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Earthlink Says Hello to Helio

It's hard to get excited about EarthLink (Nasdaq: ELNK  ) . It's in the old-school business of being an Internet service provider, a sector that's filled with tough competition, from the likes of Time Warner's (NYSE: TWX  ) AOL and United Online (Nasdaq: UNTD  ) to huge telecoms and cable companies.

But now the company is using the hefty cash flows that its ISP business throws off -- its free cash flow was $21.5 million in the most recent quarter -- to move into other businesses. Last year, it formed a joint venture with SK Telecom called Helio, which launched on Wednesday after a total investment of about $440 million. Essentially, this company sells mobile phones. But the Helio phones can do much more than just make calls -- they can also blog, view videos, share photos, and so on.

More importantly, Helio is focused on making its products a premium offering. The new phones, billed as Hero and Kickflip, range from $250 to $275. And the monthly plans start at $85.

Helio provides its users with a rich assortment of content channels. Partners include News Corp.'s (NYSE: NWS  ) Fox Sports and IGN, Viacom's (NYSE: VIA  ) MTV News, the POPSUGAR blog, Surfline, and The Onion. Helio also uses Yahoo! (Nasdaq: YHOO  ) products such as Search, Mail, Messenger, Photos, and so on.

Helio will monetize its offering by delivering games, which members can purchase for a flat $5.99 or play a game for a week for $0.99. There are also music video downloads available for $2.49 each.

Something else that can monetize Helio -- and is pretty cool in the process -- is gifting and begging. In other words, you can purchase mobile content and send it as a gift, or you can beg your friends to give you content as a gift.

But perhaps the most interesting aspect to Helio is its exclusive agreement with MySpace, which, with its 70 million-plus users, has become a cultural phenomenon among the younger generation. For them, it is the place to go. For Helio and EarthLink, the cash registers should start ringing.

Helio expects to sign up 3 million users over the next few years, a figure that would add up to than $2 billion in annual revenues -- more than EarthLink takes in now. So this move should not only make EarthLink relevant, but it should also make the company -- and its shareholders -- some nice money in the process.

Time Warner is aMotley Fool Stock Advisorrecommendation. For more of Tom and David Gardner's picks, try out Stock Advisor free for 30 days.

Fool contributor Tom Taulli does not own shares of companies mentioned in this article.

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