Dial-up Internet company EarthLink has more money in the bank than it did last year thanks to a series of cost-cutting moves by CEO Rolla Huff.

But could a nest egg of roughly $500 million be enough for the troubled Atlanta-based company to buy AOL's dial-up business?

Granted, AOL has struggled, too, and its owner, Time Warner, really wants to get rid of the unit. Still, the rumored price tag is $2 billion to $3 billion.

The answer from experts is the money might be sufficient to attract financing, and a deal probably could get done. The murkier question, they say, is whether the risk would be prudent — for EarthLink or potential creditors — as the dial-up market continues to shrink and, some predict, disappear.

"In the past year or so, they've been trying to cut any place where they may be bleeding cash," said Sally Cohen, an analyst who follows EarthLink for Forrester Research.

"I don't know if they would be in a position to shell out a large amount of cash for a bunch of subscribers. But they are certainly interested in winning as many subscribers away from the current AOL base today," Cohen said.

The speculation machine fired up last week when Time Warner said it would split AOL's Internet access business from its advertising unit. Observers said the move would make it easier to sell either unit or merge them with another company. EarthLink was seen as a leading candidate to swoop in to buy the Internet customers from Time Warner, which also owns Atlanta-based Turner Broadcasting System.

EarthLink officials declined to comment for this story, but Huff has been readying the company for some kind of move since taking over last year.

First, he cut the Atlanta-based company's work force from 1,800 to 922. (And since then the ranks are down to 857.) Then, he removed EarthLink from ventures that were outside its traditional dial-up business, including free municipal wireless Internet and a mobile-phone service aimed at teenagers.

The actions were all in the name of improving Atlanta-based company's financial health and specifically having more cash, Huff recently told analysts.

He told analysts during the company's second-quarter conference call that indeed EarthLink's cash flow has improved. It had $442 million in cash and marketable securities at the end of the second quarter and $78.4 million in free cash — money that EarthLink has after setting aside money for operating expenses and future capital needs.

The growing nest egg is a marked improvement for EarthLink: It had $320 million in cash at the end of the first quarter and $383 million during the second quarter of 2007.

Youssef Squali, technology and Internet analyst for Jefferies & Co., wrote in a research note about EarthLink that a merger or acquisition is definitely an option.

"On the back of a better-than-expected second quarter, management stated that it's giving itself until the end of the year to decide on what to do with its growing cash position barring a deal to consolidate the dial-up access market,"

Squali projects EarthLink's cash flow at the end of the year to be between $520 million and $530 million.

That's probably not enough to buy the dial-up Internet side of AOL, but it could be a downpayment on a loan of sorts, experts said.

EarthLink could use that money to take on more debt, said Mike Paxton, an analyst with In-Stat, a technology and communications market research firm based in Scottsdale, Ariz.

"Based on how the deal is gauged at its potential for success, that would play a huge impact on the interest rate, payback period and all of the bells and whistles with the loan," Paxton said.

That would likely be the company's best option, instead of working with a private equity firm, Paxton said.

"You're not going to find private investors putting out a couple billion (dollars), especially on a dial-up market," he said.

Huff has argued that EarthLink is the best dial-up company to lead industry consolidation, though how quickly that would happen is unclear. He also told analysts that the company will not go after large groups of dial-up customers just for the sake of doing so. If a deal doesn't increase the company's value or make sense for shareholders, he won't do it.

"Decisive action can create substantial value for shareholders," Huff told analysts. "We recognize the need to be thoughtful around our current use of cash."