Earthlink 2005 Annual Report Download - page 21

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in some cases, the need to transition operations, users, and/or customers onto our existing platforms;
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the potential impairment of customer and other relationships as a result of any integration of operations;
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the potential unknown liabilities associated with a company we acquire or in which we invest; and
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the potential impairment of amounts capitalized as intangible assets as part of an acquisition.
Additionally, as a result of future acquisitions or investments, we may issue additional equity securities, which could dilute existing
shareholders’
interests. We may also spend our cash or incur debt or contingent liabilities to complete transactions which could adversely affect
our liquidity. Lastly, as a result of acquisitions, we would record amortization expenses related to acquired intangible assets, which would
reduce our profitability.
The continued decline of our narrowband revenues would adversely affect our profitability.
The number of U.S. households using broadband has grown significantly over the last few years and is expected to continue to grow.
Broadband access generally offers users faster connection and download speeds than narrowband access. Pricing for broadband services,
particularly for introductory promotional periods; services bundled with cable and telephone services; and services with slower speeds has been
declining and is approaching prices for premium narrowband services. As a result of broadband adoption, the total number of narrowband
accounts in the U.S. has declined, and industry analysts predict the total number of narrowband accounts will continue to decline. The decline
in the size of the narrowband market will likely continue as broadband services become more widely available at lower prices and consumer
adoption of broadband applications, such as online video, telephony and music downloads which depend upon connections that provide
significant bandwidth, increases.
Our premium-priced narrowband service is our most profitable service offering; however, consistent with trends in the market for
narrowband access, our premium-priced narrowband subscriber base and revenues have been declining. We expect our premium-priced
narrowband subscriber base and revenues to continue to decline, which would adversely affect our results of operations in the future.
We may not be able to successfully execute our broadband strategy, which could adversely affect our ability to grow or sustain revenues and
our profitability.
As of December 31, 2005, subscribers for our broadband, or high-speed, services comprised approximately 30% of our total customer
base, and our broadband services favorably contribute to our overall average monthly service revenue per subscriber. However, the success of
our business strategy with respect to our broadband services is dependent upon cost-effectively purchasing wholesale broadband access and
managing the costs associated with delivering broadband services.
The costs associated with delivering broadband services include recurring service costs such as telecommunications and customer support
costs as well as costs incurred to add new broadband customers, such as sales and marketing and installation and hardware costs. While we
continuously evaluate cost reduction opportunities associated with the delivery of broadband access services to improve our profitability, our
overall profitability would be adversely affected if we are unable to continue to manage and reduce recurring service costs associated with the
delivery of broadband services and costs incurred to add new broadband customers.
Companies may not provide last mile broadband access to us on a wholesale basis or on terms or at prices that allow us to grow and be
profitable.
We provide our broadband services to customers using the last mile element of telecommunications and cable companies’ networks. The
term “last mile” generally refers to the element of the network that is
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