Classmates.com 2006 Annual Report Download - page 13

ITEM 1A.
RISK FACTORS
Before deciding to invest in our company or to maintain or increase your investment, you should carefully consider the risks described
below as well as the other information in this report and our other filings with the SEC. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect
us. If any of these risks actually materialize, our business, financial position, results of operations and cash flows could be adversely impacted.
In that event, the market price of our common stock could decline and you may lose all or part of your investment.
Our business will suffer if we are unable to compete effectively.
Competition for Internet Access Services. Our principal Communications services, our Internet access services, compete with many
emerging and seasoned competitors, including the following:
•
established online service and content providers such as AOL, AOL’s Netscape subsidiary and MSN;
• independent national Internet service providers (“ISPs”) such as EarthLink and its PeoplePC subsidiary;
•
companies combining their resources to offer Internet access in conjunction with other services such as Yahoo! and AT&T Internet
Services, and Yahoo! and Verizon;
•
national communications companies and local exchange carriers such as AT&T Inc., Qwest Communications International, Inc. and
Verizon;
•
cable companies such as Comcast Corporation, Time Warner Cable, Inc., Cox Communications, Inc., and Charter
Communications, Inc.;
•
local telephone companies;
• regional and local commercial ISPs; and
•
municipalities.
Our primary service offering is dial-up Internet access. Our historical success in competing for Internet access subscribers has been based
primarily on offering dial-up access services at prices lower than the prices of our principal competitors. However, in the last few years the
market has changed dramatically due to a variety of factors including increased availability of broadband services, decreases in broadband
pricing and widespread consumer adoption of applications that require a broadband connection. Dial-up services do not compete favorably with
broadband services with respect to connection speed, and dial-up services no longer have a significant, if any, price advantage over certain
broadband services. As a result, dial-up services have an increasingly difficult time competing with broadband services and the number of dial-
up accounts in the United States has been declining at an increasing rate. In addition to competition from broadband providers, competition
among dial-up providers has increased and neither our pricing nor our features provide us with a significant competitive advantage, if any, over
certain of our dial-up competitors. We expect that competition, particularly with respect to price, both for broadband as well as dial-up services,
will continue to intensify, and that our dial-up subscriber base will continue to decrease, potentially at an increasing rate.
In the fourth quarter of 2006, we began offering broadband services by purchasing and reselling broadband services acquired through third
party providers. The providers from whom we purchase such services are either our direct competitors or acquire their services from our
competitors. We currently have agreements with only a limited number of providers and their services cover only a portion of the U.S. There is
no assurance that we will be successful in entering into the agreements necessary to offer
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