Earthlink 2005 Annual Report Download - page 44

Broadband ARPU declined 14% during the year ended December 31, 2005 due primarily to lower retail DSL ARPU resulting from the
increased use of promotional pricing and general declines in retail DSL prices introduced as a result of declines in costs from our DSL service
providers. Also contributing to the decrease in broadband ARPU was a shift in the mix of our broadband subscriber base from retail services to
wholesale services. The shift in the mix of our broadband customer base was attributable to growing our wholesale DSL customer base at a
faster rate during 2005 than our retail customer base.
The pricing of our retail broadband access services is subject to competitive pressures that are beyond our control. Incumbent local
exchange carries (“ILECs”)
have generally reduced retail prices for their broadband service offerings. Such competitive pressures may cause us
to decrease the price of our retail broadband access services which may cause our service offerings to be uneconomical in certain markets and
may result in a decrease in overall broadband ARPU and/or a reduction in gross margin dollars per subscriber. Any of these could materially
adversely affect our business.
We purchase broadband access from ILECs, competitive local exchange carriers (“CLECs”), and cable providers. Please refer to
“Regulatory Environment” in Item 1 of this Annual Report on Form 10-K and to “Risk Factors” in Item 1A of Part I for further discussion of
the regulatory environment and further discussion regarding our contracts with broadband access providers.
Web hosting revenues
We earn web hosting revenues by leasing server space and providing web services to individuals and businesses wishing to present a web
or e-commerce presence on the Internet. Web hosting revenues decreased 5% to $47.5 million during the year ended December 31, 2004 and
decreased 14% to $40.7 million during the year ended December 31, 2005. The decreases were primarily due to decreases in average web
hosting accounts, which were 166,000, 153,000 and 136,000 during the years ended December 31, 2003, 2004 and 2005, respectively. The
decrease during the year ended December 31, 2004 was partially offset by an increase in ARPU, which increased 3% from $25.01 during the
year ended December 31, 2003 to $25.84 during the year ended December 31, 2004, due to the launch of new products with higher price
points. ARPU decreased 3% from $25.84 during the year ended December 31, 2004 to $24.97 during the year ended December 31, 2005 due to
an increase in promotional discounts.
Advertising and other value
-added services revenues
Advertising and other value-added services revenues consist of revenues from our partnerships, which are promotional arrangements with
advertisers, retailers, service providers and content providers. We earn these revenues by paid placements for searches; delivering traffic to our
partners in the form of subscribers, page views or e-commerce revenues; advertising our partners’ products and services in our various online
properties and electronic publications, including the Personal Start Page ; and referring our customers to our partners’ products and services.
Advertising and other value-added services revenues also include certain ancillary services sold as add-
on features to our Internet services, such
as email storage and security products.
Advertising and other value-added services revenues increased 59% to $41.2 million and 57% to $64.9 million during the years ended
December 31, 2004 and 2005, respectively, compared to the prior years due primarily to increased search advertising revenues as a result of the
increased use of the Internet as an advertising medium. Also contributing to the increases were increases of $5.2 million and $9.0 million in
ancillary services revenues during the years ended December 31, 2004 and 2005, respectively, compared to the prior years.
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