 7.8% to $316.9 million. EarthLink shares fell 2.6% to $10.62.

Dial-up customers are defecting in droves to faster broadband access, as Internet service providers and cable and phone companies fight over new customers. The competition is pressuring all the players, but especially EarthLink and its dialup competitors like

Time Warner's


America Online unit.

"The broadband market continues to be characterized by price promotion," CEO Garry Betty said in a conference call with analysts, adding that EarthLink is trying to win customers by offering them better features than they could find elsewhere.

Revenue from dial-up customers plummeted 16.6% to $217.2 million, while broadband sales gained 4.2% to $104.9 million. Sales from the company's Web Hosting business slumped 15% to $9.9 million as advertising revenue increased 62% to $16.5 million.

EarthLink expects to benefit from its selection by the city of Philadelphia to develop the largest municipal Wi-Fi network and from this month's introduction of its voice over Internet protocol service.

The company was expected to earn 23 cents in the quarter on revenue of $318 million, according to Thomson Financial. EarthLink had forecast fourth-quarter revenue of $313 million to $316 million, in line with analysts' estimates of $315 million and for there to be no net change to a net addition of 50,000 subscribers.