Earthlink 2005 Annual Report Download - page 43

efforts to promote broadband services. The increases in average subscribers were partially offset by decreases of 11% and 14% in broadband
ARPU during the years ended December 31, 2004 and 2005, respectively, compared to the prior years.
The following table summarizes broadband subscriber activity for the years ended December 31, 2003, 2004 and 2005:
(a)
In 2003, we signed a transition agreement with Charter pursuant to which we transitioned from providing wholesale broadband services to
Charter in certain markets to offering EarthLink Experience, a premium, add-on Internet service, to Charter subscribers in these markets
for a smaller monthly fee. As a result, approximately 152,000 Charter wholesale broadband subscribers were removed from our total
paying subscriber count beginning in 2003.
Our broadband subscriber base consists of both retail and wholesale customers. In a retail relationship, we market the service directly to
consumers under the EarthLink brand, have latitude in establishing price, and are responsible for most aspects of providing the service,
including first tier customer support. In a wholesale relationship, a telecommunications partner markets the service, has latitude in establishing
price and pays us to provide underlying Internet services such as authentication, email, web space, news and varying degrees of customer
support. Retail services are generally priced above $35 per month per subscriber to cover all of the costs of the service; however, certain retail
relationships, such as those with EarthLink Experience and certain cable customers, generate per month revenues that are less than $20 and
have negligible telecommunications service and equipment costs. Wholesale relationships are priced between $3 and $6 per month recognizing
the limited set of activities performed by EarthLink. In a retail relationship, EarthLink generally recognizes the amount the subscriber is billed
as revenue, but in a wholesale relationship, EarthLink recognizes the amount due from the wholesale partner as revenue. As of December 31,
2005, our broadband subscriber base consisted of approximately 61% retail customers and 39% wholesale customers, compared to 63% and
37%, respectively, as of December 31, 2004. The number of customers being added or served at any point in time through our wholesale efforts
is subject to the business and marketing circumstances of our telecommunications partners.
Broadband ARPU for each of our retail broadband service offerings for the year ended December 31, 2004 remained at levels consistent
with rates realized during the year ended December 31, 2003. However, overall broadband ARPU declined 11% due primarily to a shift in the
mix of our broadband subscriber base from retail DSL subscribers to retail cable and EarthLink Experience customers. EarthLink Experience
customers have a lower monthly rate because they purchase EarthLink services and applications but purchase Internet access from other ISPs.
The shift in the mix of our broadband customer base was attributable to maintaining a consistent level of retail DSL customers while growing
our retail cable and EarthLink Experience customer bases. Also contributing to the decrease in overall broadband ARPU was lower wholesale
ARPU attributable to the renegotiation of contracts with our wholesale partners during 2003 and 2004.
42
Year Ended December 31,
2003
2004
2005
Subscribers at beginning of year
779,000
1,061,000
1,364,000
Gross organic subscriber additions
575,000
660,000
616,000
Narrowband subscribers converted to our
broadband services, net
54,000
15,000
88,000
Adjustment (a)
(152,000
)
—
—
Churn
(195,000
)
(372,000
)
(460,000
)
Subscribers at end of year
1,061,000
1,364,000
1,608,000