Earthlink 2005 Annual Report Download - page 41

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Narrowband access revenues
Narrowband access revenues primarily consist of monthly fees charged to customers for dial-up and wireless Internet access; installation
fees; usage fees; early termination fees; equipment revenues associated with selling Internet access devices; and fees charged for the shipping
and handling of the devices and other equipment. The following table identifies the components of our narrowband access revenues for the
years ended December 31, 2003, 2004 and 2005:
Narrowband revenues decreased 9% to $874.0 million during the year ended December 31, 2004 and decreased 15% to $742.8 million
during the year ended December 31, 2005, compared to the prior years. The decreases in narrowband revenues in both years were primarily due
to decreases in narrowband service ARPU. Revenues also decreased during the year ended December 31, 2005 due to a decline in average
narrowband subscribers and the transfer of wireless operations to HELIO effective March 24, 2005, which caused narrowband access revenues
to decrease by $17.8 million and contributed to the decrease in average narrowband subscribers compared to the year ended December 31,
2004. Narrowband revenues also decreased in both years due to a decline in equipment and related revenues and a decline in revenues
associated with the PeoplePC deferred service liability due to the expiration of acquired customers’ prepay terms.
Narrowband service ARPU decreased from $19.70 during the year ended December 31, 2003 to $18.21 during the year ended
December 31, 2004 and to $16.58 during the year ended December 31, 2005. These decreases were due to the shift in the mix of our
narrowband subscriber base from premium narrowband access services, which are typically priced at $21.95 per month, to our PeoplePC value-
priced narrowband access services, which are generally priced at $10.95 per month. During the years ended December 31, 2003, 2004 and
2005, average PeoplePC access subscribers were 0.2 million, 0.6 million and 1.1 million, respectively, representing 5%, 16% and 29%,
respectively, of our average narrowband customer base. Also contributing to the decreases in narrowband service ARPU, although to a lesser
extent, was the increased use of promotional pricing for our service offerings.
Equipment and related revenues decreased during the year ended December 31, 2004 due to EarthLink’s decisions in 2003 to discontinue
the sale of personal computers bundled with prepaid, value-priced narrowband Internet access services and to cease active marketing of
MailStation products and services. Equipment and related revenues decreased during the year ended December 31, 2005 primarily due to the
transfer of wireless operations to HELIO.
Prior to our acquisition of PeoplePC in July 2002, PeoplePC offered a bundled package to customers that included a computer, Internet
access for four years, customer support and an in-home warranty. At the acquisition date, we established a liability for our estimated cost to
deliver services to bundled customers pursuant to their contract terms, and we reduce the liability and record non-cash revenues as we deliver
services. Such reduction is intended to offset the cost of delivering the services. Revenues associated with the PeoplePC deferred service
liability have declined over the past three years due to the expiration of acquired customers’ prepay terms.
40
Year Ended December 31,
2003
2004
2005
(in thousands)
Service revenues
$
928,738
$
866,498
$
741,261
Equipment and related revenues
22,336
5,727
975
Revenues associated with acquired Membership
Customers (deferred service liability)
13,951
1,785
521
Narrowband access revenues
$
965,025
$
874,010
$
742,757