Earthlink 2005 Annual Report Download - page 34

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conversion of voice signals into data packets. VoIP technology presents several advantages over the technology used in traditional wireline
telephone networks and enables VoIP providers to operate with lower capital expenditures and operating costs while offering both traditional
and innovative service features.
Revenue Sources
EarthLink provides all three types of Internet access services described above (traditional, fully-featured narrowband access; value-priced
narrowband access; and broadband access), web hosting services and advertising and other value-added services, such as mail storage and
security. Our subscriber base decreased from approximately 5.4 million paying subscribers as of December 31, 2004 to approximately 5.3
million paying subscribers as of December 31, 2005. Total revenues decreased from $1,382.2 million during the year ended December 31,
2004 to $1,290.1 million during the year ended December 31, 2005. In addition, the mix of customers has shifted toward broadband services,
reflecting the growth of this component of the Internet access market and our expanding broadband footprint and offerings, and toward value-
priced narrowband Internet access services. Our traditional, premium-priced narrowband subscriber base and revenues have been declining
reflecting the maturity of this service.
We derive substantially all revenues from services and related fees, and such amounts represented 99% of total revenues for the year
ended December 31, 2005. The remaining revenues relate to sales of equipment and devices used by our customers to access our services. We
had approximately 3.6 million narrowband subscribers, 1.6 million broadband subscribers and 127,000 web hosting accounts as of
December 31, 2005. Narrowband access revenues, broadband access revenues, advertising and other value-added services revenues and web
hosting revenues represented 58%, 34%, 5% and 3%, respectively, of total revenues for the year ended December 31, 2005.
Business Strategy
Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on growth
opportunities such as broadband and value-priced narrowband access to generate organic subscriber growth; expanding into new growth
markets, such as VoIP services, alternative broadband services and wireless voice and data services; marketing high quality, differentiated
products and services; and improving or maintaining operating margins on our existing service offerings to fund growth. We believe the most
important factors for us to execute our business strategy are the following:
•
Exploring, identifying and investing in growth opportunities, such as VoIP services and alternative broadband access services, and
successfully implementing strategies to deliver these services cost effectively
•
Differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences
•
Managing the rate of decline of our traditional, premium-priced narrowband access subscriber base and revenues and balancing
aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to reduce and leverage
operating costs
•
Continuing the growth of our PeoplePC-branded, value-priced narrowband access and our broadband service offerings in spite of
competition from current and new competitors
•
Continuing to identify opportunities to improve the cost structure of our business without impacting the quality of services we provide
•
Renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at
competitive and improved wholesale broadband access prices and,
33