EarthLink Jumps on Revised Sprint Deal

EarthLink (Nasdaq: ELNK) shares picked up US$1.34 to $10.25 in morning trading Friday. The Internet service provider and long-distance phone service provider Sprint Corp. (NYSE: FON) announced that they have changed terms of an alliance formed in 1998, in order to provide "more flexibility for both companies in pursuing additional third-party partners."

The new agreement eliminates terms that required the companies to co-brand their Internet offerings, and also scraps a provision that gave Sprint the right to acquire EarthLink. In addition, the revised deal eliminates Sprint's seats on the EarthLink board.

Sprint will retain the right to respond to offers for EarthLink with bids of its own, and will continue to hold its current EarthLink shares.

EarthLink said it will take an $11.3 million non-cash charge in the first quarter to write off intangible assets related to the original agreements.

"The new terms increase the flexibility each company has to build strong brands and customer relationships, and pursue deals with additional potential partners," said EarthLink chief executive officer Garry Betty.

For the time being, Sprint will continue to market the EarthLink Sprint co-branded service to its dial-up customers, However, Sprint said in the future that it may market EarthLink's Internet services as Sprint services, using them on a wholesale basis for both narrowband and broadband products.

Sprint will contract from EarthLink a dedicated staff of Sprint wholesale product developers, and will work with EarthLink to develop the Internet features it wants.

"The industry has evolved since we first joined forces, and we felt that we needed to restructure our business relationship to reflect the changing needs of both the market and the two companies," said Sprint chairman and chief executive officer William T. Esrey. "This change in our agreement gives both companies more flexibility in terms of forming relationships, but still allows us to leverage each other's strengths."

Added Betty: "The modifications we've made to the existing alliance should enable both companies to aggressively pursue opportunities in the market and further their ability to take on the challenges of a rapidly changing business landscape over the next few years."