EarthLink Backs Off Helio

Struggling EarthLink Inc. has stepped back from further funding Helio, its U.S. mobile joint venture with SK Telecom Co. Ltd., amid hints that the South Korean cellular carrier may become the majority shareholder.

Helio, founded in 2005 and launched last year, continues to bleed cash even as it gains subscribers. It is expected to lose between US$340 million and $360 million this year, according to EarthLink. But SK Telecom has now invested an additional $270 million in the venture, EarthLink confirmed Friday. At the same time, EarthLink said it won't invest any more in Helio for the time being. The Internet service provider is grappling with declining dial-up subscriptions and has already put most of its municipal wireless business on hold.

EarthLink Friday said it is in discussions with SK Telecom to amend their Helio agreement "to reflect the additional investment by SK Telecom and their future governance of Helio," suggesting SK Telecom might take on a larger share of the venture, currently split 50-50. In its own news release, SK Telecom said Helio may be able to raise funds from the market without drawing further investment from either parent. That could mean venture capital, an initial public offering or other sources, said Helio spokesman Rick Heineman.

Helio is one of the biggest U.S. examples of an MVNO (mobile virtual network operator), a service provider that piggybacks on an existing carrier's network and tries to stand out with specialized features. Several of these ventures, including Amp'd Mobile Inc. and The Walt Disney Co.'s ESPN Mobile, have shut down or been relaunched under new business models. Analysts and industry veterans say it's hard to buy minutes and data from another carrier and then build a compelling enough service that you can charge a profitable premium.

Helio is using multimedia content and slick devices to appeal to young consumers. It had 130,000 subscribers at the end of August after passing the 100,000 mark in the second quarter, Heineman said. The company aims to reach between 200,000 and 250,000 customers and revenue of $140 million to $170 million by the end of this year. SK Telecom said it is now preparing to expand the subscriber base through handset and services development and a larger distribution network.

Helio launched backed by initial funding of $200 million from each partner, plus assets such as SK Telecom's billing system, Heineman said. EarthLink last invested in Helio in July, when both partners pledged up to $100 million and made immediate payments of $30 million. SK Telecom's new investment completes the July pledge and adds another $200 million, Heineman said.