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