Earthlink 2005 Annual Report Download - page 42

The following table summarizes narrowband subscriber activity for the years ended December 31, 2003, 2004 and 2005:
(a) Effective March 24, 2005, we transferred approximately 27,000 wireless subscribers to HELIO in connection with completing the
formation of HELIO.
Average narrowband subscribers were 3.9 million, 4.0 million and 3.7 million during the years ended December 31, 2003, 2004 and 2005,
respectively. Over the past three years, the mix of customers shifted from premium narrowband subscribers to PeoplePC narrowband
subscribers because the growth in our average PeoplePC narrowband subscribers was offset by a decline in our average premium narrowband
customers, the combination of which resulted in a change in the composition of our narrowband customer base. Average premium narrowband
subscribers decreased by 0.4 million and 0.7 million during 2004 and 2005, respectively, while average PeoplePC subscribers increased 0.4
million and 0.4 million, respectively. During 2004, the growth in average PeoplePC subscribers was offset by a decline in our average premium
narrowband subscribers, and during 2005 the growth in average PeoplePC subscribers was more than offset by a decline in our average
premium narrowband subscribers. The decreases in premium narrowband subscribers resulted from the migration of subscribers to broadband
services and the continued maturing and ongoing competitiveness of the market for narrowband Internet access. We expect the mix of our
narrowband subscriber base to continue to shift from premium narrowband access services to PeoplePC access services for the foreseeable
future.
Our results of operations are significantly affected by subscriber cancellations, or “churn.” Our average monthly churn rates for
narrowband subscribers were 4.6%, 5.3% and 5.5% during the years ended December 31, 2003, 2004 and 2005, respectively. The increase in
churn from the rate experienced in 2003 was due to early-life churn related to the high level of gross subscriber additions, particularly for our
PeoplePC access services whose shorter-tenured customers comprise an increasingly greater proportion of our customer base; an increased
number of subscribers who are migrating to broadband services; and discontinuing service to certain wireless subscribers during the latter half
of 2003 and early 2004 due to the abandonment of our OmniSky platform. If churn rates continue to be at or above the rate experienced in
2005, our narrowband subscriber base may decrease at an accelerated rate which would adversely affect our business.
Broadband access revenues
Broadband access revenues consist of fees charged for high-speed, high-capacity access services including DSL, cable, satellite and
dedicated circuit services; installation fees; termination fees; and fees for equipment. Broadband revenues increased 16% to $419.4 million and
5% to $441.7 million during the years ended December 31, 2004 and 2005, respectively, compared to the prior years. The increases were due to
a higher average number of broadband subscribers, which were 0.9 million, 1.2 million and 1.5 million during the years ended December 31,
2003, 2004 and 2005, respectively. The increases in average subscribers were due to continued growth in the market for broadband access and
our and our partners’
41
Year Ended December 31,
2003
2004
2005
Subscribers at beginning of year
4,035,000
3,984,000
3,880,000
Gross organic subscriber additions
2,087,000
2,450,000
2,131,000
Acquired subscribers
76,000
12,000
147,000
Narrowband subscribers converted to our
broadband
services, net
(54,000
)
(15,000
)
(88,000
)
Adjustment (a)
—
—
(
27,000
)
Churn
(2,160,000
)
(2,551,000
)
(2,463,000
)
Subscribers at end of year
3,984,000
3,880,000
3,580,000