Classmates.com 2010 Annual Report Download - page 38

Table of Contents
dial-up Internet access subscriber base will continue to decrease, potentially at an increasing rate, and that our broadband services will not
experience significant growth.
In order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business
model. For example, we may have to lower our introductory rates, offer additional free periods of service, offer additional features at little or no
additional cost to the consumer, or reduce the standard pricing of our services. Measures such as these could decrease our revenues and our
average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up Internet
access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-
up Internet access services which could
materially and adversely impact our business, financial condition, results of operations, and cash flows.
Revenues and profitability of our Communications segment are expected to decrease.
Most of our Communications revenues and profits come from our dial-up Internet access services. Our dial-up Internet access pay accounts
and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up Internet
access. Consumers continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband
access. Advanced applications such as online gaming, music downloads and videos require greater bandwidth for optimal performance, which
adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable option
for consumers. We expect our dial-up Internet access pay accounts to continue to decline. As a result of expected continued decreases in our
dial-
up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications services
revenues, advertising revenues, and the profitability of this segment will continue to decline over time. The number of dial-up Internet access
pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for our services as well as the
impact of subscribers canceling their accounts, which we refer to as "churn." Churn has increased from time to time and may increase in the
future. The rate of decline in Communications services revenues has accelerated in some periods and may continue to accelerate. Although we
have been reducing our expenses in order to manage the profitability of our Communications segment, we will not be able to continue making
the same level of expense reductions in the future, and we anticipate our profitability will decrease as our Communications services revenues
continue to decline. Continued declines, particularly if such declines accelerate, in Communications revenues will materially and adversely
impact the profitability of this segment.
Our Internet access business is dependent on the availability of telecommunications services and compatibility with third-party systems and
products.
Our Internet access business substantially depends on the availability, capacity, affordability, reliability, and security of our
telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require,
and we purchase most of our telecommunications services from a few providers. Some of our telecommunications services are provided pursuant
to short-term agreements that the providers can terminate or elect not to renew. In addition, some telecommunications providers may cease to
offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and
may entirely eliminate our ability to purchase services for certain areas. If we are unable to maintain, renew or obtain new agreements with
telecommunications providers, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
Our dial-up Internet access services also rely on their compatibility with other third-party systems, products and features, including
operating systems. Incompatibility with third-party systems and
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